Jesse Livermore, one of the greatest traders who ever lived said that big money is made in big market swings. In this regard, Livermore successfully used a swing trading strategy that worked. This helped him achieve impressive financial results. A simple swing trading strategy is a market strategy where trades are held for more than one day. They are usually held between 3 days and 3 weeks. Here’s how to recognize the right swings to increase your profits.
Our team at Trading Strategy Trader has written about other swing trading strategies that work. Read Harmonic Pattern Trading Strategy – Easy Step By Step Guide or MACD Trend Following Strategy – Easy To Learn Trading Strategy. These are some of the most popular strategies ever posted on Trading Strategy Trader.
This time we will outline a simple swing trading strategy. It is similar to what Jesse Livermore used to trade. Let’s review the Livermore swing trading strategy used to help predict the biggest stock market crash in history. It was the Wall Street crash of 1929, also known as Black Tuesday. Here is another strategy called weekly trading strategy that will keep you sane.
By the way, after the stock market crash of 1929, Livermore reportedly made $100 million. Inflation adjusted about $1.39 billion today.
That’s quite a lot of money, wouldn’t you say?
Get Started With Our Simple Swing Trading Strategy
If you take the swing trading course now, I believe that the current market conditions will allow any trader to use the right trading techniques to achieve solid results. There are a few things I think we should consider before starting.
One of them is to determine whether we should trade a countertrend system or a trend stock setup. Either one can work, but it’s up to you to decide which one you want to use. I recommend using paper trading on stock swings when you see a development.
This article will go in-depth on key swing trading techniques on daily charts. Although this can be considered an advanced swing trade, this strategy is suitable for all investors. It is perfect for home study. We will tell you how to perform accurate technical analysis and show you when to enter a trade and when to exit a trade. We will do this by teaching you how to set accurate profit targets.
It is important to make sure you have a fully developed training plan before starting to trade any swing trading system. This will help you prepare to become more successful and join the ranks of professional day traders. It is our goal to provide you with trading opportunities, as well as assist you in every way we can to be the best swing traders around. You can also learn how banks trade in the forex market.
What is Swing Trading?
The swing trading strategy is very simple. Using medium-term periods (usually a few days to a few weeks), swing traders will identify market trends and open positions. The name swing trading comes from the fact that we are looking for conditions where the price may swing either up or down.
Swing traders can use various technical indicators. What makes swing trading unique is that it combines several components of day trading, with the speed of position trading. Swing trading indicators are mainly used to find trends that play out between 3 and 15 trading periods. After we analyze this period, we will be able to determine whether a resistance or support event has occurred.
The next step is to identify a bearish or bullish trend and look for a reversal. Reversals are often referred to as pullbacks or countertrends . Once the countertrend becomes clear, we can choose our entry point.
The goal is to enter a position where the countertrend will quickly reverse and the price will swing. This is what allowed Jesse Livermore to make most of his fortune.
Before diving into some of the key rules that make up a swing trading strategy, let’s first review the advantages of using a simple swing trading strategy. You can also read about budgeting in Forex for better trading.
What Are the Advantages of Simple Swing Trading Strategies?
The main advantage of swing trading is that it offers a large risk to trade opportunity. In other words, you will be risking a smaller amount of your account balance for a larger potential, compared to your risk.
The second benefit of using swing trading strategies that work is that they eliminate the noise of many daily transactions. Now you will trade like smart money, which is in big swing waves. Also, read our ultimate guide on Ichimoku Clouds.
The third benefit of swing trading depends on the use of technical indicators. Using technical indicators can reduce the risk of speculative trading and help you make clear decisions. Although some swing traders pay attention to fundamental indicators as well, they are not necessary for our simple strategy.
The last benefit of using a simple swing trading strategy is that you don’t have to be glued to the screen all day like with a day trading strategy. The swing trading plan will work on all markets ranging from stocks, commodities, Forex currencies and more.
Like any trading strategy, swing trading also has some risks. Because swing trading strategies take days or weeks to play out, you run the risk of “gaps” in overnight or weekend trades.
Another risk of swing trading is that sudden reversals can lead to losing positions. Because you don’t trade all day, it’s easy to catch if the price trend doesn’t play out as planned. To reduce the risk of this happening, we recommend issuing a stop order with each new position. Stop orders can help you “lock in” your profits and can also help you reduce your losses.
Now …
Before we start, let’s see what Swing Trading indicator you need.
The ONLY pointers you need:
Bollinger Bands Indicator : This is a technical indicator developed by John Bollinger. Bollinger Bands are designed to find overbought and oversold regions in the market. They also measure market volatility.
Our swing trading indicator makes it easy to manage trading risk and also use price changes. Using candlestick trading charts can also help. These charts provide more information than a simple price chart and also make it easier to determine if a sustained reversal is about to occur.
Many swing traders are also always wary of multi-day chart patterns.
