Understanding Swing Trading Strategies Online in India | Espresso

Swing Trading Strategies

One of the things stock markets are most commonly renowned for is the consistent fluctuations in the prices of different securities listed thereon. These fluctuations, or swings, in the prices of stocks, open an opportunity for several trading strategies, swing trading being one of them.

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Swing Trading - Meaning

Swing trading is a trading strategy whose premise is built upon utilising the short to medium-term swings in the prices of stocks to make profitable trades. In contrast to intra-day trading, swing trading has a horizon of several days to, at times, months.

While choosing the best swing trade stocks, several factors need to be considered, for instance, the performance, volatility, and liquidity of said stock over a certain period of time. If you are looking for swing trade stocks, you would be well placed to select stocks that have exhibited stability in performance and fared better than their counterparts in the concerned sector.

Swing Trading Strategies

There is a wide range of swing trading strategies at the disposal of traders, some of which have been discussed below.

1.Support and Resistance:

Support and Resistance is a swing trading strategy that revolves around the price lines denoting the support and resistance levels for a particular stock over a given period. The market support line for a stock is the price level where a downward trend is expected to pause, aided by a rise in buying interest.

A resistance line, on the other hand, is the price level where an upward trend is anticipated to stop, driven by selling pressure. The trading for a stock usually happens within the support and resistance lines for a stock, and if you are a swing trader, you can use technical analysis to determine when to enter or exit the market for a particular stock.  

Price Trend Line for a Stock

Ideal Swing Trading Strategy and Position

When the trend line for the price of a stock is downward and about to touch the support line (πŸ“‰)

Strategy to sell; Short position

When the trend line for a stock's price is on the rise and nearing the resistance line (πŸ“ˆ)

Strategy to buy; Long position

2.Simple Moving Average Line:

Another popular strategy in swing trading is the application of a Simple Moving Average Line or SMA to determine which market positions to acquire. The SMA line for a stock reflects the average price for a stock over varying periods. Under the Simple Moving Average Line trading strategy, traders usually use a 10-day average price line for a stock along with the corresponding 20-day one.

After placing both the 10-day average price line and the 20-day average price line on a trading chart, you should look for the point where the former crosses the latter, indicating an upward trend and then take a long position. On the contrary, taking a short position is advisable when the 20-day Simple Moving Average Line for a stock crosses its 10-day counterpart, reflecting a downward trend.

Simple Moving Average Lines

Ideal Swing Trading Strategy and Position

When the 10-day SMA > 20-day SMA - Upward Trend

Strategy to buy; Long position

When the 20-day SMA > 10-day SMA - Downward Trend

Strategy to sell; Short position

3.Channel Trading:

As the name suggests, channel trading is a trading strategy that is centred around a channel of parallel lines that represent the trends for the price of a particular stock within which the trading is taking place. The upper channel line represents the swing highs for a stock, whereas the lower channel line reflects the swing lows.

The channel can keep moving upwards, downwards, or sideways depending on trading trends. Channel trading is an easy strategy for swing trading for beginners as it employs the study and analysis of simple trend lines for determining entry and exit points for a particular stock.

Movement of price vis-a-vis a trading channel

Ideal Swing Trading Strategies

When the price for a stock reaches the top of the trading channel

Strategy to sell; Short position

When the price for a stock reaches the bottom of the trading channel

Strategy to buy; Long position

When the price for a stock stays in the middle of the trading channel

Hold your current trading position and keep watching the market
Also Read: Best Intraday Trading Strategies

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Frequently Asked Questions

There are two types of traders in swing trading, namely;

  • Passive Traders - Ones who wait for the price level of a stock to hit the stop loss or the profit target to determine the changes in their swing trading positions.
  • Active Traders - Ones who actively watch the market to determine their swing trading position and any changes therein.

Bollinger Bands are price bands that are placed on either side of a moving average trend line for a stock. These bands serve as markers for swing traders to decide when to enter and exit the trades for a particular stock.

Swing traders rely heavily on technical analysis to determine the optimal market positions to acquire for a particular stock. Some of these patterns are:

  • Flag patterns
  • Cup and handle pattern
  • Triangle pattern
  • Moving Average pattern
  • Head and shoulders pattern.