Swing trading strategies capture significant, single moves in the market. These moves may last for anything from a day to several weeks. In this story, we'll give you bite-sized intel on a few of the most popular and proven strategies swing traders use. For more detail on each strategy, click here to go to the long post on swing trading strategies I wrote. Click Here.
A commonly used swing trading method is the Exponential Moving Averages (EMA) crossover strategy. Forex swing traders might refer to this strategy as the forex EMA crossover strategy, However, we should remember it is not limited to just currencies. Any instrument, whether stocks, futures, options or cryptocurrencies, can be traded using the EMA crossover strategy.
To set our stop-loss, we will use the Average True Range (ATR), a standard measure of volatility, that can easily be viewed on charts. A cautious stop will be 100% of the ATR, in pips, above or below the 50 EMA. More aggressive swing traders may use as little as 50% of ATR, and that's fine. There's really no right or wrong figure. All that really matters is that you stick to the risk and reward ratios set out in your trading plan.
It might seem counter-intuitive that swing traders would be trend traders. But in fact, no trend is ever a straight line. There are always pullbacks (swings) within trends that offer attractive entry opportunities. We can either enter as the pullback begins - a swing high in a bull trend - or look to get in as the underlying trend looks set to resume - a swing low in a bull trend.
The Fibonacci retracement strategy is based on the Fibonacci sequence of numbers in which each new number is the sum of the previous two. All we need to know is that certain percentage retracements, based on the Fibonacci sequence, have been found to be useful predictors of future support and resistance levels. 0% represents the swing high or low before any pullback or retracement has happened. The 100% level indicates a complete retracement to the previous swing high or low.
To identify a cup and handle pattern, we will look for a swing high forming the left rim of the cup, followed by a pullback into a flat or gently curving bottom before price recovers to form a second swing high - the right rim of the cup. From the right rim, we will then look for the price to pull back to form the handle of the pattern. As noted above, the handle should ideally slope sharply downwards, as we are looking for a strong move into support.