Swing trading is a methodology designed to deal at peaks and troughs of the price. A swing trader will see this as one of the most popular trading methods. It doesn’t require a large amount of research which requires a longer-term commitment.
Swing trading allows the swing trader to take advantage of short-term opportunities so that the investor will have a position on the instrument for a small period of up to several days.
Of course, the investor should always be aware of the point at which he will enter into a buy or sell trades.
Popular filters have been created among traders and their trading methods that increase their probability of success. The most common filter is trading using the prevailing trend.
When using this method, the swing trader will only trade in the direction with the prevailing trend.
One of the best markets for the following trend methods is stock trading. It is extremely popular because the trends are much more permanent than, for example, in the currency market, where they vary from day to day, depending on market participants and different macroeconomic data.
Tools used in the strategy
Trading on the stock market often discourages novice forex traders due to ignorance of fundamental analysis or aversion to a thorough analysis of the financial condition of the companies concerned. However, according to the basic assumptions of technical analysis, all the required information is contained in chart. Despite knowledge of fundamental analysis and macroeconomic relationships between companies being extremely important, it should be borne in mind that it is possible to trade using only the data flowing from the chart.
Technical analysis is extremely useful when testing strategies and then in determining their suitability. In accordance with a famous saying “A picture paints a thousand words”. Swing trading uses only what we can see without assumption; without looking at the stack of company valuations or the balance sheets and profit and loss accounts. We use the 200-cycle Exponential Moving Average and familiar charts with the Moving Average Convergence Divergence oscillators with standard settings (12,26,9). The intervals we use are daily (D1) and four-hour (H4) charts.
Entry into a position
A long position signal appears when the H4 is above the 200 EMA, and the MACD generates a signal for long position, expressed by the fact that the MACD crosses the Signal line from the bottom up. The signal for a short position occurs when the price in the H4 chart is below the average EMA 200, while the MACD line crosses the Signal line from top to bottom. An additional confirmation for positioning is the price on chart D1, above the Exponential Moving Average 200 for an H4 buy signal. Similarly, when the sales signal has appeared on the H4 chart, then a price below the Exponential Moving Average 200, on the daily chart (D1), must be confirmed.
Exiting a position
Traditionally, as in many other strategies, we assume that a transaction is closed when the stop loss level is reached, the profit according to our Risk Reward ratio is reached. A Stop Loss order is placed below the trend in the case of a buy order, and above the previous high for a short position. A take profit should be set at twice the level of the stop loss. A minimum return of 34% should be the traders target for when using a MACD Swing System.
The system described above assumes a maximum Stop Loss of 3% of our deposit. An exception could be when a trader has an open position on a strongly correlated asset. In such a situation, reduce the risk on the potential transaction to 1% of the account value. Always remember that risk and capital management is key to successful investment and allows you to be in control no matter what occurs.