Top five swing trading strategies

by madhav joshi digital markting expert

Financial markets are surprisingly varied. Besides the large variety of available trading strategies, you have various trading styles as well. One of the major variations in trading styles is the time frame over which you trade.

At the spectrum’s end - there are long term traders. Folk aim to follow drawn-out trends which may last months, even years. Naturally, the successful following of a trend for a few months outweighs what’s accomplishable in the short term. As a result, there are fewer opportunities for trading, even as there is a minimum amount of monitoring that’s called for. Top five swing trading strategies come between thi end and the next. They lie between long term trading and day trading.

As said above, the other end of the spectrum has scalpers. Scalpers make short term trades par excellence. The shortest of these last just a few minutes. Scalpers only scout about a bit to make small profits prior to exiting.

Given that the scalper is searching for price movements that are very small, there are plenty of prospects for trading.

Day traders are a step up from scalpers. Day traders hold positions from a few hours up to a whole trading day. Stories that move the market overnight are outside the purview of day trading.

Swing trading is situated somewhere in between day trading and long term trading. Basically, the swing trader is searching for multi-day chart patterns to benefit from larger price moves. The latter are ‘swings’. Juggling thus between trade frequency and associated time demands, swing trading has many takers.

Looking for the best swing trading strategy

The time horizon we are concerned with here defines the strategy/style. There are innumerable strategies.

These strategies are not restricted to swing trading since the key concepts behind them are support and resistance. The concepts dictate that you have two choices for your strategy - following the trend or trading counter to the trend.

Regardless of your choice, price action or the movement of an asset’s price on the chart is the one skill you have to be grateful for.

Trend trading

Trend trading is applicable to diverse trading instruments.

When you go about identifying a trend, you have to keep in mind that markets do not move in a straight line. Step like moves, since they go up and down even as they are trending, characterize a market that’s trending. A Market uptrend sets higher highs and lower lows, and a market downtrend identifies lower lows and lower highs. A top swing reading strategy will go after a short trend.

The Japanese candlestick chart shows an uptrend. The pattern is a typical zigzag.

Despite the trend being bullish, there’s a section, red square highlighted, where a reversal occurs.

Even as lows are falling, the market is not setting new highs. Following this period, the uptrend keeps going, operating against the main trend. Here, we seek to catch the bullish trend we have scouted out. However, we do this when we are certain the trend will keep going. Succinctly put, we are: looking for a trend; wait for a countertrend; enter the market once we see the countertrend has played out.

Countertrend trading

Using the same principles mentioned above, we try to spot comparatively short term trends. However, we are trying to profit from the frequency with which these trends break down.

A trend’s early part may be followed by a retracement period prior to the trend continuing. Then, countertrend trader would get hold of the swing in this reversion period. For This, we would have to note the break in the trend.

In the case of an uptrend, this would be when a sequence of failures to break new highs come after a fresh high. So we have to go short looking for a reversion. For a downtrend, the opposite is true.

Moving average strategy

Swing Traders generally trade with larger time frames, generally holding their trades for a bit longer than 4 hours. They ought to opt for an SMA, using larger period moving averages to sidestep premature signals. swing traders can find the following moving averages useful:

20/21 period ;
50 period;
100 period;
200/250 period.

Bollinger band strategy

Bollinger band strategy can point out turnaround points for prices.

The Bollinger band is comprised of three curves formed with the aid of standard deviations and a moving average. The middle band is based on a definite period-set moving average. The lower and upper bands are the middle band’s standard deviations. Typically, the 20-day moving average is the middle line. On the other hand, the lower and upper bands are at 2 standard deviations from the middle line.

The underlying quote moving to the outside of the upper Bollinger band is thought to be overbought. The underlying plunging below the bottom Bollinger band is thought of as oversold. The former indicates profit-taking, while the latter indicates losses.

RSI or relative strength index

RSI or relative strength index will work for you if it signals the market is being overbought. That is if you are thinking of selling and are a counter trader.

The RSI measures the ratio of up-downs and down-moves. The index is expressed in a 0-100 range. In case the RSI is 70 or greater, the instrument is considered overbought. In case the RSI is 30 or less, the instrument is considered to be oversold.

Particularly for swing traders, the default RSI setting of 14 periods is suitable.

Conclusion

Volatile markets mesh in superbly with swing trading. Frequent trading opportunities follow.

Whereas you will need to invest a fair amount of time in market monitoring, trading styles with shorter time frames are far more demanding and unrewarding. Swing trading strategies offer diversification in your outcomes, besides giving possible additional profits.