There are many different swing trading strategies that traders use. Techniques include buying the dip, trend trading, shorting, reversals, moving averages, riding the tradeline (9 or 13 EMA), and options credit spreads. Each trader has a style, so you don’t need to be good at each strategy.
It’s important to choose the best trading style for you and become comfortable trading it. Once you have proven successful with your strategy, then learn other trading techniques along the way.
Best Swing Trading Strategies
- Buying the dip
- Trend trading
- Ride the tradeline (9 or 13 EMA)
- Options credit spreads
- Shorting
- Reversals
- Moving averages
Buying the Dip
Dip buying is one of the most popular swing trading strategies. It involves purchasing a stock when the price falls to support levels. Every time a security is bought and sold, it leaves a candlestick, and each one forms a pattern on a chart. Candlestick patterns are known as price action. This is the most important aspect to learn as a trader.
Unfortunately, many traders never take the time to learn price action and randomly buy and sell stocks without learning the areas to buy and sell.
Price action forms support and resistance levels. These important levels show where to buy and sell a security. To be a profitable trader, you need to buy low and sell high. Dip buying involves precisely just that. Buying low and then selling high.
This is an example of areas to buy the dip on a daily chart of Apple.
Trend Trading
There is a saying in the trading industry called The Trend is Your Friend. The trend of a stock lets traders know in which direction a stock is heading. An uptrend means that a stock is bullish, and a downtrend means that it is bearish.
Defining the trend of a stock is done by drawing trendlines. This involves connecting 2-3 peaks and valleys on a chart. Once these areas are defined, they typically form a wedge or megaphone pattern.
These patterns are found on all timeframes. When trading the trend with swing trading strategies, it’s important to look at the larger time frames on a chart and define the trend and overall patterns. When entering a trading position, you want to zoom in on the lower timeframes to define entry and exit points.
This is an example of drawing trendlines on an Apple chart. It’s the same chart as the dip-buying one above. Note that these trendlines form flags, wedges, and megaphone patterns.
Riding the 9EMA
Riding the nine ema on a trending stock is a popular swing trading strategy. When following this strategy, it is important to find stocks with strong momentum in an overall uptrend and then use the 9ema to ride the stock up. Conversely, use the inverse strategy if you are playing a bearish stock and wish to short it; ride it down.
Watch for a candlestick close above the 9ema (exponential moving average) on the daily chart. Then, buy the first intraday candle that breaks the high of that previous daily candle using the base of that previous candle as a stop. It’s also nice to spot 9EMA / 20EMA crossovers. Moving average crossovers can play a huge role in spotting a trend. This is where a 9-day moving average crosses above the 20-day moving average, a bullish signal.
You can use 5-minute and 15-minute chart time frames to find an entry. Ideally, I want to try and get an entry on the 3-minute to get another time frame’s worth of information to add to the other charts to create a game plan. Feel free to use whatever time frame(s) that work best for the trading style, whether day trading or swing trading setups.
This is an example of the Ride the 9 EMA strategy on a daily chart of Apple. Note the green arrow up, which shows the price above the 9 EMA, which is bullish. The red arrow shows the price below the 9 EMA, which is bearish.
Options Credit Spreads
Credit spreads are a popular swing trading strategy. It involves buying and selling options contracts with different strike prices. The goal of a credit spread is to profit from a narrowing spread between the two contracts. There are two main types of credit spreads.
Put credit spread
- A bullish strategy where a trader sells a put option with a higher strike price and buys a put option with a lower strike price
- Traders receive more premium than they pay, resulting in a net credit
Call credit spread
- A bearish strategy where a trader sells a call option with a lower strike price and buys a call option with a higher strike price
Credit spreads allow swing traders to trade large-cap stocks without having to invest large amounts of capital into purchasing shares of a stock. Buying calls and puts is also a popular swing trading strategy. However, they require predicting the direction of a stock before the contract expiration. It is a riskier trading strategy than credit spreads, but it’s also more profitable if you predict the right direction for a stock.
Swing Trading Strategies Confirmation
Once an entry is picked, ideally, we want to see the nine ema start pushing upwards and separating from the 20 ema. The daily candlesticks also need to move up with the nine EMA. Sometimes, the 9ema will trade sideways before it starts pointing upwards, but it needs to push upwards for a potential continuation.
Always wait for confirmation on swing trading strategies. Realize that buying closer to the nine EMA is less risky than buying further away from it. We want to get the best entry possible with swing trading setups so that pullbacks and dips do not affect the trade plan, and sticking to our game plan and profit-taking targets is important.
