Full swing trading strategy
Swing trading became popular in the early 1900s. It is based on the technical methodology of determining the duration of a previous market swing in relation to the overall technical structure of the market and predicting the next swing.
What are swing trading strategies in India?
Swing trading is not a specific trading strategy, but a general name for a tactic, a pattern of trader behaviour. Indicators, levels, graphs and candlestick patterns are just tools for determining a point of entry into the market, they are chosen individually. As a matter of fact, swing trading is using price movement for gaining profit. In this case an open position is held for a short period, on average from a few hours to two or three days.
The purpose of such holding is to achieve the largest profit with the minimum number of trades.
Swing trading is the best strategy for active investors, which helps limit risks when times are volatile. Swing trading strategies are attractive to many people who do not have time to trade intraday, but who want to take advantage of opportunities to make money when the opportunities arise.
The tools and techniques of market analysis used in an equity swing trading strategy:
- Wave analysis relies on cyclical market movements.
- Support and resistance levels. In the work take and rebound from the levels when working in a range, and breakdown (this type of signals occurs on the continuation of the trend movement).
- U-turn graphical patterns. Most often double tops, bottoms, head and shoulders are formed. This tool is considered in combination with levels: channels; Fibonacci tools and trend continuation patterns - triangles, wedges, flags, rectangles.
- Indicators - moving averages with different periods are used. It is recommended to use 200-period MA to identify the long-term trend, 2 younger MAs to determine the priority direction of movement in the medium and short term. Bollinger Bands and standard oscillators are also used.
- Multitime analysis. The method of 3 screens, the essence of which is that in addition to the working timeframe the market is also analyzed on higher timeframes. This avoids entering against the main trend.
There are two ways to manage swing trading strategies that can help a trader trade with complete confidence. The first way is passive management. The second one is the active management. Let's study the features of these methods.
Using this management method you allow the market to reach your stop loss/target profit, or you do nothing. Traders usually tend to set their stop-losses away from volatile areas of the markets, while the target profit has a rather flexible scope.
The main advantage of passive management is the fact that trading becomes more relaxed as your decisions/choices are sort of 'automated'. As for the disadvantages, let's look at the two most important ones. The first is that you will not be able to close the trade before the specified time, even if the market shows reversal signals. The second - there is a possibility to see a winning trade, which becomes a total loss of 1R.
In this strategy you need to pay attention to the market reaction, before deciding to continue or close the trade. Active management requires an active approach to trading. You will need to actively manage your trade at both the entry timeframe and at higher timeframes. Making mistakes on a lower timeframe can be quite painful for you, especially if a bounce is forming.
The advantage is that you can minimise your losses, even if it is a full 1R loss. The disadvantage is that this strategy requires more time and is more stressful. But you can decide exactly when to end the trade without giving enough space or time to exit.
Swing trading is the best strategy in India. It is one of the most popular forms of active trading, where traders look for medium-term opportunities using various forms of technical analysis.
Swing trading strategies mainly use technical analysis because of the short term nature of the trades. However, fundamental analysis can be used to enhance the analysis. For example, if a swing trader sees a bullish set-up in a stock, he may want to make sure that the fundamentals of the asset look favourable or are also improving. Many traders in swing day trading strategies evaluate trades based on their risk/profit ratio. By analysing the chart of the asset, they plan the entry point where they will place a stop loss and where they will exit with a profit.
Pros of the swing trading strategy in India:
- It takes less time to trade than day trading.
- It maximises short-term profit potential by capturing most of the market fluctuations.
- Traders can rely solely on technical analysis, simplifying the trading process.
Disadvantages of the swing trading strategy in India:
- Trading positions are exposed to market risk overnight and at weekends.
- Sharp market reversals can lead to significant losses.
- Swing traders often overlook long-term trends in favour of short-term market movements.
Swing trading versus day trading
Day trading involves using technical analysis systems and charting to make dozens of trades in a single day. The goal of a day trader is to make a living trading stocks, commodities, or currencies, making small profits on numerous trades and limiting losses on losing trades. Day traders usually do not hold any positions or securities for the next day. Because day trading is intense and stressful, traders must be able to stay calm and control their emotions.
Day trading involves risk - traders must be prepared to walk away with 100 per cent losses at times.
