Swing Trading is gaining popularity among entry-level and advanced traders. It allows traders to spot the ideal entry and exit points for a trade. The positions are held for a few days or weeks but can be held longer. Swing trading employs technical and fundamental analysis to help traders catch big price movements.
In this article, we’ll delve into the topic, defining swing trading and presenting some top swing trading strategies inspired by this article from TimothySykes.com.
What is Swing Trading?
Swing trading is a strategy in which a trader holds a stock position for a relatively short time to profit from price action changes. Swing traders focus on the upswings and downswings in stock prices.
The idea is to hold onto stocks for a while and profit from price changes or ‘swings.’ They typically exit the trade before the opposing pressure comes in.
Swing trading is different from day trading. In day trading, you enter or exit a trade position within the same day. Swing trading positions, however, can last from a few days to several months.
Swing traders find trading opportunities using various technical indicators to identify trend direction, patterns, and potential short-term changes in trend.
Swing Trading Strategies
A swing trade must be built on a solid foundation that involves analysis, research, and formulation of strategies. While there are many forms of swing trading strategies, a number of setups are more common and considered traditional swing trading strategies. Here are the top four swing trading strategies you should know:
Breakouts occur when the price of a stock moves beyond a defined range. Traders who use this strategy watch for price breakouts, that is when the price breaks above resistance levels.
A breakout strategy involves taking a position early on a potential uptrend. You monitor stock and enter a trade when you see a desired level of volatility. This strategy is better when the chart has a clear line of resistance.
Say a stock trades under $1 but has hit $1 several times but keeps bouncing back. That’s a resistance level. A breakout occurs when a catalyst increases volume and stock breaks above the resistance level. In this case, profits can be substantial when momentum takes off.
A breakdown swing strategy is the opposite variant of the breakout strategy. It’s where the value of a stock drops below a defined support level.
The trader takes a short position when the price of an asset breaks down the support level on the early side of a potential downtrend. Effective use of this strategy involves checking on moving oscillators and averages.
Using the same example above, the resistance becomes the support once the stock trades above $1. The price might come down to the $1 level but still hold. However, if some news site publishes negative information about the stock or volume starts to fade, the stock could dip below the support level. This will lead to lower prices.
Traders typically short the stock to profit from the downward trend as it breaks support lines.
This strategy involves identifying stock trading within a channel and displaying a strong trend. If you’ve plotted a channel when the stock chart shows a bearish trend, you’d consider opening a sell position when the price rises above the top line of the channel.
You need to trade with the trend when using the channel swing trading strategy. So, when the price is in a downtrend, look for sell positions unless the price breaks out of the channel and moves higher, indicating the beginning of an uptrend.
Using the right strategy can be all it takes to succeed in swing trading stocks. A good strategy involves analyzing the trend structure and determining the price action to identify market opportunities.