A close below the nine EMA on the daily chart would be a potential sign of weakness and time to take profits or cut losses. Please keep in mind the potential stop loss area from the previous candle’s low to determine if you will stay in the trade.
Often, a stock will doji below the 9ema and bounce, causing a possible fake out, which can cause a premature stop out. Just be aware and follow the technicals to figure out exit strategies. Some traders prefer the candle CLOSE price as my stop instead of a doji, mainly because too many times dojos can cause a stop out. Ultimately, it depends on the entry price and risk tolerance to choose where to stop out.
Swing Trading Strategies Example
9/20 EMA Strategy
Let’s explore the popular 9/20EMA swing trading strategy; the key here is to watch for a 9/20 EMA crossover on a daily chart. Often, stock moving average lines will be in a downtrend or tied up in a consolidation phase. So watch for the 9ema/20ema crossover and a candlestick to close above the 9ema on the daily chart.
Ideally, try for an entry to be the next candle to break the high of that previous candle on the daily chart. Pair that information with the 5-minute or 15-minute chart for an entry idea. When trading this 9/20 EMA crossover strategy, it is important to know the other moving averages, such as the 50 or 200 Simple Moving Average (SMA).
If they are above the position, then they are potential resistance areas. If they are below, they are support levels. Also, do not forget to draw diagonal trend lines to find support and resistance levels on your charts! These are swing trading strategies that work over and over again.
Do Swing Trading Strategies Work?
Swing trading does work if the trader has a good understanding of how price action and technical analysis work. Once the technicals are understood, could you determine which strategy is best to trade for your trading style?
Credit spreads are a great way to sell stocks and collect a premium. Buying shares of a stock on support and selling near resistance levels is also profitable.
Moving Averages
We recommend having the 50sma and 200sma lines on your daily charts. These are popular SMA lines that traders pay attention to; some also like to have the 100 sma.
Moving average lines play the role of showing key support and resistance areas. The more room that the stock has to run, the better.
You can find the angular trend line resistance or a daily and weekly moving average time as a profit target. TrendSpider is great for charting and makes this easy.
If you’re looking to make an entry on a 9/20 crossover, then ideally, you’d like some room for the stock to run before it hits those overhead moving averages. The closer the price gets to those moving average lines, the more likely traders will look to take their profits.
Options
Options work the same way as discussed above. First, follow the technical analysis of the nine EMA. Then, look for trending stocks and ones with potential 9/20 ema crossovers.
Always ensure profits along the way, especially when selling options; never get too greedy. Remember, no one can predict what a stock will do, and no strategy will make money 100% of the time.
All it takes is one trader somewhere in the world to change the direction of a stock. A big seller is when everyone is buying, and a big buyer is when everyone is selling. Or it could be a news headline that causes the surge or drop in a stock. Just manage risk, be patient, chart the stock, and wait for an entry!
Final Thoughts on Swing Trading Strategies
There are always stocks with great entries to swing trade several times per week, so don’t get FOMO; Fear of Missing Out! This is why most traders fail.
Do not let emotions get in the way of trading. This is why it is important to always define potential entry and exit strategies before entering any trade. This better helps being prepared and not scrambling to figure out what to do as the stock goes up or down!
Aim for a 2:1 profit/loss ratio to ensure potential gains outweigh losses. Then, cut losses quickly if a trade goes against the plan. Some traders even look for 4:1 profit-loss ratios!
The best traders in the world fail on trades close to 40% of the time. However, they have become masters at cutting losses quickly, and the market and their trade could turn against them anytime. While also knowing how to hedge for outside events.
These traders have been around while knowing all about risk. That is why they predefined their risk management strategies. This allows them to separate their emotions when trading. This takes time to develop and practice. Proper technical analysis techniques will be critical when determining whether to enter a swing trade.
The Cloud is a popular indicator traders use with swing trading strategies. It gives a great overall picture of support and resistance areas. Dip buying is a popular swing trading strategy that we suggest everyone should look into to learn how to find good swing trade entries that minimize risk.
Frequently Asked Questions
The daily chart is a great time frame for swing trading, less than a few weeks. One-hour charts are good for holding less than a week. Weekly charts are good time frames for trading weeks to months out. Finally, monthly charts are good for holding for several months.
- For options, best to have between $2,500 $5,000
- For penny stocks: $5,000 to $10,000
- For stocks over $10.00, it is best to have a funded day trade account of $25,000
Here's a list of what indicators are best for swing trading:
- Price action combined with candlesticks
- Stock volume and high relative volume = liquidity
- Moving average lines. They help you determine support and resistance guides
- RSI (Relative Strength Index) shows overbought and oversold levels
- MACD
