Swing Trading – An Introduction for Beginners
I believe the best professional trading strategy for most retail traders is the swing trading approach. So what is swing trading, and what are the best swing trading strategies?
It is the trading style I have adopted in my own work. In basic terms, I am aiming to capture price swings in one direction that typically last from a few days to a few weeks.
And my aim is to get into the trade as early as possible and to exit as late as possible for maximum profit. For that, I use my Tramline Trading Method that locates high probability/low-risk entries (and importantly – the exits).
Swing trading strategies
Study any price chart and you will immediately notice that most of the time, markets swing from one high and then down to a low and then up to another high and then down to another low and so on in a series of swings. Much less frequently, they strongly trend in one direction in what appears as almost a straight line. Swing traders rely on these market swings to take advance of them, predicting the swings and using them as strong entry and exit points to reach their profit target.
These are rare and if you can locate one, it is best to engage in position trading where you will be well rewarded by hanging on to your position for weeks and months – if you can! I’ll discuss the differences between swing trading strategies and position trading here, and by the end, you should have all the information you need to be confident swing traders in your own right.
Swing Trading vs Position Trading
One big problem with position trading with actively traded stocks is that you will encounter the inevitable large counter-trend corrections that may last weeks. You will see your equity balance drop alarmingly and most will be tempted to abandon the position.
It takes an exceptionally strong-willed trader to ride through these setbacks.
And of course, what starts out as a setback may turn out to be a complete change of trend and you will end up back where you started.
The risks are high for this position trading approach. Of course, a strong uni-directional move is obvious in hindsight but sadly, we must all trade in real time where the future wave patterns are uncertain.
And that is one reason why I favour a swing trading strategy. With swing trades, you’re less likely to end up in these positions where the equity balance drops and you’re tempted to abandon.
What creates market swings?
So what makes a market move up and down to create these swings that are so central to swing trading? It is the ever-changing movements in overall trader/investor sentiment from bullish to bearish and back again that operate on all time frames from second-to-second to month-to-month.
The crucial point is that Elliott showed that these swings are patterned. And the best way to analyse these patterns is to use the Elliott Wave method.
Ideally, when we catch a swing we enter the trade near a turning point – just as a downswing reverses into an upswing (or vice versa). That makes your trade timing critical. Getting in too early or too late could be a losing tactic. Learning to analyze the market conditions and time your swing trading and day trading is crucial, and that’s what my Tramline trading method is for.
Of course, good timing is essential in any professional trading strategy.
Once we have a good entry, we can then treat it as a possible swing trade where we look for a substantial gain over the next few days or weeks. But the trade requires managing! One way is to move stops as the market moves in your direction. That way, a profit is usually assured.
You may be missing out on possible further gains after your stop is hit, but you always have the option of reinstating your position. And you have money in the bank!
Becoming a swing trader – Manage your trades!
Naturally, not every entry turns out to be a winner. Losses are unavoidable when trading the financial markets. Your analysis may be correct but your timing may be off and your stop is hit. I always advocate using Protective Stops on all open positions.
A professional swing trading strategy aims to produce much larger wins on the winning trades than the losses on the losing trades for an overall positive return over time.
As an example of market swings – here is the daily GBP/USD chart from April 2022 to March 2023 showing the many short-term swings and at least one major trend.
There is a multitude of 5 – 6 cent swings that can be captured with correct timing.
And a five-cent gain translates into a profit of £5,000 for a small £10 spread bet – well worth going for. And most of these swings occur over 2 – 3 week periods.
Of course, if your trade horizon is longer, you can aim for larger swings. Here is an example:
Here, you are aiming to capture 10 – 20 cent swings that last from about 6 – 10 weeks.
Between the two strategies, the latter offers more rewards but is at higher risk as is usual in financial markets.
But in both, the idea is to take a swing trade for a large gain compared with the initial risk.
How to get the odds on your side
All of the above appears so simple, doesn’t it? Just jump on a swing, ride it to the end, and take the profit. All of the chart swings above were constructed with 100% hindsight. But when examining your chart in real-time, there should be a certain confusion when planning your swing trading most of the time.
The only exception is when you are looking at a textbook setup. And for that, I use my own Tramline Method.
Here is an example I am capturing in real-time (Mar 23 at 10:30 am):
The rally is in a clear five mini waves on this 1-hr chart. If my pink ‘target area’ is the top of the five up, then the next move will be either a three down or a five down. This is an example of the kind of pattern swing traders aim to recognize for strong entry and exit points.
It has just broken a minor blue support line moments ago which is the first signal the new downtrend has started. I have a first target of 1550 pts below. I enter a short trade at 7500 with a stop at 7550 in case I am wrong.
My first Fib target is at 7350 for a reward/risk ratio of 3/1. This is very acceptable for a swing trade with the odds on your side.
Provided the market does arrive at the 7350 level, I have options. I could either take the profit there or I could move my stop to just above that level. If the market just keeps moving below 7350, I will capture more gain.
And if stopped out at the new lower stop at least I have a good profit. And I could look for another low-risk entry.
Naturally, with this professional trading strategy, you need to be in front of your screens several times in the day to give the best-timed opportunities in order to maximise your opportunities for swing trading success.
This is not a set-and-forget approach! Markets today are very fast-moving and often turn on a dime.
But when swing trading, we are looking for moves that take from several days to several weeks and it is not necessary to hover over your screens 24/7 unlike many day traders.
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With all this said, this is just an introduction to the swing trading style, and there are many more nuances and details to learn about the support and resistance in the market for certain trades. If you want to level up your technical analysis skills and trade the financial markets with real professional trading strategies, then my VIP Traders Club and Phoenix Traders club are for you.
In these clubs, you’ll get access to my community to give advice and learning opportunities beyond my blog posts. Our expertise can help you ride the waves of swing trading, teach you to see swing trading opportunities, and help you gain confidence as a swing trader in your own right. What are you waiting for? Find out more about why professional traders prefer my VIP traders club and Phoenix Traders Club today.