Best Swing Trading Strategies for Futures Traders

This article on Swing Trading Strategies is the opinion of Optimus Futures.

  • Swing trading can be an effective and less stressful approach to seeking short-term profits.
  • When swing trading, you can determine how much you will likely make or lose within a given trade.
  • Swing trading setups are based on anticipation and calculation, not quick reaction and impulse.

What is Swing Trading?

Swing trading is a short-term trading strategy in which a trade’s duration can last from a day to a few days before its closure.

The difference between swing trading and day trading goes far beyond its durational characteristics:

  • Because swing trades happen less frequently, they can be planned on a more strategic basis as they rely less on “reaction” and more on anticipation.
  • Swing trading can be less stressful, as it’s slower (you can even implement a strategy based on end-of-day data) and doesn’t require you to stay glued to your screen to time entry and exit points.
  • Swing trading can be more profitable, as you are aiming for larger price swings, for which you can adjust your positions for optimal reward-to-risk, and your commission costs and slippage levels are lower than most higher frequency day trading scenarios.

How Does a Swing Trading Strategy Work?

It’s rather simple. If you’re trading a given trend–and all trends have multiple swing highs and swing lows in the course of a larger trend move–then you want to catch one of the price swings, from as close to the beginning of an up move to the end of that move. If you’re trading against the trend, you want to catch as much of the down move as possible.

What matters to you, as a prospective swing trader, is selecting the type of swing trading strategy that works best with your “personality,” trading preferences, capital resources, and risk tolerance. Here are a few to consider.

Best Basic Swing Trading Strategies

Moving Average Swing Trading Strategy

A moving average strategy is perhaps one of the most basic strategies you can use to trade trends. However, it’s not always the most practical or profitable strategy to use.

The big danger with moving averages is that when price begins to move sideways–in other words, a non-trending environment–using moving averages for entries and exits can cause a lot of false signals in the form of “whipsaws.”

But when a market does trend, then a moving average strategy can help you capture that trend.

Swing Trading Strategies

To use a moving average strategy, you’ll have to decide which moving average might best capture the trend you’re trying to trade. A common setup would be to use a 10-day moving average for short-term trends, a 20-day moving average for intermediate-term trends, and a 50-day for longer-term trends based on a swing trading approach (longer-term “position traders” tend to use longer-term moving average combinations such as the 20-day, 50-day, and 200-day for short, intermediate, and long-term trend measurements).

Fibonacci Retracement Swing Trading Strategy

The wonderful thing about using Fibonacci retracements is that they can help you anticipate reversals. Let’s suppose your instrument of choice has a rally from a low point to a high point (point A to B). Next thing, it starts to pull back.

Suppose you’re bullish. When might you jump back in? A relatively wise approach would be to jump in around the 50% to 61.8% retracement level. Why? 50% is a point at which the bulls and the bears (who went short at the top) are both sitting on profits. One side is eventually going to give.

Fibonacci Retracement Swing Trading Strategy

The 61.8% retracement level is like the deepest level before bulls begin selling their positions. This also makes anywhere between 50% to 61.8% an ideal entry zone for a long position. You’d simply place your stop loss near or slightly below the first point of the price swing.

Disclaimer: The placement of contingent orders by you or broker, or trading advisor, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.

Support and Resistance Breakouts

Think of support and resistance as a price floor (support) and price roof (resistance).

Support gets its name from the fact that plenty of buyers entered at a given price level. So, if the price falls toward support, you might see or expect more buyers to jump in at that price, causing the price to bounce.

Resistance has a similar profile, but for sellers. Many traders sold or sold short at a given level, causing the price to decline starting at that given price level. So if price approaches a resistance level, you can expect more of the same–more selling to close out positions or more short selling to profit from an expected down move.

A breakout, on the other hand, disrupts support and resistance expectations.

  • If price breaks below support, traders who entered “long” positions will often sell. The price action may also trigger a series of stop-loss orders right below the support level (where traders habitually place their stop losses when going long). This can cause an instrument’s price to fall faster and more aggressively, making it a potentially ideal entry point for short-sellerswalla.
  • If price breaks above resistance, short-sellers may get squeezed, causing many of them to turn around and buy to cover their positions. This will often boost the price of an asset as buyers and short sellers bid higher to either enter or close out their positions. A resistance breakout can often be an ideal entry point for those looking to go long a position.

Support and Resistance Breakouts

Breakouts are classic entry points for traders of all types–day traders, swing traders, and position traders. They happen every day, on every time frame, and they tend to be reliable on higher time frames such as the hourly chart on up. This makes them a swing trader’s best friend, as they’re simple to identify, simple to trade, and simple to measure in terms of risk and reward.

MACD Crossovers

Popularly pronounced among traders as “Mac D,” the Moving Average Convergence Divergence (shortened to MACD) is a trend-following and momentum indicator that shows two things superimposed one on the other:

  • The relationship between two moving averages–typically the 12-period EMA (exponential moving average) and the 26-period EMA; and
  • A“signal line” (or baseline) that separates a bullish (above line) histogram from a bearish (below line) histogram.

MACD Crossovers

The theory goes that when the 12-EMA crosses above the 26-EMA while the histogram goes into bullish territory, then price momentum will likely be bullish. As the image above shows, double check the price action. You might want to wait for a price breakout to confirm that perspective before you jump into a trade.

