Table of Contents
What is swing trading?
Swing trading definition
Swing trading is a trading style that attempts to capture gains in any financial instrument over a period of a few days (more than 1 day) to several weeks. Swing traders primarily work on four-hour (H4) and daily (D1) charts, and they may use a combination of fundamental analysis and technical analysis to guide their decisions.
What Is The Best Time Frame for Swing Trading?
The best time frame for swing trading is our-hour (H4) time frame and daily chart. However, longer-term swing traders use trading the weekly and daily charts, and in volatile markets, swing traders use multiple time frames.
Swing trading is typically the best option for beginner traders to get started. The main reason for that is a small number of trades per month for swing traders, unlike day traders. Swing trading can prevent the overtrading problem.
Swing trade routine needs to be based on analysis of important price levels and avoiding any kind of overtrading.
So what is the best swing trading time frame? Typically, the most used time frame is the four-hour (H4) chart time frame, then a daily chart frame. It is definitely possible to succeed in forex trading using a different time frame, but these two are most common.
Swing trading forex strategies often use the H4 time frame. However, swing trading ETFs strategies show the best performance on the Daily chart time frame because bullish trends are longer for ETFS baskets such as stocks, bonds, commodities.
Swing trading example
Now let’s go over an example swing trade. Most swing traders will use the daily chart to determine the general market direction. They may then choose to use the 4-hour chart for entering positions.
The 4 hours time frame advantages
On 4 hour chart, some momentum indicators represent excellent market conditions. For example, the 4H RSI indicator can show the best trend change or divergence.
In high volatility periods, sometimes it is better to enter into trade faster than to wait the whole day to enter after the Daily chart closes.
The daily time frame advantages
The daily time frame has some unique advantages, making it the best option for most traders.
The daily bar time frame is the most common bar setting, and due to this, it is not seen as the most exciting time frame for trading. I would say that the daily time frame is still the smartest choice if you are a new trader. The daily time frame has multiple advantages such as;
Even with this flexibility, some charts are used more frequently than others. This is true for the daily time frame. The daily time frame is used the most by everyday traders and large entities, and mutual funds. These big players have quite a significant impact on the market and price fluctuation.
So what does all of this mean? Basically, it means that most eyes are on the daily time frame charts. This means that many people are analyzing them and are ready to take action at the sight of a buying opportunity.
Swing trading 1-hour chart
In trading, a 1-hour chart is one of the most used chart time frames. Swing trading 1-chart strategies usually use hourly candle close price to enter into position or exit from the trades. The reason for that is market volatility, and price action that very often reaches some price level go over or under the price and then reverse in the opposite direction. For example, price oscillates below level 1.300. Traders have a stop loss at 1.3 and try to sell the position. In one moment, the price goes above 1.300 and after a few minutes goes down 50 pips. Traders who close the trade by stop-loss made the loss; traders who wait for an hourly candle to close above stop level made a profit. This term in trading is known in trading slang as “wash up.”
Lower time frames
Minute bars are another time frame that some traders choose to use. Minute bars are used far less frequently than the daily time frame chart. This means that minute bars are a lot less significant than daily bar charts, and therefore less reliable when we trade swing trades.
Multiple time frame swing trading
In swing trading, professional traders use multiple time frames. For example, they use the H4 chart to analyze market conditions but often analyze and higher time frames to better understand price action or the last several weeks’ trends. Of course, some traders execute positions looking at m30 or m5 time frames because they try to enter into a position at the right moment (they look for every single pip gain).
Swing trades probability
High probability swing trading strategies are based on important price levels. Important price levels on the Daily chart that show strong resistance or strong support increase the probability of trade. For example, 10 days strong support has a bigger impact and bigger trading probability than 2 days support price level. However, traders need to know that the probability for risk-reward 1:1 trades is just a few percent above 50% because the market is tough to predict even using the best machine learning methods or any quantitative approach.
The moving average for swing trading
The best moving averages for swing trading are MA 50, MA100, and MA 200 on the daily chart frame. The majority of professional traders use it as a signal, especially SMA 200 or EMA 200. EMA200 represents the best EMA or exponential moving average signal in swing trading and long-term trading.
Of course, swing trading with Ichimoku uses a similar approach where The Tenkan and Kijun Sens lines are used as a moving average on H4 and Daily chart.
The best indicators for swing trading
The best indicators for swing trading are indicators based on important price levels such as trendlines, Fibonacci levels, Pivot point levels. However, engulfing patterns and doji candlesticks with a combination of important price levels can be excellent swing trading indicators to determine entry positions for swing traders.
Other excellent swing indicators are MACD and RSI indicators. The best MACD settings for swing trading are default settings MACD parameters EMA 12, EMA 26, and EMA 9. The best approach is to draw trendlines on MACD and RSI indicators and wait for a breakout as an additional trigger for swing trading position.
As a swing trader, you will be holding your positions overnight, not buying and selling on the same day. Since you are swing trading, it is best not to watch charts all day long.
In most cases, trading strategies will enter on the open or close of a bar. Due to this, you will want to make use of bars that are relatively long instead of watching the open and close of every 5 or 10-minute bar.
When choosing and dating a trading strategy, it is crucial to make sure that it is not solely based on random past market data. This will ensure that you will have the best chance of success in trading the markets.
It is quite accurate to say that the randomness of the market increases as you shorten your timeframe. Therefore, using the daily timeframe is the best option as it will allow you to see true market behavior.
This will help you be more certain that the things you find will work for living trading. It will also be much easier to find strategies with potential and average trade sizes large enough to offset trading costs like commissions.
It is often the case that trading strategies that rely on minute bar data and have a low average trade could become an issue. Most of the good trades would be too weak and likely not have anything left over after commissions.
Swing trading cryptocurrency
In the last decade, traders trade cryptocurrencies and use swing trading. The best swing trading cryptocurrency strategy is to wait for the pullback below 23.6% FIb level (sometimes up to 38.2 Fib. level ) on the H4 time frame (or Daily time frame) and then to enter into trade. Usually, crypto traders want to catch the strong bullish trend, and the best approach is to buy after correction.
Swing trading conclusion
In conclusion, there is no best chart time frame for swing trading. Traders can use any combination of chart time frames to analyze the market. The daily bar time frame and H4 allow you to have a lot more flexibility and see current market conditions better when you plan several days’ trade. On the other hand, day trading is different, and a smaller time frame may be beneficial in that specific scenario.
