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What is Swing Trading
Swing trading uses a system of analysis to determine the likely direction of the immediate move and to avoid hanging around during the inevitable reversal. Swing trading tries to take profit quickly after a significant in upward momentum and move on to fresh opportunities.
Essentially, swing trading is buying at one level and selling at another level when the momentum of the move has waned. Duration of the trades last a few days to weeks.
Swing strategies may involve trading a new swing coming out of a pause / retracement in an existing trend or swing based on breakout patterns.
Chart 1 – Breakout Pattern
Chart 2 – Temporary pause in an existing trend
Technical Analysis Tools
Arsenal of a swing traders use a repertoire of tools to sharpen his technical edge
- Support and resistance lines
- Trendlines
- Volume
- Chart patterns
These are areas where buyers and sellers have shown greater propensity to either buy (in the case of support) or sell (in the case of resistance). Support and resistance form an integral part of supply and demand.
Psychology behind Support and Resistance
If a trader buy a stock and immediately it begins to decline. It is human instinct to get out without suffering a loss. If enough traders buy at the same price and immediately suffer buyers’ remorse, the result is a resistance level. When the stock rallies to this level, those who bought poorly will try to get out even.
Support is usually the result of buyers being rewarded for buying a stock at a specific level. If stock rallies immediately shortly after purchase, the odds are that the trader will feel good about the purchase. If stock retraces to this level, traders would likely to buy again.
Those who had missed our earlier are also likely to be motivated to buy so as not to miss the boat again. If enough traders are willing to buy at a certain price level, it will becomes support. For support and resistance, it is the concentration of trading that is important.
Trendlines
They demonstrates where a stock’s current trend is expected to go if it continues, and give you a boundary if the trend breaks.
Trendline is drawn by connecting the lows in an uptrend or the highs in a downtrend. Though we need only 2 points to make a trend line, the greater the number of points being connected, the grater the significance.
The longer the trendline is an the more times it touches the chart without breaking it, the stronger and more reliable it is.
When a market is in a clear trend, it is not worth going against it. One should wait for a retracement to get in on the right side.
Volume
Healthy trend are characterized by rising volume in the direction of the trend. Volume should follow trend and should expand on rallies and contract on decline for a bullish market and vice versa for a bearish market.
Market will never continue to trend after substantial move. They will eventually take a breather going into a trading range. This often follows a large decline in volume.
A slowdown in volume is almost always the result of indecision on the part of the traders while they wait for the next clue the market will leave as it decides where it wants to go next。
Eventually the indecision is resolved through a breakout, and is often followed by large price explosion. This is where a swing trader would like to position himself.
Swing Trading Strategies And How To Read Chart Patterns
a. Trading Support and Resistance
One common approach is to buy/sell the bounce from support / resistance in a sideways market.
A trader can use a momentum-based indicator such stochastic to identify oversold and overbought trigger.
The terms overbought and oversold are misnomers. In the context here, they refer to a short-term top and bottom.
Chart 3 – Trading Support and Resistance
Chart 4 – Trading Support and Resistance using Stochastic Oscillator
b. Trading with Trendlines
Drawing a trend line on a chart help us to understand the direction of the trend and allow us to identify key points in future price action.
A similar approach can be adopted for a trending stock by buying the retracement near the lower trendline. The key is to wait for the market to confirm the reversal, and not trying to anticipate it.
For a down trending stock, traders can position themselves to sell the rallies near upper channel line.
Again, trade should only be taken only when the market has confirmed the reversal. In short, always focus on the reaction and not the line! All reversals must be accompanied with good volume.
Chart 5 – Trading off the bounces of a uptrending stock
Chart 6 – Selling short the rallies in a downtrending stock
c. Consolidation (Chart Pattern) Breakout
By far the vast majority of the time (about 80%) markets move in a consolidating sideways pattern.
Typically, a sideways range trading channel is formed with the price hitting the top and bottom extreme of the channel at least two or more times.
This often evolves into recognizable shape such rectangle, triangle (ascending or descending), saucer, cup with handle, etc.
Volume during the sideways move generally dries up as discussed in the early section on Volume.
At some point price will inevitably pierce out of the range which is the place where the traders want to be for a timely entry into a trade.
Chart 7 – Consolidation Breakout (Rectangle)
Chart 8 – Consolidation Breakout (Saucer)
Chart 9 – Consolidation Breakout (Triangle)
Is Swing Trading for You?
Swing trading is probably the best chance for most retail investors / private traders.
Take advantage of the short-term moves created by the smart money.
First, swing trading does not test your patience unnecessarily. Stocks are usually held for 2-5 days and at times, 10 – 20 days.
Swing trading avoids traders from falling in love with the “story” which causes them to suffer big losses.
In Swing trading, the fundamental story plays little part. As such, swing traders tend to be more objective in their approach.
Swing trading techniques are versatile and trade-able in multiple timeframes be it hourly, daily or weekly.
As such, traders can trade at a timeframe most suited to their temperament and time commitment. They can have greater flexibility in balancing trading and their day job.
Swing Trading Courses In Singapore
A good trading programme should not only cover the essential elements in the trading methodology but offers a myriad of supporting elements that help participants to trade better, regardless of their level of proficiency.
For people who want to learn more about profitable swing trading, Asia Charts offers the Super Rally (SR) Trading programme which is conducted over 2½ days.
It gives participants a complete understanding of how market structure and price action control all market movements and how to effectively take advantage of the opportunities that market offers.
Our programme provides you with a comprehensive framework that enables you to evaluate opportunities in a disciplined , consistent manner with precise entry and exit points.
While most traders put all their emphasis on the timing of the entry, SR Trading puts as much emphasis on the selection of right stocks that give better profit potential.
The expert advisor provided in our charting software provides timely entry signals.
The automatic screener identifies setups at the end of each trading day so that you can adequately prepare your trades for the next day.
Apart from the trading system, equal importance is also placed on risk management and trader’s mindset, without which even an infallible system will not help traders to be profitable.
Many past participants has commented that these 2 topics alone, is well worth the investment in our programme.
Our suite of support include weekly debrief video, monthly coaching, members’ forum and free re-sit (admin fee applies).
New traders find the free re-sit invaluable. Members’ forum allows like-minded traders to share ideas, lessons learned and insights.
The value of this ongoing interaction and learning is likely to be as valuable as our programme itself.
As part of traders’ development, we also offer Advanced Swing Trading Course – Golden Swing which bring your trading to a whole new level.
Golden Swing techniques give you the added advantage in skimming profits from the market, by exploiting 3 technical edges – Strongest stocks in strongest sector, finding a sweet spot for entry and with increasing momentum to ride the moves for maximum profit.
In addition, participants will be given bonus strategies for trading narrow range bars (NRBs) which are often ignored or neglected by traders.
These include NRBs formations like crater, Pinnacle, Ledge, Plateau and Reversal Run Days.