Swing Trading Strategies
Guidelines to swing trading for better trading experience.
Swing traders tend to make the best out of the waves of price movements that occur in the market. There are highs and there are lows. Swing traders predict when the price of an asset will see a dramatic movement and place their trades accordingly. Swing trading involves heavy prediction and on top of it, correct prediction. To be precise in their calculations, the traders need technical indicators so that they can find the correct time to enter or exit the trade, which is different from day trading.
Let us talk about the best strategies that can be used for swing trading.
1. Fibonacci retracements:
What this basically means, is that before any correction,the price levels of an asset will fall back to a particular level. This helps the traders in getting an idea for the correct support and resistance levels.
Therefore, it helps them in getting an idea on the reversal when they read the charts. Stocks have a tendency to retrace again once they reverse again. If a line is plotted against the classic fibonacci patterns (23.6%, 38.2%,61%.8%), it can reveal the best possible reversal patterns. Traders are also interested in the 50% level sometimes. This is however, not a fibonacci number but the stocks again have a tendency to retrace after they have retracted the other half level.
If the price is in a downtrend, the traders can go short against the market if the price has hit and retraced back from the 61.8% level. Here, the aim should be to make profits by planning to exit the position as the prices fall back to 23.6 %. The latter can be thought of as the support level and the former can be thought of as the resistance level.
2. Support and resistance triggers
Having the knowledge of support and resistance lines is one of the main things the traders can do a lot by building their stock trading strategies around them.
The support level indicates an area or a price level on the chart that is below the current market price. Here, buying the asset will always help in overcoming the selling pressure. Therefore, the decline of the price stops and it turns back again.
Placing the correct stop loss can also prevent the possibilities of the trade going horribly wrong, specially in the case of going short against the market.
The opposite of support is always resistance. This represents the price level or an area above the current market price. Here, selling pressure can be overcome by the buying pressure. This in turn, can steer the prices back to the levels they were on before there was an uptrend. When that is the case, the swing trader can also enter a position that sells on the resistance level. A stop loss is advised above the resistance line. The key thing to remember here is that when it comes to using the resistance and support levels, the resistance and support levels interchange their roles as soon as the price breaks free from even one of them. Resistance becomes support and support becomes resistance.
3. Channel trading:
This swing trading strategy may require that the traders identify what trend is being displayed by the stock. For example, if there is a bear trend and the chart is plotted then the traders can consider a sell position as soon as the price goes down. When the traders are using the channels to swing trade, it is crucial that trades are done at par with the trend. If the price is actually down, the traders should only look for sell positions. Until and unless the price breaks out of the channel. This is an indication of a reversal and the beginning of a possible uptrend.
4. 10- and 20-day SMA:
SMA stands for simple moving averages. This is one of the most popular swing trading strategies. Moving averages have one job, they smooth out the price movements by constantly calculating the average price between two points. Each average is connected to another one and it technically helps to cut out any noise data that could be bad for the traders if they have to look at the price levels clearly. The moving averages can be applied for any timeline ranging from a tw day range to a lot of time. It has to be kept in mind that the short length SMA’s will always react faster as compared to the long term SMAs.
When a 10 day SMA crosses over the 20 day SMA, a buy signal gets generated as it clearly indicates that an uptrend is in progress. When the short SMA crosses the long SMA in a lower sense, then a sell signal is generated since it indicates a downward swing.
5. MACD crossover:
MACD stands for moving average convergence and divergence. This is a simple way to identify the swing trading opportunities. What MACD does is, it looks for trends and reversals. The MACD comprises two different moving averages, a single line and a MACD line. The signals are generated whenever these two lines cross. If the MACD crosses the single line, then bulls are in power and when the opposite happens, bears are on a lookout to slam the markets even more. The swing trader in such a situation will wait when the two lines cross again. This will create a sell signal for the trades in opposite directions before they exit the trade. The MACD will oscillate around a zero line and the trade signals will also be generated when the MACD will cross over the zero line. There will be a buy signal above the zero line and a sell signal below the sell signal.
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