Swing trading is a form of trading that falls between day trading and trend trading.
Day traders will only hold a stock for less than a day. Usually only a few seconds to an hour or two. The idea is to buy early when prices are low and sell when they are at their highest for the day before they drop again.
Trend traders, however, will hold a stock for a few weeks or months. Paying close attention to the long-term fundamental trends in the stocks, trend traders will sell when they believe the stock has it the highest it will for that year.
Swing traders fall in between. They will hold a stock for a few days to a week waiting to sell when they believe the stock is at its highest for that time frame.
In order to be a successful swing trader, you will need to have a successful strategy. Keep reading to discover 3 strategies to help you become a successful swing trader today.
1. Boxed In
The first of the swing trade strategies is the boxed in strategy. This strategy can be used when swing trading in a range market. The name comes from the market being boxed in between support and resistance.
Support refers to an area on the chart below the current stock price where the buying pressure is stronger than the selling pressure. This causes the prices to bounce back up and rise. When the stock is in support is when you would want to enter into buying.
Resistance refers to an area of the chart above the current market price where the selling pressure is stronger than the buying pressure. This will cause the price of the stock to drop. Selling before resistance is key.
The strategy works like this:
• Choose a range market
• Wait for price to fall below support
• If it does wait for close above support (strong price rejection)
• If there is a strong price rejection, then go long on the next candle open
• Finally, set your stop loss 1 ATR below the candle low and take your profits before resistance
Remember the reason you want to exit your trades before resistance to ensure the highest profitability of the stock. Earning you the most reward.
2. 10- and 20-Day SMA
SMAs are simple moving averages that determine a constantly updating average price which can be taken over a range of time periods. For example, a 10-day SMA would track the closing prices over ten days. It would add them up and divide by 10 to determine the new average price for each day.
For swing trading, you would use both a 10-day and 20-day SMA. When the 10-day SMA is above the 20-day SMA you should by the stock as an uptrend is taking place. On the opposite when the 20-day SMA rises above the 10-day SMA, this is an indication of a downward trend. Which means it is time to sell the stock.
3. Channel Trading
The final of the swing trade strategies is the channel strategy. This strategy requires you to identify a stock that is trading within a channel and displaying a strong trend. When trading stocks within channel it is critical to pay attention to the trend. If the stock is in a downward trend you should only be concerned with selling positions. Likewise, if the stock is in an upward trend you would look for buying positions.
But if the price breaks out of the channel, you’ll want to switch your position. While a strong downward trend may be indicative of a need to sell, it could break out of the channel and indicate a reversal in the trend. In the case of the downward trend, it would then indicate an upward trend and you may want to buy or hold.
When it comes to swing trade strategies, you’ll want to choose one that fits with your style of investing and trading. Some strategies will offer high rewards but come with high risks, while others will provide smaller more consistent rewards with lower risk.
Choosing a strategy should not be taken lightly, but hopefully, the 3 provided here have given you at least one to use or to develop your own form. Whatever you choose, remember that without risk there is little reward.