What is Swing trading technique?

By | February 2, 2013

“Trend is Your Friend” , “Never Challenge the Trend” are true market adage and doctrine for traders. But when one looks at History of Financial market be it be stocks,commodity or Foex , Market does 80% of move in 20% of time   and remaining 80% of time they are in non-trending, or “sideways” fashion. So how do a trader can trade in such sideways market. There are many methods to trade non-trending markets,one of the well known well trusted method is “Swing Trading

 

The basic principle for swing trading is finding a stock/commodity  that is

  • trapped in a very tight trading range

PFC

  • in an up-trending

IDFC

  • down-trending channel

Century Textile

On the chart, the trader must be able to distinguish  supply and demand are or in traders terminology support level from where the stock bounces back and resistance levels from where the stock retraces back. When a market price approaches the support or resistance area level the trader will establish a position as follows

  • Long if prices are moving lower and close to the support level. 

  • Short if prices are moving higher and toward the resistance level.

 

Swing trading techniques can be used in any chart time frame–daily, weekly, monthly and intra-day charts. However, the most popular time frame for swing trading is the daily bar chart.

 

It’s important to note that the strength of the support and resistance at the boundaries is usually determined by the number of times the market has pivoted at the boundaries. The more times a market has reached a support or resistance boundary, and then reversed course, the more powerful is that boundary. Thus, a trader wants to find a well-established channel or trading range for which to attempt to swing trade. An exception to this is a market that has been in a trading range, but is bound by one or two powerful spike moves, which also indicate a strong support or resistance boundary. In other words, some congestion areas that may offer a good swing-trade opportunity do not require several pivot points. Instead, those one or two spike levels would be determined to be a potentially good pivot area for a market.

 

The swing trader should always use tight protective stop loss. A good area to place a protective stop is just outside of a support or resistance boundary that makes up the trading channel or congestion area. For example, if a market in a trading channel is nearing the upper boundary of that channel, the swing trader would establish a short position and would want to place his protective buy stop just above the resistance level that serves as the upper boundary of the trading channel.Like in PFC 214 would be a valid Stop loss.We do cover more on Swing trading in our trading course

 

 

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