Swing Trading Strategy

by Amanda Harvey



Swing trading strategy involves choosing stocks which exhibit the price pattern movements which make them suitable for swing trading, as well as pinpointing the appropriate times to enter and exit a trade.

Swing trading aims to profit from short term movements in stock price – typically trades are held between a couple of days and a week or two. A key aim of swing trading strategy is to follow the direction in which a stock price is moving, and to exit the trade as close as possible to the moment at which the price will swing back in the opposite direction.

Which Stocks are Best Suited for Swing Trading?

Stocks which are trading in a fairly stable range are well suited to swing trading . These stocks will experience moderate movements between levels of support and resistance, and a skilled swing trader can join both the upswings and then the downswings. This is why swing trading options is a great way to benefit from price fluctuations, as options allow a trader to profit from movements either up or down by using call and put options.

A strongly trending price which is displaying bear or bull qualities is not suited to swing trading, as it usually does not experience the normal fluctuations of a stock which is trading more steadily.

Volume is another key to choosing stocks for swing trading. A high volume of trading indicates sufficient interest to propel the movement. It also equates with liquidity and enhances the likelihood of being able to buy or sell at the desired time and price.

Technical Analysis for Swing Trading

Technical analysis can be very helpful in determining the likely points at which the pendulum of price movement is likely to swing back. Charts are important to this analysis, and candlestick charts are especially popular for swing trading.

Indicators are also a key part of technical analysis for swing trading, and two popular indicators for the swing trader are the MACD, and the RSI. Both these indicators can be useful in generating entry and exit signals, as they help to identify when a turning point is likely to happen. Support and Resistance Levels are also important to swing trading strategy. Barring any indications of a breakout, the nearing of either the level of support or resistance suggests that a change in direction of price movement is imminent.

Candlestick chart patterns can provide insight into whether the direction of price movement is likely to continue or reverse. While these chart patterns can be effective, it is suggested that they are always used as part of a swing trading strategy in combination with other analysis, rather than a sole method.

Entry and Exit Points for Swing Trading

A successful swing trading strategy does not require a trader to pick the exact moment at which the direction of price movement changes. In fact, a swing trader will often wait for the change in direction, and seek confirmation before entering a trade.

Timing an exit however, a trader will usually try to wait until as near to the turning point as possible, in order to obtain the highest achievable profit. The use of charts and indicators provide the best method of determining the appropriate moment to exit the trade.

In Conclusion

Effectively applying swing trading strategy allows a trader to make the most of the opportunities for profit which are offered by short-term price movements. Choosing a stock which is fluctuating in price between levels of support and resistance, entering a trade when the direction has just begun to swing upward or downward, and then exiting before the movement begins to swing back again is the basis of successful swing trading.


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