Swing trading is a preferred trading strategy because it offers traders definite short- to medium-term stock market gains. However, the critical issue with most traders is the requirement for accuracy in identifying and executing those profitable trades. Accurate swing trading setups guarantee consistent profits. In this article, we will peel off the top elements of good swing trading setups, discuss stock selection, and show some of the top approaches toward increasing the precision of trades and thus the potential for profit.
Many traders, especially those newer to swing trading, seem to struggle to develop setups that consistently lead to profitable trades. Consistent results often lead to frustration, doubt, and even losses.
Ideally, to solve this problem, one would identify certain setups that have been found to be effective in the present environment. Instead of chasing every trend that develops, building swing trading accuracy with such strong setups allows a trader to work on their tactics and simultaneously reduce risks.
These mechanisms will allow the traders to achieve far better accuracy and profits in swing trading through proper stock selection, along with discipline in entry and exit points. Therefore, this article will guide you through high-accuracy swing trading setups on stock selection, volume analysis, and technical indicators.
Stock Selection- Quality Over Quantity
The selection of the right stock is the basis for any successful high-accuracy swing trading setup. Not all stocks trend; in fact, most stocks oscillate erratically, and hunting trending stocks without proper analysis leads to lousy trades. Separate these stocks using specific criteria that are indicative of some pretty significant directional moves ahead.
Volume Analysis:
High-volume stocks tend to have more liquidity and follow through better. GameStop (GME) is a recent example that had a large-volume increase prior to its 40% pop last week. To get into a high-accuracy swing trading setup, one needs to follow stocks that are increasing in volume—this typically means institutional traders are now on board and may drive strong moves in either direction.
Sector and Market Conditions
The overall market may not be going in one direction, yet sometimes specific stocks or sectors can be attractive, while other times they can be weak. Keep your attention on the relative strength or weakness of the stocks rather than the overall market. For example, Google (GOOG) had very strong earnings lately and is now pulling back into some key support levels, so this should be a stock considered for a swing trade to the upside.
There could be news from an event, earnings report, or key announcement that shifts the price. The setup must have alignment with your technical analysis, though. For example, the post-earnings momentum of Google indicated a swing trade entry in its support and resistance zones following a strong close.
Entry and Exit Points
First and foremost, the entry and exit points can make or break a swing trade, and it is an essential component of high-accuracy swing trading setups. Here is how to do this:
- Confirmation of the Trend:
Wait for the price to confirm the trend. For example, if you are selling short a stock like GameStop, wait for the price to fail at a high or blow off after a big run. Conversely, if you are buying long a stock like Google, watch the price recover a key support area and close strong. - Use Volume Weighted Average Price (VWAP):
VWAP is a very significant trading tool in swing trading setups. For example, on GameStop, you might look to sell short when the stock extends away from its VWAP, meaning it may be overextended. Conversely, if the stock holds VWAP on a pullback, you may have a fantastic long opportunity. - Trailing Stops:
As a trade goes in your favor, use trailing stops to protect profits. You could trail your stop on a 15-minute chart as the stock makes higher lows. This allows you to lock in profits while giving the stock room to move higher.
High-Accuracy Swing Trading Setups
Identify the Setup:
Pick a stock that falls into your filter—volumes, recent price action, or catalyst. For instance, GameStop was extremely strong on Friday and extended significantly above its VWAP. That set up the stock for a short on Monday if it completed a lower high.
Key Levels to Watch:
A good support and resistance level is a premium level. In Google’s case, the region between 168 and 172 remains the strongest support and resistance zone. Any affirmation above the 168 level would mean that bulls are in ascendancy and set the way open for further upside swings.
Set Entry and Exit:
The idea is to be prepared to enter when a stock hits a preset support or resistance level. For example, with GameStop, you could have a short setup come into place if the stock were to test Friday’s high, fail, and start declining. You would then enter this trade with a clear stop above the high of the day. Conversely, with Google, you could have had a long entry if it held up above 168 with a stop placed below that day’s low.
Scale Out of Profitable Trades:
As the stock continues to move in your favor, take profits incrementally. For example, take off half the position when GameStop drops toward the two-day VWAP.
Scale out of the remainder as the stock continues to break down, using lower highs to trail your stop. On a long trade, similarly, Google would be scaled out as the stock hits resistance, using higher lows to trail your stop.
The Tools for the Best High-Accuracy Swing Trading Strategies
Self-discipline represents the most important factor that can ensure accuracy for the swing trading strategy. The high-accuracy successful traders in the swing trading strategy do not catch all the moves; they patiently wait for the market’s hand. This strategy requires a confident analysis of your market, a deep knowledge of technical indicators, and discipline to remain true to your plan.
Avoid Overtrading:
Do not jump at every move. Stick with what has worked for you. For example, while there may be an urge to chase recent strength in Chinese names like JD or BABA, you should wait for a pullback or consolidation before you jump in.
Stick to Your Plan:
Set your entry and exit points straight before you trade and do not deviate from them. If you want GameStop to fail at the high of the day, do not enter too early. Wait for confirmation of the lower high before going short.
Conclusion
The only sure way to improve a trader’s chances of success in the market is to focus on high-accuracy swing trading setups. The basics of a profit-making strategy include stock selection, volume analysis, and disciplined entry and exit points. Whether it’s trading on momentum stocks like GameStop or looking for earnings plays like Google, the key is sticking to setups that offer the highest probability of success.
This is where many people go wrong while honing their skills—it’s a case of quality over quantity. You will find that your trades become more accurate, and thus your profits are more consistent.