10 Best Swing Trading Strategies Backtests & Trading Rules

Some swing trades won’t work out because of the timeframe, and that’s alright. The first element we want to see for our simple trading strategy is https://investmentsanalysis.info/ that we need to see the stock price moving into overbought territory. Any swing trading strategy that works should have this element incorporated.

How does swing trading fit into a diversified investment strategy?

Each strategy type has a link that directs you to many articles with trading rules and backtests. For those willing to dive deeper into the amazing world of swing trading, you can check out an example of a weekly video I released previously and sign up to receive my weekly watchlist for free. Similar to the example outlined in AFRM – as the stock makes new HHs, the position could be trimmed further, locking in gains while trailing the stop using the day low / higher lows.

Swing trading strategy no. 5: Rotation strategy in SPY and TLT

You cannot swing trade everything, and you cannot build diversity in your portfolio if you don’t plan to hold some items and sell others. Nothing is perfect, nothing can be thought of as sacred and there are times when you simply need to move on. You could, however, come back to these assets in the future if they suit you once more. The basic principles for swing trading that every beginner should adhere to is to only buy uptrends and only sell downtrends.

• For example, this might be a relative strength or weakness to its sector or the overall market.
• That’s not to say that you shouldn’t listen to other traders.
• Mega-caps don’t show this kind of performance often — it was hard to predict.
• This is a textbook swing setup and perhaps the easiest one to identify.

) Options

In addition, swing traders pay close attention to trading volume as it can signal upcoming market moves and validate the strength of trends. This information guides the decisions on when to enter the market for swing trading. Typically, trades are held from one to six days, but can stretch up to a few weeks if they remain profitable. Swing traders primarily rely on technical analysis to make their trading decisions. The RSI (relative strength indicator) is a momentum indicator that measures the magnitude of recent price changes.

In this example, the stock’s closing price is going down below 3% on two days (Feb. 4 and Feb. 7). Careful observation of the following days will reveal if the trend reversal is visible or not. Kohl’s is a department store retailer with 1,000 stores spread across the U.S. Not surprisingly, the COVID pandemics and lockdowns that ensued affected the business. However, with around 14 million shares traded daily, high beta, and over 15% short interest, KSS makes for a curious swing trade option. The construction stock has a market cap of $87 billion and an EPS of $7.45.

Which Time Frame Is Best for Swing Trading?

Leverage, or margin, allows you to borrow money against the future price of a stock, for example. Margin is common for swing trading strategies to reduce the amount of capital needed to open a position. But while leveraged trading can generate larger profits, it can also magnify losses, making it important to place robust stop-loss orders. Sometimes, instead of trending in an overall direction, the price oscillates between minimum and maximum values, known as support and resistance levels. The more often the price touches the support and resistance lines, the more significant the line becomes.

The downside, however, to the swing trading model is because there are much fewer trades than compared to say day trading, losses you take on different positions hit much harder. This means you need to be careful with where you put your money, and be clear with why you’re making the decision. This is why we’ve elucidated different indicators here, so that you can have the clearest picture, and a much better chance at being successful with swing trading. The advantages of using swing trading strategies include maximizing short-term profit potential, and minimal time commitment. Swing trading can be challenging due to the necessity of picking stocks that are both volatile and liquid to ensure enough price movement for profits.

Instead, use it as inspiration We certainly have been able to build strategies from ideas that in themselves were worthless, but that managed to spark an idea that led us right eventually. When I was in your shoes, starting out, I wish someone had told me to just risk a smidgen of my capital, test the waters with different methods, Best swing trading strategies and truly uncover what felt right. But, since we can’t turn back time, I’m passing on this wisdom to you now. Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about. For example, in MicroStrategy’s case, it is in the Information Technology sector.

A good Swing trading strategy should be simple with as few rules as possible. While many people believe that a good swing trading strategy is one that incorporates advanced logic and a myriad of rules and conditions, they could not be more wrong! The best trading strategies are those that use few and preferably simple conditions. With more conditions, you run the risk of curve fitting, which in short means fitting your rules to random market noise rather than true market behavior.

For example, an oversold asset tends to have higher returns in the next few days than when it’s overbought. Importantly, for this setup, you want to identify key levels from day 1 – support and/or resistance levels, as well as previous days’ low and high. I also like to use the VWAP anchored from day one as a guide. Had it extended from several key indicators, like its multi-day VWAP and SMAs? After setting targets to lock in profits and eliminate some risk, trailing my stop this way works well for me.

There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest. Some traders get stuck in this stage, endlessly analyzing large datasets with slight variations in parameters. For this article, we are using trend reversal to build the strategy. In this case, the initial concept is if a stock goes down X percent compared to the previous day’s closing price, expect the trend to reverse in the next few days.