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Swing Trading: Use Technical Analysis to Develop a Trading System

Swing trading is a speculative investment strategy where traders hold positions for between one and 7 days. This is different than day trading in that you will hold your position longer than one trading session. Swing trading also differs from a buy and hold strategy in that the longest you will hold a position for is 7 days as opposed to an extended period such as years.

Some potential swing trading setup patterns are:

Double Top or Bottom Pattern

  • A financial instrument reaches a near time high or low twice without breaking through resistance or support of both recent highs or lows
  • Once the second top or bottom begins to develop, shorting the double top or buying the double bottom could potentially be a futures trading strategy
  • An exit strategy for this trade could potentially be to buy or short the second top or bottom’s trend once it passes through the level at which the first top or bottom formed

Below is an example of a both a Double Top and Bottom on a chart of the S&P 500 Futures Contract (ES):

Price Channel Pattern

  • A financial instrument trades between two parallel trend lines
  • Once the financial instrument’s price action ‘bounces off’ either the support (lower) or resistance (upper) trend line, a potential futures trading setup develops by shorting the upper or buying the lower bounce
  • An exit strategy for this trade could potentially be to buy or sell your position once the price action breaches either the lower or upper trend line

Below is an example of a bullish Price Channel on a chart of the EUR|USD foreign currency trading pair:

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