Swing trading is a style of trading that attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities. Swing traders may utilize fundamental analysis in addition to analyzing price trends and patterns.

Some general Rules before going in the Deep of the Strategy :

- Swing trading involves taking trades that last a couple of days up to several months in order to profit from an anticipated price move.

- Swing trading exposes a trader to overnight and weekend risk, where the price could gap and open the following session at a substantially different price.

- Swing traders can take profits utilizing an established risk/reward ratio based on a stop loss and profit target, or they can take profits or losses based on a technical indicator or price action movements.

Rules of entry :

Swing trading means " Surfing the trend " Using the Swing points as an entry inside a trend. The Swing point is basically retracements inside an already-started trend. Let's see the picture below. I personally call the Swing point or retracements " V " points. Let's look together. .

As you can see the retracement inside a trend looks like a " V " point. In a Bearish scenario, the " V " is upside down meanwhile inside a Bullish trend the " V " is on the correct side. Let's note, the " V " points can look also like " W " or generally is correct to call them a " Pullback " Area. In this example, EUR/USD we can see how the price used the " V " shape as Pullback to continue the downtrend.

In the picture below I add the Moving averages, the 200 and the 50. This easy and simple technical indicator can help you to determine the direction of the trend. If the price is below 200, generally it means the price is in a Downtrend, and Vice-versa when the price is above, generally it means is in an Uptrend. The 50 Moving average can help you to understand if the price it's started to grow, and when the moving average crosses the 200, generally it means that the price is started a bullish impulse. You can use any kind of indicator to determine the direction of the main trend, the moving average is one of the most used in this style of trading. As you can see, the moving average, like the 50 in this case, in EUR/USD has been used from the price as a Pullback trigger to continue the downtrend.

I explain better... The price inside a Pullback Area or " V " point, in a downtrend, below the 200 Moving average, has used the 50 Moving average as a dynamic resistance and rejected the price in the direction of the main trend.

Swing trading as explained use technical analysis to look for trading opportunities. Look how conventional support and resistance can work in this, another clue to add to our idea of entry.

Additionally, in our plan of action, we can add some technical indicators, look how the Stochastic indicator can give a clear overbought reversion signal.

Not least, the use of the Fibonacci retracement can give the Swing trader a clear metric of entry and exit point with relative stop loss and take profit area. In This last example, we can add together all the previous clues given by the Technical indicators, the use of support and resistances, and adding also Fibonacci retracements as targets for Stop loss and take profits. Remember, Swing traders may utilize fundamental analysis in addition to analyzing price trends.

Advantages and Disadvantages of Swing Trading

Many swing traders assess trades on a risk/reward basis. By analyzing the chart of an asset they determine where they will enter, where they will place a stop loss, and then anticipate where they can get out with a profit. If they are risking $1 per share on a setup that could reasonably produce a $3 gain, that is a favorable risk/reward ratio. On the other hand, risking $1 only to make $0.75 isn't quite as favorable.

Swing traders primarily use technical analysis , due to the short-term nature of the trades. That said, fundamental analysis can be used to enhance the analysis. For example, if a swing trader sees a bullish setup in a Forex pair, they may want to verify that the fundamentals of the asset look favorable or are improving also.

Swing traders will often look for opportunities on the daily charts and may watch 1-hour or 15-minute charts to find a precise entry, stop loss, and take-profit levels.

It requires less time to trade than day trading.
It maximizes short-term profit potential by capturing the bulk of market swings.
Traders can rely exclusively on technical analysis , simplifying the trading process.

Trade positions are subject to overnight and weekend market risk.
Abrupt market reversals can result in substantial losses.
Swing traders often miss longer-term trends in favor of short-term market moves.

Hope this guide can be useful for everybody.






Related Ideas


The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.