Basically, the concept is based on the fact that over the long term, the fundamental supply and demand situation moves price but in the short term, traders push prices too far up or down, in response to the human emotions of greed and fear. These short-term price spikes don’t last and prices normally return to an area of fair value so, the swing trader sells into greed and buys into feat when prices become overbought or oversold.
If you want to swing trade successfully, you need to look for sharp price spikes and then check a few momentum oscillators to see if prices are overbought or oversold and they will tell you this at a glance. The best indicators to use in swing trading are the MACD, stochastic, and Relative Strength Index (RSI).
If prices are in an uptrend you would look for the indicators to become overbought and wait for the indicator to diverge from price to give you a sell signal. You then would put your stop in above the next level of resistance and set yourself a target to take profit at. The best way is to use a moving average or nearby support and resistance, the 20-day moving average works well and is seen as an area of fair value in long-term trends. Just before prices hit this level, you take profit in case prices recoil back against you. The more overbought or oversold a market is the better the trading signal is likely to be when it comes so make sure you only trade extremes which will give you high odds trades.
The way you combine and use indicators is up to you and we have given you three good ones but there are many more. Don’t use too many indicators though, if you do you will make the system too complex and it will have too many elements to break so keep it simple and robust. Swing trading is easy to do and it’s ideal for novice traders as it doesn’t require much discipline, as profits and losses come quickly. You can learn to swing trade in a week or two and then, you can be making a great second income in around 30m minutes a day.
