How to Swing Trade

When prices move towards the upper band, the market is overbought. On the other hand, if they move towards the lower band, the market is oversold. It is impossible to consistently pinpoint the exact high and low of every swing move, but the idea is to capture as much of the price movement as possible.

  1. Swing trading can be very lucrative, but limiting losses and taking profits when available is the key to successful swing trading.
  2. If a stock’s average daily range is 5% but it contracts to 1%, it provides a low-risk entry, assuming a stop below the low of the day.
  3. It falls somewhere between day trading, where trades are closed on the same day as they are bought, and long-term trading, which often involves years.
  4. Charts have actual value in determining the position (location) and probable trend of stocks, by weighing the relation of supply and demand swing.

Swing highs are often identified by looking for two consecutive lower highs on either side of the peak. Rather than targeting a 20% to 25% profit for most of your trades, a more modest 5% to 10% will be the first profit goal. By taking the smaller gains, often on the way up, you get the majority of a quick move and sidestep the areas when the stock consolidates. You’ll often see stocks go up more and kick yourself for selling too early.

The market worsened and we avoided the trade turning negative on us and instead left with a 1.4% gain. That may not be an impressive figure but consider that it was profit from a single day in a tough market. Replicate that often enough and you’ll have quite the year as your gains compound. One common strategy is to use trendlines to identify swing lows and highs, and then trade in the direction of the trend. For example, if a currency pair is in an uptrend and reaches a swing low point, traders can use a trendline to identify the support level and look for buying opportunities.

Due to a powerful gap up, SwingTrader neared its 10% profit goal for Fibria Celulose (FBR) in just a couple days. We sold half and let trading diary the remainder run for a gain of 20% in just 15 days. Swing traders are often not looking to hit a home run with a single trade.

Use Screeners to Find Swing Trade Ideas

It’s for this very reason that trading can be as intimidating as it is risky. Fibonacci retracement levels originate from the Fibonacci sequence. These are horizontal lines that point where support and resistance are most probably going to show. In swing trading, this can help traders create their entry and exit plans accordingly.

Why use the swing high and swing low method?

Typically, anything above 70 is thought of as overbought, which is shown in red on the below chart. And if the price falls below the level 30, it is considered oversold, shown in green on the below chart. For me, I like day trading because I like to know each day whether I have won or lost. Lastly, the weekly chart view will allow you to see the bigger picture in order to know where to exit your position.

On the other hand, there is also a 1% rule that says the loss on a single trade should not exceed more than 1% of your total capital. The opposite of a swing high is a swing low, which marks the lowest price level reached before prices move in the opposite direction and begin trending upward again. Swing trading is a trading style that focuses on trying to capture a portion of a larger move. Swing traders will focus on taking smaller, but more frequent gains, and cutting losses as quickly as possible. Day trading is defined as an approach to trading where the trader opens and closes the trade during the same trading day.

IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Discover the range of markets and learn how they work – with IG Academy’s online course. However, different people have different approaches to investing and that may lure them to different time frames.

Day trading suits impatient, high-energy personalities who thrive on volatility. Pullback traders buy dips to key moving averages like the 50-day, support areas, or oversold readings, assuming a swing low. If you’re looking to understand what swing trading is, this guide is for you.

Introduction to Swing Trading

It is important to note that swing lows are not always accurate indicators of trend reversals. In some cases, a swing low point can be followed by a further decline in prices, leading to a continuation of the downtrend. Traders should always use multiple indicators and confirmations before making any trading decisions based on swing lows. Swing trading can be a means to supplement or enhance a longer-term investment strategy. Swing trading is one of the few ways traders attempt to capture frequent short-term price movements in a market landscape that tends to evolve at a much slower pace.

How Can I Start Swing Trading?

Traders who use this strategy often use swing highs and swing lows to time their entry and exit points. To find the best stocks to swing trade, many traders use websites that have access to stock market scanners, such as Yahoo Finance,, and Swing trading is a popular trading strategy that aims to capture short to medium-term price movements in financial markets.

How to Know If a Swing Trading Strategy Is Working

In other words, the larger triangle is made up of multiple smaller triangles in the same fashion. Undoubtedly, there is a lot of math involved and there is a specialized field in the study of fractals. This research article gives a basic insight into fractal geometry.

Leave a Comment

Your email address will not be published. Required fields are marked *