Best Swing Trading Strategy
We are going to try and persuade you as to the suitable candidate of breakout trading for the role of the ‘best swing trading strategy. Breakout trading is the strategy of taking a position as early as possible within a specific trend to cash in on the market movement. Swing traders endeavour to identify points at which the market is about to ‘break out’ from the range in which it has been trading – generally when a support or resistance line is broken.
Breakout trading requires the trader to know how strong or weak the market momentum is, which is usually calculated using the volume of trades that are taking place. This is why volume-weighted moving averages are a popular technical analysis tool among swing traders.
What is volume trading?
Volume trading happens when traders use volume – the amount a specific asset is traded over time – to look at the importance of certain moves within the markets.
Volume plays a pivotal role in trading for many but is an element that retail traders generally overlook for several reasons.
Why is trading volume analysis overlooked?
One of the most intimidating elements for traders seeking to utilise volume as part of their trading strategy is whether the data offered by their broker is dependable. Many brokers who offer volume data will supply the volume of trades set by their clients. This is in stark incompatibility with the total market volume, which would play a much more important role in comprehending where the market will move next. The problem frequently lies in that such data implies expenditure, and certain markets are easier to obtain data for than others.
Consider the forex market, a trillion-dollar per day exchange concerned with transactions across a host of platforms. The Fx market’s decentralised nature makes it harder to quantify. However, it is also worthwhile noting that volume will more often than not reflect peaks and troughs in trading activity per time of day. For instance, the FTSE 100 will conventionally see an abrupt rise in volumes at both the open (crossover with Asia) and close (crossover with the US) of the market.
using volume in your trading
Volumes are generally seen as a confirmation tool. For example, suppose we see an upward surge in price. In that case, the question of whether a big uptick in volumes occurs coterminously will offer significant information over whether that price rise is worth our attention.
Watch out for sharp market moves backed by volume rises.
As a rule, a sharp market move in tandem with a significant rise in volumes would offer a trader greater confidence that the market in question would maintain that trajectory in the future.
Does volume support the wave on the market?
Another way you can use volume is by noting how it supports or doesn’t support each wave on the market. For example, an uptrend with rising volumes on the upwards legs and falling volume on the retracements will, per expectations, continue in that direction. However, it is sensible to be wary of an uptrend where volumes rise on the downward retracements, only to plummet when the market climbs higher.
Evaluating market sentiment through volume
In the end, this is a case of belief, and a market move that is built upon low volumes is less believable than a ubiquitous involvement in a round of buying. When volumes appreciate during a price rise yet plummet during a price drop, that is bullish. On the other hand, if volumes appreciate during down moves yet depreciates during upward price moves, we would have a bearish signal.
Volume charting strategies
The DAX chart below underscores this phenomenon, where a downtrend is confirmed thru the use of volumes. Rising volumes on down moves, conjointly with depreciated volumes on the upwards rebounds, prepares the way for another break lower.
Pattern breakout confirmation
Another form of market analysis that can be magnified via volume data is pattern confirmation. Reversal patterns may offer a trader a possible trading opportunity that goes against the trend. However, such countertrend trading can have inherent risk, thus elevating the value of a confirmation tool. Volume can give that tool, with high volumes on a pattern completion expressing greater confidence in that move.
The example below is a double top pattern, wherein we note a bearish confirmation as provided by a ramp-up in volumes on the break down below 0.74. The countertrend volume changes that preceded that breakdown also added to the anticipation of a possible index shift. This competence to see participation on a breakout elevates the value of such a move, bringing a greater degree of confidence that the reversal will have legs rather than result in a fake-out or false signal.
Among best wswing trading strategiese count both breakout trading and trend trading. Learn to make the most of breakout trading/volume trading with us!
Volume can offer clues for a market when trying to break out after a consolidation period. When a market trades within a range or a consolidation phase, traders keep their eyes peeled for the potential breakout and trend resumption (or reversal). Volume can aid that, confirming a breakout from the pattern similar to the way we have seen with a reversal pattern.
The EUR/AUD chart below underlines the consolidation phase set within an uptrend at 2018-beginning. We expect a bullish breakout soon, yet we have no inkling of when that might occur. The consolidation seen throughout January 2018 began with depreciation and volumes. However, with the price and most notably volume on the rise in the second half of the month, it is clear that a breakout from this pattern amid continued rising volumes could be more reliable than one without that rise in volumes.
Swing trading truly embraces all implications of volatility. The volatility experienced post-breakout is likely to stress emotion since prices are accelerating. Using the steps covered in this article will help you define a trading plan that, when executed correctly, can yield up great returns and manageable risk.