Is There a Best Swing Trading Indicator?

As you know, there are hundreds of trading indicators available. Traders constantly test different combinations of indicators to see what might work with their approach. So, the answer is no: there is no definitive indicator for swing trading or any kind of trading.

It’s how you use indicators, not which indicators you use, that can make a big difference.

With that said, it’s probably wise to point out that some swing traders will probably say that the most useful indicator of them all, in terms of making an immediate price assessment, is price itself–that is, the bar or candlestick chart.

The reason for this is that breakouts are often critical to swing traders. You can see where your entry, exit, and price target may be plotted based on a trading session’s open, low, high, close, and general trend direction. Sometimes, the simplest is best.

Best Futures for Swing Trading

Although you can “technically” trade any instrument of choice, the instruments with perhaps the best risk-to-reward profiles are those that are liquidly traded: the main US indices, Treasuries (30-year and 10-year), crude oil, gold, etc.

Now, here’s something to think about. If you have the patience to hunt for liquidity in the emerging micro-futures–from the S&P 500, Dow, Nasdaq, and Russell indices to micro bitcoin and ethereum to micro crude oil–then it may be worth your while, particularly for trades that you may hold open for more than a day.

And considering how long a swing trade can last–essentially, as long as the price swing lasts–you’re probably wondering what’s the best time frame to use when identifying potential swing trade candidates.

What Is The Best Time Frame To Swing Trade Futures?

There are many opinions surrounding this question. Here’s our preference:

  • Watch the daily chart to get a “strategic” big-picture view of the price action; and
  • Use nothing shorter than the 15-minute chart for your “tactical” entries–possibly even hourly charts.
  • The exits will take care of themselves if you set a stop loss and a “take profit” order; in short, you might want to use a bracket order for your exits.

What Are the Pros and Cons of Swing Trading?

Here are the pros:

You’re not glued to your desk unlike day trading: you can even make your trading decisions end of the day if you so choose. This allows you to live your life, especially if you happen to have a day job where you can’t always trade at work.

You can plan more and react less: money management is key to successful trading, and so is assessing multiple trading prospects (different instruments and markets), using different trading approaches, and having the time to plan out your trades. You can’t always do this when you’re scalping, as there’s very little time to when you’re reacting to a fast market. But you can trade events with potential short-term market jolts, such as the case with news trading, as long as you’re trading a scheduled economic event or report.

Swing trading can be less stressful overall: preparation can help bolster confidence in trading, and swing trading can allow you to “cultivate” and shape each trade from start to finish with less confusion and less fuss (you do all of the proverbial sweating before the trade and not at the moment of trading).

Here are the cons:

You’ll be exposed to overnight risk: imagine holding a long crude oil position overnight only to learn, upon waking the next day, that a major disaster in the Middle East plunged both the Brent and crude market. A lot can happen on the other side of the world in a market you’re trading while you’re asleep. So, watch your position size, and be sure to have enough capital in case your futures instrument goes limit down or (if you’re short) limit up.

Trading costs can add up as compared with position trading: you may not accrue as high a trading cost as you might scalping the markets. But still, if you trade on a weekly basis, your trading costs will add up. So, choose only high probability trades for both cost savings and profit potential.

Without a comprehensive trading strategy, you can still lose a lot of money: there are so many markets to trade, so many strategies to use, and so many different money management strategies to implement. If you’re truly going to diversify your markets and trading methodologies, then analyze your entire “combinatorial” strategy before diving in. It makes little sense to pick and choose a method one day only to change it every other day or week unless you’re doing it ultra-methodically. Having a solid method can help prevent disorganized madness.

How to Swing Trade Futures (or at least, get started)

Now you’ve seen some of the more basic yet widely-used swing trading strategies. It’s up to you to select which one works best for you (or to find another approach that does), and to fine-tune or modify your strategy of choice. Follow the steps below to open an account with us, so you can get started in giving swing trading futures a shot.

  • Open a live Optimus Futures trading account. You can also open a demo account if you would like to practice the above swing trading strategies in a risk-free environment.
  • Use our free Optimus Flow trading platform to seek swing trading opportunities and plan your setups. Utilizing tools such as Volume Analysis, TPO Profile charts, Power Trades, and other unique indicators can help with the strategies described above.
  • Choose a contract to swing trade. Decide which futures instruments and time frame you wish to swing trade and give it a shot. It takes time to find the right instrument, time frame, and approach that best suits your personality. But once you find it, or get close to finding it, you’ll know.
  • Find the right risk management strategy that suits your goals. Not all risk management strategies are defensive. Some strategies–like the Optimal F system–are designed to be aggressive. You weren’t aware of this? Do some research. You may be surprised by what you’ll find.
  • Make sure your trade exit and entries are clearly prepared before you enter your trade. Swing trades are strategically planned and executed. Setups are based on anticipation and calculation, not reaction and impulse.

The Bottom Line

One of the reasons why swing trading is an effective yet less stressful trading strategy is that you have the time to eliminate as many unknowns as possible.  You know how much you will likely make or lose within a given trade. You know your estimated odds. You can identify your most opportune setup, market, and timing for futures trades.

Trading futures and options involve substantial risk of loss and are not suitable for all investors. Past performance is not necessarily indicative of future results.

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