On an invented price path, the price climbs in steps with a pullback after each one, and the last pullback does not stop, with a purchase after each pullback: 3 trades are marked, 2 closed ahead and one closed behind.
A triangle marks where a trade opens and points the way it was taken. A green dot is a trade closed ahead, a red dot one closed behind. The path was invented to show how the approach behaves, including where it goes wrong. It is not market data and it proves nothing.
Also searched asswing trading strategy · swing trade · buying pullbacks · trading pullbacks
A description, not a recommendation
This is a description of an approach people use. It is not a recommendation. No approach works in every market, nothing here has been shown to be profitable, and the chart is invented.
The idea
A price rarely moves in a straight line. It advances, gives some back and advances again. Swing trading tries to take one of those legs: to enter after a pullback within a larger move and leave before the next one. It sits between day trading and position trading, with trades held for days and decisions made from daily or four-hour charts.
Usually heldDays to a few weeks · others held about as long
The rule, as people usually state it
As usually stated: find a market making higher highs and higher lows, wait for it to pull back towards a recent low, a moving average or a level that held before, and buy when it turns up again. The stop goes below the low of the pullback and the target near the previous high or a little beyond it. The mirror image is used in a falling market.
What it needs from a market
- A market that is trending in steps, with pullbacks that end.
- Swings large enough that the distance to the target is clearly greater than the spread and the stop.
- Time. Each trade takes days, and most days nothing is done.
What it costs
A handful of trades a month, so the spread is a small part of each one. The cost that grows is overnight financing: a leveraged position held for days is charged or credited swap each night, and some instruments charge three days’ worth on one day of the week. A position held over a weekend can also open on Monday at a different price from Friday’s close.
When it fails
- When the pullback is not a pullback but the start of a reversal. Each one looks the same at the moment of entry.
- In a sideways market with no steps to trade.
- When a gap over a night or a weekend carries the price past the stop.
The mistakes people make with it
- Deciding the trend after the fact. A series of higher lows is clear in hindsight and uncertain as it forms.
- Moving the stop further away as the price approaches it.
- Taking the gain early and leaving the loss to run, so that the average loss outgrows the average gain.
- Forgetting the swap on a position held for weeks.
In the rule bench
The rule bench cannot express swing trading as described. It has no way of saying “a pullback within a trend that has turned up again”: its entries are an average crossing, a new high or low, and the RSI. The RSI page is the nearest thing it can test.
Questions people ask
- Is swing trading profitable?
- Nothing on this page shows that it is. The page describes what people do and why. Published research on trading rules is mixed, results that looked good in one period have often faded in the next, and costs remove much of what remains. The loss figures that regulators require firms to publish show that most retail accounts trading CFDs lose money.
- What is the difference between swing trading and day trading?
- Holding time. A day trader closes everything before the session ends and pays no overnight financing. A swing trader holds for days, pays or receives swap, and accepts the risk of a gap between one session and the next.
- What time frame do swing traders use?
- Most often daily and four-hour charts, sometimes with a weekly chart to judge the larger direction. The choice sets how far away the stop is and how long a trade lasts.
The words on this page
An explanation for study. It is not advice, a recommendation or a forecast. This is a description of an approach people use. It is not a recommendation. No approach works in every market, nothing here has been shown to be profitable, and the chart is invented.