June 03, 2023
7 mins read
Swing trading is a speculative trading strategy in the financial markets wherein a security is held for one or more days so that investors can profit from the price fluctuation or the “swings.” Since the traders typically hold their position for a couple of days to a few months, these strategies are best for investors seeking to exploit benefits in the short-term horizon.
The best swing trading strategy can significantly affect your profits and losses. These strategies aim at delivering consistent returns in the stock markets using risk management tools, technical indicators, online charts and price patterns. Presenting to you a detailed study of various swing trading strategies India and how they can help maximise your profits.
The swing trading strategies focus on making profits by exploiting smaller gains in the short term and cutting losses quicker. As you keep booking small profits, these get compounded into excellent returns over a while. It is crucial for traders to have a background in fundamental and technical stock analysis to learn swing trading.
Swing trading India uses popular trading tools to identify entry and exit points from daily, hourly and weekly chart patterns. They may look for various trends such as a flag pattern, head and shoulders pattern, triangle pattern or a cup and handle pattern. Let us understand the different swing trading strategies in detail along with some swing trading tips.
Support and Resistance - Support and resistance trading levels are two critical indicators that define a price trend. The support level is the bottom-most level of an ongoing trend, and prices are not expected to go any lower from this level. On the other hand, the resistance level defines the peak of a current trend. The security price is said to have achieved its maximum value for the current trend as it touches the resistance. As security prices breach either of these levels, it may signal a trend reversal.
If the security's price exceeds the resistance level, it suggests that the security is overbought. In such situations, the buying pressure recedes over time, and the selling pressure deepens. Similarly, as a security's price breaches the support level, it must be oversold.
| Entry and exit points |
| Swing traders constantly monitor the support and resistance levels. They would enter into selling positions just as a security price falls off the resistance level and set a stop-loss a notch above the line. |
Simple Moving Averages (SMA) - The SMA line on the security charts gets updated constantly, where each data point on the line represents the security's average price. Traders can use multiple SMA lines to analyse price trends, such as for ten and twenty days.
| Entry and exit points |
| When the 10-day SMA crosses over the 20-day SMA, this signals a bullish trend and traders plan entry. Conversely, when the reverse occurs, i.e. the 20-day SMA crosses over the 10-day SMA, it sends a sell signal. |
Moving Average Convergence/Divergence (MACD) Crossover - The MACD crossover is used to identify the current trend's strength or a likely reversal. The MACD displays the difference between a fast and slow exponential-moving average. The 12- and 26-day lines are typically taken to determine the MACD lines. The 9-day EMA line on the MACD denotes the signal line.
| Entry and exit points |
| When MACD crosses above the signal line, it indicates a buy position. Conversely, a sell signal is generated when the MACD crosses below the signal line. |
Bollinger Bands - Bollinger bands are price bands on both sides of a moving average trend line. These create a range between which the security prices fluctuate. Traders can assess the current price trends of specific securities using this technique. Bollinger bands, therefore, help traders analyse different levels of highs and lows that a particular security has attained over a period. The bandwidth formed widens and narrows from changes in volatility. The band would widen in terms of high volatility and vice versa.
| Entry and exit points |
| Bollinger bands along with other technical analysis tools can be used to determine entry and exit points. The relative strength index (RSI) is an excellent momentum indicator widely used among traders. RSI above 70 signals overbought conditions, and below 70 suggests oversold conditions. Assuming the price touches the upper Bollinger band and RSI is below 70, it indicates that the trend is likely to continue. However, let us consider the security price reaches the upper Bollinger band, and RSI is greater than 70; this indicates the possibility of a trend reversal, and the security price may start declining. |
Channel Trading - Channel trading involves trading securities whose prices run within a specific channel. The channel represents two lines which act as support and resistance for the current range of security prices. This technique helps plan trades where a trend is expected to continue. An upward direction of the channel indicates a bullish channel, and a downward direction implies a bearish channel.
| Entry and exit points |
| Suppose the technical charts show the formation of a bearish channel. A trader would find the exit points just when the security price hits the resistance line and is about to bounce off again in the downward direction. Similarly, traders would consider entry points close to the support line in case of bullish channels. |
Fibonacci Retracement - Fibonacci retracement is widely used among traders to determine a security's support and resistance levels. The technique is based on the assumption that security prices tend to backtrack before they continue moving in the direction of the current trend. For instance, let us assume a security's price has increased from Rs. 100 to Rs. 200; there is a possibility that the price backtracks a bit - let us presume until Rs. 160 and then rise again until Rs. 250. Fibonacci ratios - 23.6%, 38.2% and 61.8% depict the levels until security can retrace its path. Traders draw horizontal lines against these levels on the technical charts to determine the potential reversal levels.
