Swing trading strategies can be applied for both short term trading and long term trading. If you are a beginner in the stock markets and looking for the best swing trading strategies, then this post is for you. I have discussed almost 4 easy swing trading strategies in this post with a good number of examples. You can apply these swing trading strategies to trade
- Futures contracts
- Options contracts
What is swing trading?
Swing trading is buying or selling a financial asset like stock, futures contracts, or options contracts and holding it for more than two days up to a year for profits. Swing trading strategies focus on making short-term gains. Swing trading is different from day trading & value-based investments because of the time horizon. Few swing trading strategies don’t work well for day trading and vice versa.
Difference between swing trading and day trading
In swing trading, you hold the position for more than a day whereas in day trading you exit the position or square off your position on the same day and do not carry forward the position for the next trading day.
Difference between swing trade and value-based investment
Value-based investment is done mainly with stocks or shares of listed companies in the share market. What Warren Buffet does is a value-based investment. Swing trading can be done with multiple financial assets like stocks, futures contracts, commodities like crude oil contracts, etc.
Another major difference between swing trading and value-based investment is the time frame. Value-based investment goes beyond a one-year time frame and can be long like 5 years or ten years etc.
In swing trading, we focus on short term gains with a year time frame. The third difference between value-based investment and swing trading is the type of analysis involved. In swing trading, we mainly focus on price action and use candlestick charts or any other chart types for making entry and exit decisions.
Swing trading strategies use technical analysis for trading setups. Whereas for the value-based investment we try to understand the business of the company and identify the real worth of a stock using fundamental analysis.
4 Easy Swing Trading Strategies That Works In 2021
- Heiken Ashi Strategy
- Swing Trading Using Fibonacci
- Trend Trading Using Swing Highs & Lows
- Support & Resistance level strategy
Heiken Ashi Strategy
Among the 4 swing trading strategies mentioned above, the Heiken Ashi strategy is one of the easiest to understand and follow. The best thing about the Heiken Ashi strategy is its simplicity. It also removes the market noise i.e. sudden spikes & price fluctuations caused due to some news-based trading. Below you can see a simple Heiken Ashi chart.
Swing trading using Heiken Ashi
Heiken Ashi trading setup is one of the easiest swing trading strategies out there. You just need to follow & use colors of candles without wicks or tails to enter and exit a trade. Heiken Ashi bars are calculated by an average formula. One crucial thing to remember when using Heiken Ashi charts for swing trading is that it will also show a gap up or gap down like a candle. We will only look at the trading setups using Heiken Ashi charts.
Buying setup using Heiken Ashi chart
You can enter a buying or long position when you see a green color candle without a wick. The below Heiken Ashi chart, display a buying entry setup. Your stop loss will be the low of the previous candle.
Selling setup using Heiken Ashi
You can enter a selling or short position when you see a red color candle without a wick or tail. Look at the below chart example to understand a selling trade setup using the Heiken Ashi charts.
Profit booking using Heiken Ashi when you are long in a trade
After you enter a buying position using the Heiken Ashi chart, you can hold your position till you see a candle with a wick or tail. Once you see a candle with a wick/tail or even a red color candle while in a position using the Heiken Ashi trading setup, you should book your profits.
Profit booking using Heiken Ashi when you are short in a trade
When you are holding a short position, you must book profits when you see a complete green candle or any color candle with a wick or tail.
Note: Prices in Heiken Ashi charts will slightly differ from the current market prices. You must make sure the stop loss and current market prices match your risk-reward setup.
Swing Trading Using Fibonacci
Fibonacci retracement and Fibonacci extensions are two great indicators to understand pullback and also identify future potential targets. We will be looking at different ways of using Fibonacci levels for profitable swing trading setups. You can use Fibonacci levels mainly for two purpose
- To identify potential pullback or retracement levels
- To identify potential targets after a retracement is complete
Let’s look at when how to identify potential pullback or retracement level using Fibonacci retracement tools
When a stock is in a continuous uptrend, we might look to enter a long trade. But buying at a higher price level might be risky. It’s always a best practice to buy a stock that’s in a continuous uptrend after a pullback or retracement. Entering a long trade after a retracement allows us to avoid buying at the highest price levels from where prices can fall because of selling or profit bookings.
To identify potential pullback or retracement levels, I use the Fibonacci retracement tool. All I need is a swing high and a swing low to identify potential retracement levels to enter a buy setup. Best Fibonacci retracement levels from where prices can reverse after a pullback are 38.2%, 50% & 61.8% levels.
You can see from the below image that on my trading terminal, the Fibonacci retracement tool is called a retracement line.
I simply select the Fibonacci retracement tool and drag it from the swing low to swing high. You will be able to see crucial retracement levels as displayed in the below image example.
As said earlier, prices can reverse from the crucial Fibonacci levels 38.2%, 50% & 61.8% during a pullback. The below image example shows how prices held the 61.8% levels as a strong support level and then reversed and moved higher. We need to use another trigger factor to confirm a long or short setup while using the Fibonacci retracement levels. I prefer trendline breakouts to confirm entry setups.
After the prices reach the crucial fib levels, a candle close over the trendline should be used as a buying signal. Below candlestick charts shows a buying setup using the Fibonacci levels and trendline closing entry technique.
As we have seen buying entry setup using fib levels and trendline closing technique, how better it would be if we knew when to book profits or exit from the trades? Well, that’s why we will be using Fibonacci extensions. Usually, I prefer the 100% level of Fibonacci extensions as a profit booking level.
The same way I selected the Fibonacci retracement tool, I can select the Fibonacci extension tool on my trading terminal.
