How do trend following and swing trading work?
Modified on Thu, 5 Nov at 6:52 AM
Trend following means trading in the direction of an established uptrend or downtrend and holding until the trend reverses. Swing trading means capturing price “swings” that last several days or weeks, entering on a pullback and exiting at a higher point. Both hold positions longer than intraday styles such as scalping.
Trend Following Strategy
Definition: You identify a prevailing market trend (either an uptrend or a downtrend) and enter positions in the same direction to capture profits from it.
Example: if Apple (AAPL) has been rising consistently over several weeks, a trader might enter a long position (buy shares) and hold until the trend shows signs of reversal. If Apple is steadily rising from $140 to $170, the trader could ride the trend until there’s a significant pullback or a break of support.
Use Case
- Trend Indicator: Use moving averages (like the 50-day or 200-day moving average) to identify the trend direction.
- Entry Point: Buy when the price is above the moving average, signaling an uptrend.
Pivex Academy: the Technical Analysis module covers how to spot trends and use indicators like moving averages to make informed decisions.
Swing Trading Style
Definition: Traders aim to enter at a low point (during a pullback) and exit at a higher point when the price moves up, profiting from price movements over several days.
Example: if Microsoft (MSFT) falls from $300 to $280 due to a market correction but shows signs of bouncing back, a swing trader might enter at $282, aiming to sell at a higher price (e.g., $300) when the stock recovers.
Use Case
- Indicators: Use support and resistance levels, moving averages, or technical indicators like the Relative Strength Index (RSI) to decide when to enter or exit.
- Holding Period: Hold for a few days to weeks, depending on market conditions.
Pivex Academy: the Technical Analysis lessons cover chart patterns and indicators like RSI, which are essential for identifying swing trading opportunities.
Related: What are the Trading Strategies at Pivex? · How do breakout and price action trading work?