Swing trading is considered one of the most practical and rewarding methods of trading in the financial markets. Whether you trade forex, stocks, or commodities, swing trading gives you the flexibility to take advantage of medium-term price movement in the market while still respecting your time.
We will now outline a proven step-by-step process for swing trading you can implement immediately. Let’s get started!
The first step to swing trading is time frame selection. There is nothing better than a daily chart!
Daily charts offer:
If you are trading forex, use New York close charts (which means the daily candle closes at 5 PM EST, the end of the unofficial forex market close).
While 4-hour charts are useful for entry refinement, the daily chart is where you will do most of your analysis.
Think of support and resistance levels like the framework of your trading house. If you don’t have them, everything falls apart.
Find those horizontal price levels and trend lines where the price has previously reversed. These levels will allow you to:
A good swing trade starts and ends at key support and resistance zones.
Now that you have established your support and resistance –
Next, look for momentum in the market using swing highs and lows.
Here’s how:
Knowing market momentum informs you when to trade and when to stand back. Do not force trades in choppy or sideways markets.
Price action is the language of the market, and swing traders need to be able to speak this language fluently.
You should be looking for the following patterns at key support / resistance zones:
Confirm the trend direction, the key zones and wait for the price action signal to be reversed before you enter a trade.
Knowing when to exit is just as important as knowing when to enter. You should have predetermined exits NOT emotional ones.
Follow these two simple rules:
This is when you are most objective. Once you’ve got real money involved, you will be highly influenced by emotion – don’t let that drive your decisions.
Use similar support and resistance levels, that were in Step 2, to determine the following:
Risk management is what differentiates the professional trader from a gambler.
Start with these two main ideas:
Risk-Reward Ratio – Try to find trades that have at least a 1:2 ratio, this means for every ₹ 1 that you risk, you ideally take actions to turn that risk into ₹ 2 or more. For example:
Asymmetry – Find setups where your possible reward is at least 2x or more than your possible risk.
If you’re diligent about following a structured process, swing trading can be extremely lucrative. Let’s recap the steps quickly:
By implementing these steps following your trade setup for swing trading you can begin to execute less often, with greater precision, and receive greater rewards.