| Entry and exit points |
| Suppose the security exhibits a bearish trend. The trader can plan a short trade at the Fibonacci line corresponding to a 61.8% level, the resistance level where the securities will retrace their path before falling again. The trader might fix the exit point when the price touches the support level, i.e. the 23.6% Fibonacci line. |
Swing and Day Trading techniques are among the most efficient strategies a trader uses to enhance stock market returns. The primary element that differentiates swing from day trading is the time horizon. While day traders initiate and close their positions on the same day, swing traders may look to make a profit from short-term trends. Swing traders may therefore retain their positions for a few days, going up to a few weeks or even more. Day trading requires monitoring the markets and making quick decisions based on their analyses. Another critical element between these two trading styles is the leverage – the leverage for swing trading is 2x, while that for intraday trading is 4x the initial investment.
Selecting a strategy might vary across traders, their requirements, availability and risk appetite. Since the positions are left open overnight in swing trading, it possesses a particular risk element. However, since positions remain open for an extended time in swing trading, it gives traders a greater chance to make profits. Moreover, the margin requirement in swing trading is higher than in intraday trades.
CAN SLIM is a trading strategy used in bullish markets that attempts to identify stocks with high-growth potential. The most critical aspect of a CAN SLIM strategy is that it considers both fundamental and technical stock analysis. Although the CAN SLIM strategy is applicable for more extended periods, the rules are still applicable for swing trading. Let us understand how.
Lower profit goals compensate for the flexibility in the time frames. For instance, an uptrend of more than 30-40% may need a longer timeframe. If you seek to book profits at 5-10%, you may not require such extended timeframes. Similarly, the volume characteristics of a breakout also have a shortened time frame. You might not be looking for 50-day moving averages to find consolidations. The breakout volume exceeding recent trends may be a sufficient indicator to confirm strength.
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To open a Demat Account, below documents are required:
Demat Account can be used to hold various types of securities, like- shares, mutual funds, bonds, ETFs, etc.,
Yes, technically, it is possible to open a Demat Account without opening a Trading Account. However, most brokers today provide Demat & Trading Account.
Yes, the nomination facility is available in Demat Accounts. Every Depository Participant (DP) offers the option to add a nominee to the account. Nomination is mandatory as per recent SEBI guidelines.
Demat Account is not required for an SIP in mutual funds. However, if you want to initiate a stock specific SIP, which is a facility being provided by many stockbrokers today, you will need a Demat Account.
Yes, you can apply for IPOs using a Demat Account. In IPO application, one has to enter the Demat Account number to submit the application.
Yes, it is compulsory to have a Demat Account to apply for an IPO in India. While filling the IPO application, it is mandatory to enter the Demat Account number to submit the application.
Yes, you can open multiple demat accounts but only under the below conditions:
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One of the major reasons to have a Demat Account is to hold your investments electronically.Other than this, there’s also some aims and objectives for opening a Demat account.
Yes. In Demat and Trading Account, there is a ledger which holds the money transferred from bank account to the trading account. This money can be withdrawn by placing a withdraw fund request on the demat and trading application. Basis the broker, the fund transfer might take some time as it is subject to clearance from Risk Management team. In case you have some outstanding payments to make, you might not be allowed to withdraw fund until the outstanding is settled.
In the current scenario, most companies provide both Demat and Trading Accounts together. Technically, if a user has separate Demat and Trading Accounts, they can link them by completing the required formalities.
Yes, it is possible for an NRI to open a Demat Account in India. However, they need to have a Portfolio Investment Scheme approval from SEBI. The PIS helps NRIs to purchase and sell shares on the stock exchange in India.
The shares held in a demat account can be transferred to other demat account. The ownership of a Demat Account cannot change. A Demat Account holder can appoint a nominee to his/her demat account, who will be entitled to receive the assets held in demat account in case of a demise of the account holder.
Demat Accounts can be categorized into various types as below:
Demat Account can be opened for free. Some Depository Participants (DPs) might charge a nominal account opening fee. Along with it, some DPs might charge an Annual Maintenance Charge (AMC). With Bajaj Broking, one can open Demat & Trading Account free of cost through Freedom subscription pack.
Basis on whether you want to register as an individual or a corporate or in partnership with another individual, you can open below types of Demat Accounts:
A Demat account is the abbreviated form of dematerialized account. It is used to hold your shares and securities in an electronic form. It is mandatory to have a Demat account in India if you wish to trade and invest in the share market.
Yes, joint demat accounts can be opened with any Depository Participant. The account holders have to furnish the necessary KYC documents.
To open a Demat Account with Bajaj Broking, one must meet the below criteria:
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