Swing Trading Tutorial







Swing trading involves using technical analysis to study charts of previous price movements and attempt to forecast future short-term moves. Swing traders look for particular chart formations that signal good opportunities to buy and sell in trades lasting about 2 to 5 days, buying after a pullback in price and riding the swing upward.


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A Simple Swing Trading Framework



  1. A swing trader looks for long-term trends, to identify profitable short-term moves within that trend. These traders are not concerned with any company fundamentals, only with the stock price charts and technical indicators to forecast price movements.

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  2. Essential in the practice of swing trading are entrance and exit strategies to obtain the maximum profit. The trader enters on a price retracement and must have already decided on an exit strategy. Traders can decide to exit once a stock reaches a certain price, or they can set a moving (trailing) stop sell order toward the end of each day, which will automatically sell the stock if it dips back down to a certain level. In a strongly-trending short-term move, this actually can keep the person in the trade for longer than anticipated, an unexpected positive occurrence. The most simple swing trading method is to buy in a pullback when the price begins moving upward again, and sell as soon as it dips back down.


  3. Trend lines can be used to identify good places to enter and to take profit. The trader draws a line under the bottom of the uptrend and over the top, and extends these lines into the future. The trend lines point out ideal places to buy and sell as the market follows the trend upward.


  4. In an uptrending stock that has stalled, support and resistance levels can be used for a simple swing trading method. A support level is the point where a stock has historically stopped dropping in price, and the resistance level is a price at which a currencies historically does not move higher. These lines can be drawn back into the past as far as is reasonable to find a definitive price range. The swing trader buys the currency when it bounces off the support line and sells when it hits the resistance line.


  5. Another entrance strategy occurs when prices are trending upward, then drifts downward for several days, enough to draw a short downtrend line over the top. When the price breaks out of this downtrend line with higher-than-usual volume, that is a signal to buy.


  1. Exit strategy would be the same as with other swing trading methods---taking a profit at a predefined price, taking profit by following a trend line, or following the upswing with a trailing stop.


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