Swing Trading Tutorial

The trading style of swing trading is often described by how long you hold the trade for however I don’t think that is a very useful description.

To start off a more thorough definition, markets move in patterns which are loosely classified as either trending or consolidating.

When a market is trending, price puts in higher highs and lows in an uptrend and the opposite for a downtrend.  The thrust in the main direction is called an impulse move and a retrace in price against the overall trend would be called a corrective move.

We can substitute the word “move” for the word “swing”.

swing trading trend
Price Swing In Trending Market

This graphic represents a trending market and in the uptrend we have higher highs and lows which is what you want in long swing trade.  The downtrend is putting in lower highs and lows which is conducive to a successful short position.

You want to make sure you are not trading a market in chop and we can use two indicators to help us out:

As a swing trader, you would want to maintain a position in the swings marked “A” and when price begins to reverse as we see in “B”, this may be a time to exit your position.  The term “swing trader” is better defined as a trader who takes advantage of the impulse moves that occur and either exits or severely tightens positions during the corrective phase.

There is a time component but that is more dependent on the time frame you have chosen however keep in mind that you can swing trade on intra-day charts.  If that is the case,  what we are really doing is taking full advantage of the impulse moves that occur throughout the day.

Knowing your limitations can help you decide which style of trading is right for you:

That said, you can swing trade corrective moves but you should expect to have lower profits in those moves unless you’ve caught the full turn in the trend

Being able to position yourself in the beginning of a longer term move is a wonderful thing for your trading account.  There are two patterns that can assist you in determining if the corrective move has the potential to be an impulse move:

In my swing trading, I utilize the daily chart to find positions.  On this time frame, I am not in the arena of HFT (high frequency trading) computers or longer term players holding positions trades.

Knowing your trading time frame is important and so is using higher time frames for overall context:

Swing trading is about taking a short-term speculative position where we anticipate a clear and quick move to occur over the next few days which is dependent on the time frame you have chosen.  While there are excellent day trading opportunities, in our experience swing trading is ideal for many markets including Forex, stocks and commodities.

 

Benefits Of Swing Trading

Swing trading has several distinct advantages over other styles such as day trading:

  1. It typically takes just a few minutes per day to manage your trades, unlike day trading.
  2. Swing trading normally has plenty of time to place your trades and larger targets.
  3. You also tend to have larger stop placement which means these trades tend to be less sensitive to small whipsaw that frequently happens during the market day or with news announcements.

Another reason some will shy away from taking swing trading positions is due to their account size; they can’t afford the risk.  Make no mistake, with any trading style your stop placement is vital:

Without question, when we survey our successful Forex and stock traders, the majority of them state that swing trading is where they have found the most consistent success.  There are many reasons for this however the biggest reason is time.  They just don’t have the time for income producing trading style of day trading due to other commitments.

 

How To Learn Swing Trading

Now that you understand what swing trading is and the benefits it has, it’s time to learn some of the best ways to take advantage of this trading style.  Realize that virtually all of the concepts that apply to any active trading will apply to swing trading.

You still want to have a technical approach to the markets.  Though markets are influenced by fundamentals, we ultimately are believers in letting the “Chart do the Talking” – and this drives all of our trades.  With any style of trading, it’s important to learn the various nuances that contribute to successfully learning swing trading.

Indicators play a huge part in many systems so you should know how to use some of the more popular ones.  You should also know that indicators can be used for both swing and day trading styles:

Many traders understand that markets tend to flow from structure to structure – support/resistance and will attempt to utilize that market truth as a basis,  Many trading systems have been developed around trading from structure and the first thing you must know is how to identify these zones for potential swing trading positions:

You never want to blindly trade any zone on a chart without having a solid understanding of what a Japanese candlestick is:

Learning the techniques behind swing trading is important but the mindset you must have is usually the deciding factor behind your success or failure.  Your mind and your way of thinking must be conducive to success and there are some steps you can take to get you on the right path:

As you can see there are a lot of variables that come into play for swing traders.  One of the best ways to tackle this type of trading is to learn from those in the trenches.  Take advantage of Netpicks 20+ years of experience and see if we have a trading solution for you.

The following two tabs change content below.