CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.00% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Swing trading is a strategy where traders attempt to capitalise on price fluctuations by holding a position open anywhere between a few days and a few weeks or even a couple of months. The key to capturing profits is to be able to identify when to enter and exit a position, just like in any other style of trading. Want to know more about how to swing trade? Here’s a look at some of the most popular trading strategies.
MA is a line of closing prices, calculated over different timeframes. The line is continuously adjusted on the trading chart whenever new data points are added. It helps traders identify the direction of price movements, with a rising MA line indicating an uptrend in asset price and a downward line denoting a downtrend.
By analysing the MA crossover points, where the short-term MA crosses the long-term MA line, either from above or below, swing traders can predict a reversal in market momentum.
RSI helps traders make trading decisions by identifying overbought and oversold conditions. The tool takes the past 14 periods into consideration (days, weeks or hours, depending on the trader’s preference).
RSI determines if the closing price was higher or lower than the previous close:
The next step is calculating a ratio to determine the strength of these movements. With the ratio, traders can determine if a market is overbought (a situation of multiple positive closes, i.e., potential reversal) or oversold (a situation of multiple negative closes, i.e., potential bounce-back).
The RSI scale ranges from 0 to 100, where a value of:
Swing traders can identify the support and resistance levels with the Fibonacci Retracement strategy. Before resuming a previous trend, significant price shifts usually follow a pattern of retracement or a temporary reversal. Consider a rubber band, which when pulled, snaps back after reaching an extreme position, not necessarily reaching its original position. Similarly, following a retracement, an asset’s price usually continues its previous trend direction.
A retracement at a support level indicates an upward trending market or a signal to take a long position, while a retracement at the resistance level indicates a downtrend or a signal to go short. To understand how to trade Fibonacci Retracements, traders need to first know the important retracement levels on the trading chart. The most common Fibonacci levels are 23.6%, 38.2%, 50%, 61.8%, and 76.4%.
When the price of an asset moves beyond the support or resistance level following a period of range-bound trading or consolidation, it is termed a breakout. To identify potential breakouts, traders need to first master technical analysis. The most common technical indicators used for this strategy include:
Bollinger Bands is a technical indicator that quantifies the volatility of an asset’s price to predict future trends. There are three bands – the upper, lower, and middle band.
When the distance between the upper and lower bands increases, it indicates increasing price volatility, while narrowing bands indicate a decrease in volatility. These bands can also indicate overbought and oversold levels to help traders determine entry and exit points.
Experienced traders prefer to learn how to trade using different strategies on a demo account before trying them out on the live markets. This can also help them understand which strategy they are most comfortable with.
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