Having a clearly defined strategy is essential for swing trading success. A good strategy tells you exactly when to enter, where to place your stop loss, and when to take profits. Here are five proven swing trading strategies that work in various market conditions.
Strategy 1: Moving Average Pullback
This is the most reliable swing trading strategy. You trade with the trend by buying pullbacks to key moving averages in uptrending stocks.
Setup Requirements
- Stock is above the 50-day and 200-day moving averages
- Both averages are sloping upward
- Price pulls back to touch or approach the 20-day EMA
- RSI is between 40 and 50 during the pullback
Entry Rules
Enter when price shows a bullish reversal candle at the 20-day EMA. This could be a hammer, bullish engulfing, or morning star pattern. Alternatively, enter when price closes back above the 20-day EMA after touching it.
Stop Loss
Place your stop loss below the swing low of the pullback or 1.5 ATR below your entry price, whichever is tighter.
Profit Target
Target the previous swing high or a 2:1 reward-to-risk ratio. Consider trailing your stop using the 20-day EMA once you are up 1R.
Why it works: Trending stocks tend to stay trending. Buying pullbacks in an uptrend gives you better entries and smaller stops compared to chasing breakouts.
Strategy 2: Bull Flag Breakout
Bull flags are powerful continuation patterns. They form when a stock consolidates tightly after a strong move up, then breaks out to continue the trend.
Setup Requirements
- Strong prior move up (the flagpole) of at least 10-15%
- Tight consolidation with lower highs and lower lows (the flag)
- Volume contracts during the flag formation
- Flag duration typically 3-10 days
Entry Rules
Enter when price breaks above the upper trendline of the flag on increased volume. Volume should be at least 50% above average on the breakout day.
Stop Loss
Place your stop below the lowest point of the flag pattern.
Profit Target
Measure the flagpole height and project it from the breakout point. This gives you the expected move size.
Strategy 3: Support Bounce
This strategy buys stocks bouncing off established support levels. Support represents areas where buyers have previously stepped in.
Setup Requirements
- Clear horizontal support level with at least two prior touches
- Overall trend is neutral to bullish (not a downtrend)
- Price approaches support with declining volume
Entry Rules
Wait for a bullish candle at support. Do not catch falling knives. Enter when you see buyers stepping in with a hammer, bullish engulfing, or similar pattern. Volume should increase on the reversal candle.
Stop Loss
Place your stop just below the support level, typically 2-3% below support or below the candle low.
Profit Target
Target the next resistance level or the top of the recent range. In a strong market, you can trail your stop and let winners run.
Risk warning: Support can fail. If a stock closes below support, exit immediately. Do not wait for your stop loss to be hit if the pattern is clearly broken.
Strategy 4: RSI Divergence Reversal
RSI divergence occurs when price makes a new extreme but RSI does not confirm. This signals momentum is weakening and a reversal may be coming.
Setup Requirements
- For bullish divergence: Price makes a lower low, but RSI makes a higher low
- RSI should be in oversold territory (below 30) or near it
- Stock should be at a support area
- The divergence should be clear and obvious on the chart
Entry Rules
Wait for confirmation. Enter when price closes above the most recent swing high after the divergence forms. This confirms the reversal is underway.
Stop Loss
Place your stop below the low of the divergence pattern.
Profit Target
Target the next significant resistance level. Divergence reversals often produce strong moves, so consider trailing part of your position.
Strategy 5: MACD Crossover
The MACD crossover strategy combines trend direction with momentum timing. It works best in trending markets.
Setup Requirements
- Stock is above the 50-day moving average (bullish bias)
- MACD is below zero and has been declining (oversold momentum)
- MACD histogram is showing declining bearish momentum
Entry Rules
Enter when the MACD line crosses above the signal line while below zero. This catches the momentum shift early while the stock is still at a good price.
Stop Loss
Place your stop below the recent swing low or below the 50-day moving average.
Profit Target
Exit when MACD crosses back below the signal line or when it reaches extremely overbought levels. Alternatively, use a fixed profit target of 2-3 times your risk.
Choosing the Right Strategy
Different strategies work better in different market conditions:
Trending Markets
- Moving Average Pullback
- Bull Flag Breakout
- MACD Crossover
Range-Bound Markets
- Support Bounce
- RSI Divergence
Important Rules for All Strategies
- Trade with the market: Your odds improve when trading in the direction of the overall market trend.
- Respect your stops: Exit when your stop is hit. No exceptions.
- Wait for confirmation: Do not anticipate signals. Wait for setups to complete.
- Track your results: Keep detailed records of every trade to see which strategies work best for you.
- Start small: Paper trade or trade small size until you are consistently profitable.
Track Strategy Performance
Pro Trader Dashboard lets you tag trades by strategy. See win rates, average gains, and which setups generate the best returns.
Summary
These five strategies cover the core setups swing traders encounter. The Moving Average Pullback and Bull Flag Breakout work best in trending markets. Support Bounce and RSI Divergence help you trade reversals in ranging conditions. MACD Crossover provides a systematic approach to timing entries. Master one or two strategies before adding more to your toolkit. Consistency comes from doing the same thing repeatedly, not from having dozens of strategies.
Learn more about entry signals and exit strategies to refine your swing trading approach.