Trend Following, Counter-Trend, Breakouts, Retracements.
Helpful indicators are Moving Averages, RSI, MACD, and Bollinger Bands.
Swing trading is a technique where traders seek to take advantage of price movements in a fairly short time frame, not a long-term hold, when thinking of capital gains, (sometimes they hold it days and sometimes weeks). In this scenario a trader is aiming to buy at the low price point and sell at the high price point (with shorts as possible exceptions), identifying a short-term trend and riding it out.
This approach to trading is great for individuals wanting to trade, but who will never be able to watch the charts all day—still wants ACTIVE INVESTING, without being a day trader or long-term investor.
Swing traders use technical analysis to identify trading opportunities in both trending and range-bound markets. They are different from day traders because they will not execute dozens of trades in one single trading day. Swing traders:
1. Trend Following Trading Strategy – This strategy typically entails traders governing themselves toward trades in the direction of the actual trend—buying when the trend is bullish and selling when the trend is bearish. Positions are excited when indications of a trend reversal are present. Indicators that may be useful here are moving averages and MACD.
2. Counter-Trend Trading – This strategy seeks to create a signal for entering a trade in the opposite direction of an existing trend. For example, selling after a prolonged period of upside in anticipation of a pullback. Counter-trend trading provides traders with the opportunity to realize profits much faster, but risk is also higher since they are trading against momentum.
3. Breakout Trading Strategy – Breakout trading involves entering a trade when the price of an asset trades beyond prior established support and resistance. After a breakout occurs, typically the volatility seen in the price action will only increase and potentially mark an early direction for the start of a new trend.
4. Retracement Trading Strategy – This is when traders identify price pullbacks for temporary retracements that occur within the context of an existing trend. In the context of an existing bullish trend, a trader will wait for the price to drop temporarily to a support level before entering a trade expecting the price action to resume the direction of the trend.
It is always best to use technical indicators when analyzing price charts and making decisions. Here are some of the most useful indicators for swing traders:
Simple Moving Average – A moving average that takes into account previous prices to display price direction. If prices are touching or above the SMA, a trend in the up direction is indicated.
Exponential Moving Average – A moving average that weighs recent prices more heavily (recent price changes affect EMA more than old price changes). Since EMA reacts faster to market conditions, EMA crossovers are typically considered entry signals.
Relative Strength Index – The RSI can help us determine if an asset is overbought or oversold. An RSI above 70 indicates overbought, and below 30 indicates oversold. RSI values around 50 suggest conditions are neutral, or that fluctuations will not trigger reversals.
MACD – The MACD makes it easy to see momentum as well as trend direction. MACD crossovers also help inform buy and sell signals, when the MACD line crosses the signal line; as a trader, you may want to watch for return reversals.
Bollinger Bands – Bollinger bands also indicate market volatility. When prices have touched or moved outside of the upper or lower band, this may be an indication of overbought or oversold market conditions.
Swing trading is the process of holding stocks or assets for a few days or weeks to capitalize on short- or medium-term price movements.
Of the swing trading indicators available, some of the best are Moving Averages, RSI, MACD, and Bollinger Bands.
Yes. Swing trading is a good starting point for traders who are willing to learn about technical analysis and practicing proper risk management.
When swing trading, you should look to trade stocks that have high liquidity (easy to buy/sell) and high volatility (big price movements). You’ll also want to look for chart patterns or technical indicators.
You can start swing trading with as little as ₹5,000 to ₹50,000 in initial capital. As you gain experience and confidence, you can increase your capital.