What Is The Best Time Frame For Swing Trading: A stock market is a place where there are more than 5000 shares whose prices fluctuate and make a series of highs and lows.
Traders in the stock market use variety of trading techniques to take advantage of these price movements and earn profits. One of these trading techniques used by traders is swing trading.
In this article, we will discuss what is swing trading and also cover the best time frame for swing trading.
What Is Swing Trading?
Swing trading is a trading strategy where individuals try to earn profits from the swings in the market.
A swing in the stock market is an upward and downward movement in the price of the security. These price movements occur within a trend rather than being a trend itself.
In swing trading, individuals buy during the bullish swings and sell during the bearish swings. Individuals enter this type of trade with the purpose of making profits from the retracement of the price of the securities.
Here, the individuals try to capture the potential price movements in the market. During a swing trade, the shares are generally held between the period of one day to a few weeks.
How Does Swing Trading Work?
In swing trading, the individuals analyze the price movements in a particular stock and enter the stock through a long or short position to capitalize on the price movement of the stock.
The stocks for swing trading are selected based on the volatility and the duration of the swing trade. A volatile market will give you more frequent trades and are suitable for shorter time frames. During a lesser volatile market, you have lesser trading opportunities but the trades will be more qualified.
But using swing trading as a trading style exposes you to plenty of risks. The common risk of swing trading is gap openings where the shares open significantly higher or lower based on the news or events that occur while the market is closed.
The Best Time Frame For Swing Trading
As swing trades are executed from anywhere within the day to anywhere for weeks, there are multiple timeframes an individual can choose from to execute the trades. The best time frame for swing trading depends on the preference of the individuals.
Here are some best time frames for swing trading within the day:
- 1 Minute Chart
This time frame is recommended for automated trading and for seasoned traders who can precisely predict the entry and exit points in the stocks. Due to the shorter time frame, it is recommended to select stocks that are volatile in nature.
- 5 Minute Chart
This time frame is a commonly used time frame among day traders. This is due to the fact that there are lesser candlesticks per hour than 1 minute which gives individuals enough time to analyze the candlesticks and more frequent trades.
- 15 Minute Chart
This time frame is more suitable for individuals who prefer trading at a slower pace as there are only 4 candles to monitor in an hour. This is also suitable for individuals who like to execute swing trades on multiple stocks at once.
Here are some best time frames for swing trading within the day:
- 1-hour Chart
The one-hour time frame is used by swing traders who hold shares for more than a day and want to trade a closer look into the charts so that they are able to plan and execute the orders more precisely.
- Daily Charts
It is the most commonly used chart by individuals to analyze the price movement on a short to intermediate-term time period. The daily timeframe can be used by individuals to analyze the stocks on a higher time frame and get a better sense of the overall trend of the share.
It is more suitable for traders who do not have time to constantly monitor the stocks and want to hold on to a stock for more than a day.
- Weekly Charts
Weekly charts provide individuals the overall trend of the shares and help them plot important to support and resistance levels. Individuals who prefer to trade on a broader time frame use this time frame. After analyzing the weekly charts, individuals can go into smaller timeframes to get more precise entry and exit points.
Swing Trading Strategies
Now that we looked at different types of time frames, let us take a look at the trading strategies that you can use for swing trading
- Stuck in the range
In this swing trading strategy, you enter the trade when the security creates a channel and start trading within the channel. Here, you enter and exit the trades based on the support and resistance levels.
You can take long positions when the security is at the support level and take short positions when the security is at the resistance level. You can your positions when you achieve the desired profits or when the security reaches the opposite side of the channel ( the support or the resistance level).
The stop-loss for this strategy should be kept slightly below or above the support and resistance lines. That is, keep a stop loss near the resistance level while taking a short position and keep a stop loss near the support level while taking a long position.
- Catching the trend
In this trading strategy, you enter a swing trade within the swing moves in the direction of the trend. When using this strategy, you should apply the 50-day moving average as the price does not generally breach below this moving average when the market is trending.
When a share is trending in an upward direction, the up moves will tend to be more than the fall in the share. In this trading strategy, you enter a long position when the share dip. The dips that are to be bought must be close to the 50-day moving average.
The stop loss in this strategy should be kept below the 50-day moving average. The position is to be held if the share doesn’t dip below the 50-day moving average and benefits from the uptrend of the share.
- Against the Grain
This final trading strategy in this article comes with a slightly higher risk with the potential to earn huge profits. The reason for the higher risk in this strategy is that the trades are taken against the existing trend in the security
In this strategy, you enter a short position in a trending share when it starts consolidating near its high. The target for this strategy should be near the recent swing lows. The stop-loss here should be at the levels above the highs of the share.
In this article, we discussed the meaning of swing trading, how swing trading works, the best time frames for swing trades, and three strategies you can use for swing trading.
The best time for swing trades depends entirely on the preference of the individuals. What’s more important in swing trading is identifying the trend and entering and exiting the positions at the right time from the security.
That’s all for the article What Is The Best Time Frame For Swing Trading? We hope you enjoyed reading it. Happy Investing!
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