Inside my trading terminal, the Fibonacci extension tool is called a Fibonacci line. Fibonacci extension line is used to identify potential profit booking level i.e. 100% levels of fib extensions only after we get the buying or selling entry using the trendline candle closing technique.
The below charts show the profit booking levels for the above-shown fib entry setup charts examples using Fibonacci extension levels.
Fibonacci retracement and extension levels can be used for both buying and selling financial assets like stocks, futures, currencies, and commodities. The below images displays selling setups using fib levels.
I hope you now have a good understanding of how to swing trade using Fibonacci levels. Now let’s look at the trend trading strategy using swing highs and lows.
Trend Trading Using Swing Highs & Lows
Trading trends early can be very profitable. You need to understand how to identify uptrend and downtrend using swing highs and lows. I have shown multiple example images below to help you understand how to spot an uptrend and downtrend. Before starting with the examples, let’s look at the definition of an uptrend and downtrend in trading.
Uptrend and downtrend meaning in stock markets
When the price of a financial asset such as a stock, keeps on increasing without a big decline, it’s called an uptrend. Whereas when the price of a financial asset keeps on decreasing without a big incline, it’s called a downtrend.
When we see a higher swing low and a higher swing high, we can confirm the uptrend. What I mean by a higher swing low is when the current swing low is greater in value than the previous swing low, it should be considered as a higher swing low. The below chart example displays a higher swing low and the higher swing high
To confirm an uptrend, you just need one thing
- In whatever time frame you are looking at, the current market price candle should close above the swing high.
And the same way to confirm a downtrend, you just need one thing
- In whatever time frame you are looking at, the current market price candle should close below the previous swing low. The below image explains a downtrend confirmation after a lower swing high and a lower swing low.
Here is another downtrend example on real-time candlestick charts.
As you can see from the above charts, the lower swing low candle has broken and closed below the previous swing low. Let’s try to understand trade entries and exits using the swing high & swing low trend trading method.
Entry, Exit & stop loss for swing high & swing low trend trading method
For buying or long trade setup
- When you see a candle closing above the previous swing high, you can enter a long trade
- Your stop loss will be previous swing low
- As the price move higher, you can move your stop loss to the next swing low every time the previous swing high is taken out.
- When you see trend reversal, you should exit. If you have a buying position or you are in a long trade and you see a downtrend happening, you should book profits and exit your positions
The below example image shows the clear entry, exit, and stop loss trailing when you are in a long position using swing high & low trend trading strategy
For selling or short trade setup
- When you see a candle closing below the previous swing low, you can enter a short trade
- Your stop loss will be previous swing high
- As the price move lower, you can move your stop loss to the next swing high every time the previous swing low is broken
- When you see trend reversal, you should exit. If you have a selling position or have a short trade and you see an uptrend happening, you should book profits and exit your positions
Check the below example image to understand clear entry, exit, and stop loss trailing for a short trade using swing high & low trend trading strategy.
Support & Resistance level strategy
Support & resistance level strategy needs you to understand the high and low of a swing. To buy at support levels, you need to wait for the current market prices to reach the support level. First, let’s try to understand what is support and resistance in stock markets.
What is a support level in trading
A previously traded price level from which current market prices could potentially go higher is called a support level.Definition Of Support In Trading
Support level in trading is a price level at which more buyers are willing to buy rather than sell & the chances of price turning higher are more.
What is a resistance level in trading
A previously traded price level from which current market prices could potentially go lower is called a resistance level.Definition Of Resistance In Trading
Below candlestick charts shows you a support level in the monthly chart timeframe in ADANIPORTS NSE stock.
You need to identify support levels from where the prices of financial assets can turn higher. Follow the following steps to identify a support level.
Identify a considerable pullback or retracement swing
A considerable pullback or retracement swing must meet the following conditions
- Should have a minimum of 3 red candles
- The high of the swing should be broken with a new swing high candle
Pullback or retracement in ADANIPORTS NSE stock monthly candlestick charts meets the above-mentioned conditions.
As you can see from the above candlestick chart example, the pullback has three red candles, and the swing high of the pullback is taken out by the next uptrend swing candle. Once you spot the right pullback, you can mark your support levels. I will take the entire candle that has the lowest low in the entire pullback as a possible support level after which prices reversed or went up.
To draw support levels,
- Consider the entire candle after which prices went up & that made the lowest low in the entire pullback
We will be taking the entire candle regions as support levels that made the lowest low in the pullback swing. The above image example shows how we considered the yellow arrow indicated candle as entire support levels. Prices went up after reaching the support levels that we marked.
Marking a resistance level
Every step for marking a resistance level will be the same as we did for marking the support levels accept the lowest candle consideration. We will be considering the entire candle that has the highest high in the entire swing after which the pullback started.
The below chart is of BHEL NSE stock. We have taken the candle that has the highest high in the entire pullback swing. This candle should be considered as the first candle of the pullback swing.
I have marked the entire candle as a potential resistance level. The share price of BHEL started to fall after reaching the marked resistance levels.
As we have seen how to draw both resistance and support levels on candlestick charts and use it as an effective swing trading strategy, there is one more dimension of support and resistance levels that I want to discuss. Many times, your prior support level could become a potential resistance level and your prior resistance level could become a potential support level.
Check the below images to understand how a previous resistance level acts as a new support level.
A real-time example of how a previous resistance became the new support levels.
In real-time, the previous support levels can act as resistance levels and previous resistance levels can act as a new support level.
I hope this post covers enough swing trading strategies that work well in 2021. I will be updating this post frequently if I found a few more swing trading strategies that work well. Follow a swing trading strategy with strict discipline and risk management and then evaluate it after 90 days. That is how you can improve the accuracy of your trading strategy.