Swing day trading strategy is all about vigilance!
The trader needs to be on guard to notice a correction in a trend and then be ready to catch the ‘swing’ out of the correction and back into the trend.
“And what’s a correction?” I hear you ask.
Simple. Corrections involve overlap of price bars or candles, lots and lots of overlap!
A trending price makes progress quickly, corrections don’t.
Lets look at some charts for an example.
Take the above chart, EURUSD at 240 minute candles, within the green circle we have 26 candles where the price stayed within a 100 point range.
How do I trade with it?
As I have marked with the blue lines the price even contracted to a daily move of only 20 points!
A swing trader would be on HIGH ALERT here! Contracting price, lots and lots of overlap.
This presented a very high probability that the price was going to continue in the trend that had started the previous week.
The trade would involve selling when the first candle moved below the contracting range of the previous few candles, A stop could be placed at the most recent minor swing high. ( Orange Arrows )
Another example of a swing trade is shown in the chart below.
Again we are working on the EURUSD 240 minute chart.
In green we can see a correction to the downside, notice the slowing downside momentum?
Notice all the overlapping price candles?
The entry point in this trade would be a little harder to execute, although the principle is the same.
We want to wait for the price to show a sign of reversal, at the end of the correction, two separate candles moved above the upper blue line.
This showed that the price was now gearing up for reversal.
A trader would buy the open of the following candle and place a stop at the lowest point of the correction.
The risk here was about 30 points, the gain was about 600 if you managed to ride it all the way up!
Swing trading is a little more nuanced than the crossover technique, but still has plenty to offer in terms of money management and trade entry signals.