Intermediate Level

Learn more complex tools and techniques that will help you in trading.

Lesson 5: Swing Trading

Lesson 5: Swing
Trading

Does the
market always seem to be heading lower after you hit the buy button?

Would you
like your trade to be over soon, because you HATE to watch your P&L go up
and down?

Are you
disappointed to see that the market ALMOST has met your target gain, only for
it to make a 180-degree reversal and hit your stop loss?

If you
answered YES to any of the above, I have the answer for you.

Swing
Trading.

Now you
might be asking, “What’s the Swing Market and Swing Trading and how do they
work?”

Don’t worry
about it.

Because in
this article, you’ll learn all you need to know about swing trading — including
3 swing trading strategies which function.

Sounds
good?

Then let’s
begin.

Swing Trading Basics: What is swing
trading and how does it work?

Swing
trading is a trading strategy that aims to catch a swing (or “one
move”).

The goal
is to feel “no discomfort” by quitting your trades before the stress
of opposition arrives.

It means
you’re going to book your earnings before the market reverses, and you’re going
to wipe out your gains.

Here’s an
example:

Here are
the pros & cons of swing trading…

Pros:

  • You
    don’t need to spend hours in front of your computer because your company lasts
    for days or even weeks
  • It’s
    perfect for those with full-time work
  • Less
    pressure compared to day trading

Cons:

  • You
    won’t be able to ride patterns
  • You’ve
    got an overnight threat

So far so
good?

Then let’s
move on…

Swing trading strategies #1: Stuck
in a box

Side note…
The swing trading strategies that I’m about to share with you have
“cool” names attached to them.

It helps
you better understand the trading system, and to know how to apply it to your
trading.

Now, let
me introduce you to the first swing trading strategy for today…

Stuck in a
box.

It is
swing trading on a variety market because the market is “stuck”
between support and resistance (somewhat like a box).

Here’s how
it works:

  1. Identify
    a range market
  2. Wait
    for the price to break below Support
  3. If
    the price breaks below Support, then wait for a strong price rejection (close
    above Support)
  4. If
    there is a strong price rejection, then go for a long time to open the next
    candle
  5. Set
    your stop loss 1 ATR below the candle low and take profits before Resistance

Here’s an
example:

Now you
might be wondering:

“Why do
you stop loss 1 ATR below the candle high?”

Recall
that as a swing trader, you’re only searching for “one move” on the market.

So, in
order to ensure a high probability of success, you want to exit your trade
before selling pressure steps in (which is Resistance).

Does this
make sense to you?

Great, because
we’re going to apply this idea to the remaining swing trading strategies.

Swing trading strategy #2: Catch
the wave

This swing
trading strategy focuses on catching “one move” in a trendy market
(like a surfer trying to catch the wave).

The
concept here is to join after the pullback is over, when the pattern is likely
to continue.

Though,
this doesn’t work for all sorts of patterns.

Instead,
you want to swap patterns that have a stronger pullback, because there’s more
“meat” towards the upside.

As a
guideline, you want to see a pull back at least to the 50-period moving average
(MA) and higher.

Now, let’s
learn how to catch the wave with this swing trading strategy…

  1. Identify
    a pattern that follows the 50MA
  2. If
    the market is approaching the moving average, then wait for a buoyant price
    rejection
  3. If
    there is a buoyant price rejection, then go on the next candle
  4. Set
    your stop loss 1 ATR below the low and take profits just before the high swing

Here’s an
example:

Do you
want more examples?

Then go
watch this training video which shows you how to define this swing trading
system step by step

Now you
might be asking, “But why the 50-period moving average?” I’m going with the
50MA as investors around the world are watching it so that it can lead to a
self-fulfilling prophecy.

And
normally, the 50MA matches the previous Resistance turned Help, which makes it
more important.

Now, that
doesn’t mean you can’t use 55, 67, 89, or whatever moving average you want,
because the definition is what matters.

Swing trading strategy #3: Fade the
move

Now you’re
probably thinking, “What’s the sense of fade?”

This means
going against it.

Basically,
you’re betting against momentum (aka. counter-trends).

So, if you’re
the investor who wants to “go against the crowd,” then this trading
strategy is for you.

Here’s how
it works:

  1. Identify
    a strong momentum shift into Resistance that takes off the previous high
  2. Look
    for a strong price rejection as the candle forms a strong bearish close
  3. Go
    short on the next candle and set your stop loss 1 ATR above the highs
  4. Take
    profits before the nearest swing low

Here’s an
example:

Do you
want more examples?

Then go check out this training video below:

How to handle your company so that
you can trade with confidence and conviction

Now, with
market management, there are two ways you can do it:

  1. Passive
    trade management
  2. Active
    management

Let me
explain.

1. Passive trade management

For this
process, you’re either going to let the market hit your stop loss or your
target profit — anything between, you’re not going to do anything.

Ideally,
you want to keep your stop loss away from the “noise” of the markets
and have the target gain within a reasonable range (before the key market
structure).

Pros:

  • Trading
    is more confident as the actions become more “automated”

Cons:

  • You
    can’t leave the company ahead of time even though the market is showing signs
    of reversal.
  • It’s
    possible to see a winning trade become a full 1R loss 

2. Active management

In order
to do this, you will see how the market reacts and then determine whether you
want to hold or exit the trade.

Now, this
is critical. For an effective approach to work, you need to handle your trades
on your entry timeframe (or higher).

Don’t make
the mistake of doing it on a lower timetable because you’re going to scare
yourself out of a trade with every pullback that happens.

Here are
the pros & cons of it.

Pros:

  • You
    can reduce the losses instead of getting a full 1R loss

Cons:

  • More
    stressful
  • You
    could exit your trade too early without providing enough space to run

If active
trade management is for you, then here are two strategies that you can
consider:

  • Moving
    average
  • Previous
    bar high / low

Let me
elaborate…

Moving Average

This
technique involves using a moving average indicator to trail your stops.

If the price
does not move beyond the moving average, you must hold on to the market.

If it
does, you’re going to exit the trade.

Example:

This
strategy is useful for swing trading strategies such as Catch the Wave, because the moving average appears to serve as a
dynamic aid and resistance in trending markets.

Previous bar high / low

This
strategy relies on the previous bar high / low to trail your stop loss.

It means
that if you’re short, you’ll be able to track your stop loss using the previous
bar high.

If the
market splits and closes above it, you’re going to exit the exchange (or vice
versa).

Here’s an
example:

This
strategy is useful for swing trading strategies like Fade the Move, because the market will easily reverse against you.

So, if the
market shows signs of a turnaround, you don’t want to give your trade too much
room to breathe and quickly cut your losses.

Conclusion

  • Swing trading is about making “one move” in the market by exiting your trades before the opposing pressure comes in
  • Stuck in a Box is a swing trading strategy tailored to scope markets
  • Catch the Wave is a swing trading strategy suited to evolving markets
  • Fade the move is a counter-trend swing trading strategy
  • Active trade management is more stressful, but you minimize losses