- Head shoulder pattern
- Flag pattern
- Cup and Handle Patterns
- Moving Average Crossovers (also consider Cloud Ichimoku)
- Triangle Trading Pattern
When there are higher lows along with stable highs, this indicates to the trader that it is undergoing a period of consolidation . Consolidation usually occurs before a major price swing (which in this case, will be negative). Learning about triangle trading and other geometric trading strategies will make you a better swing trader.
This swing trading indicator consists of 3 moving averages:
- The middle moving average, which is a simple moving average.
- And then on either side of this simple moving average plot two other moving averages at a distance of 2 standard deviations from the central moving average.
The figure above should give you a good idea of what Bollinger Bands look like. Most trading platforms come with this indicator in their original list of indicators.
If you are interested in learning more about how one can profit from this great indicator – Bollinger Bands – look no further than our Bollinger Bands Bounce Trading Strategy.
The preferred setting for the swing trading indicator is the default setting because it makes our signals more meaningful. We reached this conclusion after testing the strategy based on several inputs.
Now, let’s move on to the most important part of this article, the trading rules of swing trading strategies that work.
Before we go any further, we always recommend writing down the trading rules on a piece of paper. These exercises will increase your learning curve and you’ll be a swing sword expert in no time.
Let’s start…
Swing Trading Strategies That Work
(Trade Rules – Sell Trade)
This strategy actually consists of two elements. The first element of any swing strategy that works is the entry filter. For our entry filter, we will use one of our favorite swing trading indicators, Bollinger Bands. The second element is the price-based pricing method.
Step #1: Wait for the price to touch the upper Bollinger Band.
The first element we want to see for our simple trading strategy is that we need to see the stock price move into overbought territory. Any swing trading strategy that works should have this element incorporated.
Note * The preferred time frame for this simple swing trading strategy is the 4h time frame. This strategy can also be used on daily and weekly time frames as well.
Step #2: Wait for the price to Break below the Middle Bollinger Band.
Once we touch the upper Bollinger Band, we want to see confirmation that we are in overbought territory and the market will reverse. The logical filter, in this case, is to keep the breakout below the middle Bollinger Band.
This below the middle Bollinger Band is a clear signal of a shift in market sentiment.
We at Trading Strategy Traders do not do trade tracking without determining if there is an actual buyer/seller (in our case, seller) behind the breakout. This brings us to the next step of our swing trading strategy.
Step #3: Swing Trading Indicator: Breakout Candles should be large Big Bold candles that close near the Low Range of the Candlestick. → Sell Close Breakout Candles.
So far our favorite swing trading indicator has correctly predicted this sell-off, but we will use a very simple candle-based method for our entry trigger. To enter, we want to see a large thick candle that breaks below the middle Bollinger Band.
The second element of this candlestick-based method is that we need a breakout candle to close close to the low of the candlestick. This indicates strong sellers, who really want to drive this currency pair much lower.
Every swing strategy that works needs to have a fairly simple entry filter.
Now, we still need to determine where to place our protective stop loss and where to take profit, which brings us to the next step of our swing trading strategy.
Step #4: We hide our Protective Stop above the Breakout Candle.
Sailing candles have a lot of significance as we have used them in our candlestick based entry method. We assume that this candle indicates the presence of real sellers in the market. If the high of this candle breaks, it’s pretty clear that this is just a false breakout because there are no real sellers.
It’s not complicated about it, right?
If you want to learn more about this breakout technique and how to manage breakout trades, please read the Breakout Trading Strategies Used by Professional Traders article.
The next part of our simple swing trading strategy is an exit strategy based on our favorite swing trading indicators.
Step #5: Take Profit as soon as we break and close behind the middle Bollinger Bands.
In this case, we are looking at an example of a short trade. So, if the price bounces above the central Bollinger Band, it’s time to feel worried and take profits as it could signal a reversal.
The reason why we take profit here is quite easy to understand. We want to book profits at the first sign the market is ready to launch.
Note * The above is an example of a SELL trade. Use the same rules but in reverse for BUY trades. In the picture below, you can see an example of a real BUY trade, using our swing trading strategy.
Click here for more information.
You can see that this trade is still running because it has yet to break and close below the middle Bollinger Band. This just proves that the higher the time frame of the strategy the stronger the simple swing strategy.
Summary
Some complicated strategies can be overwhelming and confusing. Using a simple swing strategy can be all it takes to succeed in this business. Albert Einstein, the greatest scientist of all time once said that “everything should be made as simple as possible, but not simpler.” You can also read how to make money trading.
A swing trading strategy should consist of a swing swing indicator that can help you analyze the trend structure, and a second price entry method that looks at price action which is the main trading indicator.
We understand that there are different trading styles and if swing trading is not your thing, you can try our Simple Scalping Strategy : The Best Scalping System that attracts many from our community.
Thank you for reading!