➤ Trading Strategies - Swing trading

➤Trading Strategies - Swing trading

What is swing trading? Swing Trading is a type of trading strategy by which traders buy and sell securities in order to keep them for several days and, in some cases, weeks.

Swing traders, also known as trend-following traders, often use the daily chart to enter trades that are in line with the general trend of the market.

Some swing trading strategies only use the technical analysis of a price chart to make trading decisions. However, it is common that these types of trading strategies also use fundamental information, or analysis of multiple time frames, since more details are needed to help keep operations open for several days.

Swing trading strategy - Example

One of the most popular techniques for swing trading is the use of trading indicators. There are many different types of indicators in the market and they all have advantages and disadvantages. What are the best indicators for a swing trading strategy? Many investors will use the stochastic, the MACD or the RSI to identify indications that the price will continue with a trend or change direction.

Ultimately, the best indicators for swing trading are going to be the ones you have tried and learned to familiarize yourself with them. Let's see an example of a swing trading chart:

Most of the charts with a swing trading strategy have three components:

1. Daily graphics bars, or candles. This means that each bar, or candle, represents the value of a trading day.
2. A filter of tendencies. In the graph of the previous example, a moving average of fifty periods is used as a trend filter and is reflected by the red wavy line that moves through the price candles.
3. An indicator of overbought and oversold. In the above chart, a stochastic oscillator is used to identify overbought and oversold conditions and is found at the bottom of the chart.

Since a trading strategy is simply a methodology to assist in the decision-making process of a trader, it can be done using the three indicator components above. For example:

Rule 1: When the price is above the moving average, opportunities for long or purchase operations arise. When the market is below the moving average, the general rule is to enter short, or sell. But this rule is not infallible.
Rule 2: Enter a purchase transaction only if the stochastic is below 20, since this represents the oversold territory. Only enter a sales position if the stochastic oscillator is above 80, since this represents the overbought territory.

The use of these two basic rules would allow traders to identify the entry levels in the blue rectangles found in the chart below:

These simple rules can serve as a starting point to help the trader to operate with the trend and timing of their market entry. Of course, proper swing trading strategies will include additional rules to address specific candlestick patterns, or support and resistance levels for entry and stop loss pricing, as well as a longer term analysis to identify take levels. profit, since the swing traders intend to maintain operations for several days or more.