Although swing trading strategies are frequently mentioned in the relevant financial literature, there is no uniform definition of the approach. It is usually understood to mean strategies that attempt to participate in market movements within an overriding trend. This is possible in downtrends as well as in uptrends.
A method often referred to as a swing strategy consists of opening long positions within an existing upward trend after the market has gone through a correction phase. In this case, trading is thus exclusively in the direction of the trend, which makes it difficult to distinguish it from a trend-following strategy (which could, for example, consist of opening long positions near the lower edge of an upward trend channel).
Trading only in trend direction?
Other approaches extend the concept of swing trading and also explicitly provide for opening positions against the trend. Thus, a short position can be opened in an upward trend when a correction is imminent. Figuratively speaking, one trades against the trend when it approaches the upper edge of its upward trend channel. Of course, additional indications are required for positions against the trend direction. For example, decreasing turnover and short-term downward candlestick chart formations can serve as filters.
Swing trading in exness login is possible on the basis of both chart analysis and market analysis (technical indicators). In the former case, trend lines and trend channels as well as candlestick charts play an important role. In the latter case, oscillators can be used. These indicate overbought or oversold market situations and can thus generate a trading signal if necessary.
Strengths and weaknesses of swing trading
The greatest strength of swing trading is the ability to make profits in almost all market phases. The approach works in downtrends as well as in uptrends and even in sideways trends. The name of the approach comes from an appearance that can be recognised in almost all trends: the typical zigzag course of prices! Each zig and zag marks a "swing".
This pattern can be found in almost every price trend. Moreover, it can be observed for most markets that the sequence of the individual swings occurs in a relatively constant ratio. The continuation of a trend and its constant correction are by no means chaotic, but are relatively easy to calculate.
Harvesting the swings
However, this also means that the potential of a single swing is manageable. Swing trading takes place on a short-term time scale. Most positions are likely to be closed again within a few days to weeks. As a rule, a single position therefore only generates a manageable profit.
Therefore, an efficient "harvesting" of the individual swings is crucial for the success of any swing trading approach. This presupposes that the position is opened at the earliest possible point in time within the swing and is not closed again too early afterwards. The latter goal can be achieved very easily with trailing stops. Identifying the best possible entry point appears to be much more problematic.