what is swing trading strategies and how to identify nifty stock for positional trading in india tips:
In technical terms we called position trading as swing trading. This type of trading is not for day traders it’s usually for traders who do not have time or do not wish to sit on the trading terminal whole day. These swing trading strategies are very useful for those investor who are looking for long term profits. Apart from these swing trading strategies, here you will also get knowledge about some positional trading tips that you can use while purchasing and selling any share.
I am writing this article on the believe that you know Technical analysis already and know how to apply Technical Indicators on the chart. There are many ways through which you can find swing trading opportunities; we will discuss each in detail.
Before proceed further we need to keep 10 commandments tips of trading:
- Make your trading plan and trade that plan
- Let’s the Profit run, keep the losses short
- Tips are for Waiters
- Don’t regret to miss the opportunity, Opportunity is there every time
- Big money is made from positional trading
- Don’t try to predict the future
- Master one strategy and follow that strategy till the market dynamics changes
- Too much analysis lead to paralysis
- Keep learning on daily basis
- Don’t overtrade, follow money management principles
1.First method of swing trading strategies – Trend line Breakout-
This strategy is based on the contra view of the market. In this strategy we are trying to predict the first reversal from the uptrend and first reversal from the down trend.
Uptrend and Down trend Definition
When a stock making continuously higher high higher low pattern is called uptrend and vice versa when stock making continuous lower highs and lower lows the trend is called down trend. See pictures below for more clarity:
First, you need to identify the uptrend and downtrend stocks, if any stock is continuously making 4 to 5 waves of higher highs or lower highs is the right candidate for swing trading. See the example below.
As seen from the above chart that Nifty is currently in uptrend, continuously making higher high and higher lows. Now, the next step is to create the trend line on the chart and wait the price to breach the lower side of the trend line. More clarity comes from the next chart posted below:
So, the rule here is that price has to breach the lower side of the trend line and on the next day, price must breach the low of the yesterday low of the stock. Once these conditions are satisfied you can go short in the nifty and this is called a swing trade.
Below is the historical trade which qualify our swing trade condition.
As seen clearly from the above chart that Axis bank is in continuous uptrend. It breaches the lower trend line and on the next day it the breaches the low of the yesterday at 517 and thereafter made a low of 492. So, as you can see it is a good swing trade setup and currently the position is still in sell mode.
2.Swing High Swing Low – swing trading strategies:
In this swing trading strategies, you need to identify the swing points to enter. Now, the question arises what are swing points? Answer is there are two swing points swing high and swing low. For entries on long side you look for swing point low, for entries on sell side you look for swing point high.
How to identify swing point low:
- The first candle makes a low.
- Second candle makes a new low.
- The third candle makes a higher low.
Concept here is that third candle will tell us that seller is going to weak and the stock will likely reverse. See the example below.
We clearly marked the swing pivot low level. So, you must buy above the high of 3rd candle and keep the stop loss of 2nd candle.
Rules for Swing point high:
- The first candle makes a high
- The second candle makes a higher high
- Third candle makes a lower high
Same concept as describe above, third candle tell us that buyer gotten weak and stock likely to reverse.
Example of swing point for sell opportunity:
First strategy that we discussed is a contrarian strategy which is also called counter trend strategy or fading strategy. This strategy works against the trend, in this we try to pick the bottom or you can say we are looking for first sign of reversal from uptrend and downtrend. Traders who are conservative or risk averse can follow this strategy as this strategy will give you good risk reward ratio setup. Means for every one single rupee risk the gain would be minimum two rupees and maximum it can go up to rupees five.
Second strategy is based on trend following strategy as in the market there is an old proverb “Trend is your Friend”. So, once the trend is established you are looking for pullback trades means there is a halt in the trend, once it will gain momentum then stock will start their journey again whether it’s on upside or downside as the trend exists. In this strategy at the time of pullback in an uptrend you must look for swing point low and enter on the 3rd candle high. It is also a good risk reward ration strategy as your stop loss is just placed below the low of the second candle.
3. Strategy Based on RSI- positional trading tips:
This strategy is based on Relative Strength Index and I found this strategy quite profitable with very good risk reward ratio. In this strategy stop loss is placed below the last pivot of the candle, by applying this strategy you can hold the stock from 2 days to week and get good profits.
This strategy combines the use of 3-4 technical indicators
- RSI (2)
- Exponential Moving Average (10)
- Exponential Moving Average (20)
- Exponential Moving Average (200)
Rules for the entry:
- The stock must be in uptrend means 10 day and 20 day exponential moving average must positioned above 200 day moving average
- The stock must give pullback till 200 day exponential moving average or price trades near 200 day moving average.
- RSI (2) is below 10
- Enter on close of the day and keep stop loss below the low of the last pivot of the stock.
See example below:
As you can see from the above chart that it is a very profitable strategy and you can apply this strategy on large cap stocks. It is one of my favourite strategy so far. Let me know if you have any questions regarding this strategy.
4.Moving Averages- swing trading strategies:
In this strategy you need three type of moving averages, in this strategy you need to keep lots of patience because trading is a game of discipline. This strategy is based for the conservative traders.
- 50 days exponential moving average apply to high value
- 50 days exponential moving average apply to low value
- 200 day exponential moving averages apply to low value.
Once both the 50 days exponential moving average trades above 200 day exponential moving average then long entry price triggers vice versa if both the moving average trade below 200 day moving average then sell entry triggered. See the example below:
5. ADX Based Strategy- swing trading strategies:
This strategy actually captures the strength of the trend and trade with the trend.
- 20 day exponential moving average
- 40 day exponential moving average
- ADX 14 period
Once 20 day exponential moving average crosses 40 day exponential moving average from below and ADX 14 period showing level of 30 it confirms that stock is in uptrend. Now, the question arises where to enter? Answer lies in the pullback, once price gave pullback to near 20 or 40 period moving average, vice versa for sell trade.
See the example below:
Before trading these strategies on live account, I suggest to practice them on paper for at least period of three month, once you will get accustomed to this strategy the you will do live trading. Happy Trading!
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