Swing trading strategies can be used by anyone who has some investment capital and does not require constant attention. Because of the longer time frame (days to weeks rather than minutes to hours), swing traders don't need to be chained to their computer screen all day and can have a separate full-time job.
- Holding a trade in an asset open for days or weeks can lead to higher profits than trading the same security multiple times a day.
- Because swing trading typically involves positions held at least overnight, the margin requirements are higher. The maximum leverage is usually twice the amount of equity. Compare this to day trading, where the margin is four times the equity.
- A swing trader can set stop losses. While there is a risk of executing a stop at an unprofitable price, it beats the constant monitoring of all open positions, which is common in day trading.
- Swing trading can also lead to significant losses. Since swing traders hold their positions longer than day traders, they also run the risk of large losses.
- Since swing trading is rarely a full-time job, there is much less chance of burnout due to stress. Swing traders usually have a full-time job or other source of income with which they can compensate or mitigate trading losses.
- Swing trading can be done with just one computer and common trading tools. It does not require the most advanced day trading technology.
Day trading and swing trading have their advantages and disadvantages. Neither strategy is better than the other, and traders must choose the approach that best suits their skills, preferences and lifestyle.
Swing traders tend to look for multi-day chart patterns. Some of the most common swing trading strategies stocks include moving average crossovers, cup and handle patterns, head and shoulders patterns, flags and triangles. Key reversal candlesticks can be used in addition to other indicators to develop a solid trading plan. Ultimately, each trader develops their own swing trading strategy which gives them an edge over many trades.
General trading recommendations of the swing day trading strategies in India
Trade long and short
Trading long means buying a stock on the assumption that its price will rise. To make a profit when the price goes up, you have to sell the stock at a higher price. When you trade short, you are selling a stock that you don't own. In other words, you are borrowing it.
One of the most powerful tactics for making money is compounding profits. This means that you must reinvest at least part, if not all, of your profits into future trades.
Risk and money management
To protect your trading account you can apply stop orders. Subsequently, you will need to use a good money management method if you trade a portfolio of several instruments. For example: do not risk more than 2% of the total value of the portfolio in each trade; do not risk more than 15% of the value of each trade (depending on the stock and trading period).
Work only with professionals
Only open a trading account with a reputable brokerage firm that has a proven track record on the brokerage market. Income should consist only of commissions from executed trades. Transaction fees should be low, and buying and selling should be done at the touch of a button.
Use technical analysis
By using technical analysis, you can trade much more quickly, as it is mainly based on price and volume data.
Do not trade outside of a normal trading session. Place a limit order to buy or sell at a specific price, or better. A limit order ensures that the order will execute at a price no worse than the one specified. After placing a limit order to enter a trade, immediately place a stop order to limit possible losses after the limit order is executed.
How to trade swing trading strategies in India?
The popularity of stock trading is rapidly gaining momentum. Stock trading used to be associated with buying or selling stocks for profit, but with certain risks. But these days, the direction of trading has broadened.
To start trading swing trading strategies stocks in India, a novice trader needs to open a trading account with a brokerage company. The exchange operations are not made by themselves on the stock exchange, but with help of its professional participants, i.e. brokerage companies, which for a fixed commission place orders of traders at the exchange trade and make transactions on behalf of their clients. Therefore, you have to first choose a brokerage company, which has to be reliable and with many years of experience.
The brokerage firm must have a staff of highly trained individuals who will be able to provide you with advice via a live chat form or by calling the customer support team.
Open the website of the brokerage company, and fill out the registration form with all your personal details. Here you also need to set the parameters of the account which define the type of currency and the size of the deposit. Registration takes a few minutes. That completes the registration. Then a window will open in which the username and password will be displayed. Be sure to save these data, because they will be used to log in later.
If you want to learn how to trade the swing trading strategy from scratch, it is better to start with a demo account. The advantage of a demo account is that it does not differ much from a full working account. By opening a demo account, you will have access to the same features and functionality as on the market.
The possibility of opening a demo account is primarily aimed at training new traders, as this account does not require any financial outlay. Keep in mind that no matter how much money a trader makes on their demo account, it is impossible to withdraw it. Try it, and you will succeed!