Swing Trading Made Simple - 2021: Strategies, Indicators, and Books

Updated: 6 days ago

One of the most incredible opportunities in life is trading and investing, along with your job or business.

The problem with beginners is, they get scared by the phrase "stock market trading."

Most of them would have seen a friend's profit screenshot or watched a YouTube video with the title - "How I made NN money in 1 hour" and tried their luck immediately in the market.

Needless to say, this creates a negative opinion about stock market trading in their subconscious mind, which mocks them every single time when they think about trading at any point in time.


Swing Trading - Illustration made by Indrazith Shantharaj, used Canva licensed assets

There is no need to feel sad about your trading results. Besides you don't have to be your intelligent friend who will display only profitable screenshots and hides losing trades or that YouTube guru to get success in this business.

You can be yourself, learn a trading concept in-depth, and maintain laser-focus to execute the trades based on your trading concept.

Swing Trading can be used as a side hustle by anyone to build wealth over a while.

Remember, the way you frame ideas in your head can accelerate your growth (or impede your growth). Hence, keep an open mind, read the article till the end, and then decide yourself.


What is Swing Trading?

Swing trading is a trading technique that seeks to capture a swing when the price goes to a complete sideways zone.


Image - Swing Trading Strategy

The idea is to get out of the trade before the opposing pressure comes in.


It means you look to book your profits before the market reverses.



Swing Trading Strategy

  1. Identify a range-bound market or script based on individual choice.

  2. Observe price action carefully at the Support level (for a long trade) and the Resistance level (for a short trade).

  3. If there is a firm price rejection at the support level, then go long on the next candle open (the technique is the same for a short trade if there is a rejection at resistance level).

  4. Trial your stop-loss when the price moves upside and book profits before the Resistance level (for short trades, book profits at support level).


Below is one example.

Image - Swing Trading Example-1

Now you might ask a question.


“Why should I book profits before Resistance?”


As a swing trader, you are only looking to capture one swing in the market.


To ensure a good success rate, you have to exit your trades at the resistance levels (that’s the idea of “swing” trading).


Image - Swing Trading Example-2

The above image shows another example of a swing trade. The price is in a sideways trend, and it showed clear rejection near the resistance area.


So, a swing trader can plan a short trade below the rejection candle low, keeping a stop-loss above the high of the rejection candle, and can target the support zone.


Image - Swing Trading Example-3

The above image shows another example of a swing trade. The price is in a sideways trend, and it showed clear rejection near the support area.


Hence, a swing trader can plan a long trade above the rejection candle high, keeping a stop-loss below the low of the rejection candle, and can target the resistance zone.


| Also Read: Top 10 Trading and Investment Books of All Time


Best Indicators for Swing Trading

Many traders use different indicators such as Moving Average (MA), RSI, Stochastics, ADX, Bollinger Bands (BB), etc. in their swing trading. However, Moving Average (MA) and Stochastics are the best indicators for swing trading.

Moving Averages

Moving Averages calculate the mean value of a stock’s price movements over a selected period; hence they negate all the short-term spikes or quick moves.

The moving average is a lagging indicator as they are calculated using the past price action. As a lagging indicator, the moving average is the best tool to confirm the trend of a stock, rather than predicting the future direction or momentum.

Image - Moving Average Indicator

There are two types of moving averages:

  • Simple Moving Averages (SMA) – It takes the candles' closing price, calculates the average over the mentioned period, and plots on the chart.

  • Exponential Moving Averages (EMA) – It gives more weightage to recent price action and the calculation of the average of the mentioned period.

SMA is helpful for long-term trades and EMA is helpful for short-term trades. As the swing trade holding period is in between 2 days to 3 weeks, it's better to use EMA.

Image - Moving Average Crossover

One simple and effective way to use MA for swing trading is to watch out for a short-term moving average (like 5 MA) crosses a long-term moving average (50 MA).


When a faster-moving average crosses a slower moving average from below, it can indicate a big move on the upside in the coming days.


Similarly, when a faster-moving average crosses a slower moving average from above, it can indicate a big move on the downside in the coming days.

Stochastics


Stochastics is an oscillator that compares the closing price to the range of its prices over a given period in the selected instrument. Then it plots the values within the range of 0-100.


A reading of 80 and above is considered overbought, and a reading of 20 and below indicates oversold.


Image - Stochastics Indicator

One should not look for a long trade just because stochastics reached the oversold region. The price can stay in the oversold or overbought zone for more periods in a trending environment.


Hence, one can plan a trade when the price is coming out of that range. For example, you can plan a long trade if the price shows rejection at the support line, and the stochastics moved above 20 from the downside.


Similarly, one can plan a short trade when the price shows rejection at the resistance trend line, and stochastics moved below 80 from the upside.


Pros and Cons of Swing Trading


Below are the Pros and Cons of swing trading:


Pros:

  • It gives outstanding results when the market (index) is also in a sideways zone.

  • There is no need to spend much time in a live market as your trade will last for a few days to a few weeks.

  • Best suitable for people who have other jobs or businesses.

  • Stress level is less as compared to intraday trading


Cons:


  • It gives medium (or average) results when the market (index) is in a trending market. The success depends on how a trader aligns his trade with the market conditions. For example, if the market index is in a deep downtrend, it doesn’t make sense to opt for long trade using swing trading techniques. In such a case, it’s better to look for a “short” trade using the same swing trading approach.

  • A trader will not be able to ride the trends.

  • There is an overnight risk.

  • Return is less compared to intraday trading.

How to Select Stocks For Swing Trading?

Every trader should know how to pick the stocks for their swing trading. However, one can use the below points to determine the stocks for swing trading:

  • A list of 50-100 stocks is enough to look for swing trade opportunities every day.

  • Shortlist only the stocks with a price above Rs.100 (to avoid operator stocks).

  • Remember, the Holding period for a swing trading is in between 2 days to 2 weeks. Hence, ensure any significant event (quarterly results, AGM meeting, etc.) is not scheduled in this period.

  • These stocks should have received decent volumes in the past.

  • Keep 50% of the stocks for the ‘Long’ watch list and the remaining 50% for the ‘Short’ watch list. If possible, try to align your swing trades with the index.


Swing Trading Books

On Amazon, you will find a lot of books on Swing Trading.


However, below are the best books on Swing Trading:

(Both are paid links. As an Amazon Associate we earn from qualifying purchases)


Conclusion

People often ask the same questions, "Does Swing Trading Work?" or "Is Swing Trading is Better than Day Trading?" on many platforms.


|Also Read - How to take intraday trades using Market Profile?


One should know that swing trading is just a trading technique. If you are right, it will generate profits, and if you make mistakes, it will create losses in your trading account. Isn't it?


We should not compare swing trading with intraday trading as both the trading styles are different, and both come with their advantages and disadvantages.




My Books

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© 2020 by Indrazith Shantharaj.