Swing Trading Strategies – New Trader U

Definition of swing trading

Swing trading is a trading method that attempts to capture short to medium term movements on a chart over a period of days or weeks. Swing traders primarily use technical price signals to trade price action movements at the beginning and end of trends or within a broad established trading range.

Swing Trade Stocks

Markets move only a small percentage of the time, charts spend most of their time going sideways or become volatile and go nowhere. While it can be profitable to catch a big trend after a breakout or breakout of a trading range, there are other ways to make money.

Swing trading is a trading method that attempts to capture market gains over a period of days to weeks. A swing trader’s goal is to capture a large portion of a potential trend in price action or simply buy support and sell resistance.

There are many types of swing trading signals, buying the dip in oversold levels, buying the momentum of an upside retrace, or buying the dip in a key moving average support. Here are some examples of my favorite swing trading signals to buy.

Moving Average Crossover Strategy

Moving average crossover signals can lead you back to higher prices based on backtested signals that put the odds in your favor. The example above is an entry signal with the 5-day/20-day EMA using the 20-day EMA as the initial stop loss and also the trailing stop because the chart is so volatile. You can decide to lock in profits at the overbought 70 RSI level or let your winner run for as long as possible using the crossover below one of the moving averages as an exit signal.

When should you buy the dip?

The best time to buy the dip on a chart is usually when the chart is both oversold and also showing a sign of reversal. The 30-RSI may be an oversold reading and a reversal candlestick may signal the first attempt at a bounce.

50-day moving average signal

The example chart above is an example of buying prices falling to the oversold level of 30 RSI and how it can create excellent risk/reward ratios in stock indices and major stocks , as you will often find buyers at these levels ready to step in and send the price higher. The 50 RSI and the 50-day moving average are good profit targets when entering the 30 RSI. A good initial stop loss is to exit if the price closes below 30 RSI.

200-day moving average signal

200-day moving average signal
All graphics courtesy of TrendSpider.com

The sample chart above shows the loss of the 200 day moving average. Often, markets in long-term downtrends will begin after the loss of the 200-day moving average. An initial short on this breakdown may present a good risk/reward entry, as losing support on this long-term line may be the first sign that further declines in price may be underway. The profit target on this swing signal could be the 30 RSI if the breakout occurs at the 50 RSI, which is usually the case.

These signals are not based on working every time, they are high probability signals and should be used with proper trade management to cut losses and let the winners run. The key to making money with swing trading is to limit your losses with stop losses when they don’t work and let your winners run with trailing stops when they see a favorable price move.

Swing trading books

The ultimate guide to swing trading by Steve Burns

How to Swing Trade: A Beginner’s Guide to Trading Tools, Money Management, Rules, Routines and Strategies of a Swing Trader by Brian Pezim and Andrew Aziz

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