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Simple Swing Trading Strategy

This document describes a simple swing trading strategy using three moving averages - 10 SMA, 20 SMA, and 200 SMA. It explains that the 200 SMA identifies the larger trend, and traders only take long positions if the price is above the 200 SMA or short positions if below. It also details that traders go long when the 10 SMA crosses above the 20 SMA with the price above the 200 SMA, or short when the 10 SMA crosses below the 20 SMA with the price below the 200 SMA. An example is given of how the strategy worked effectively in three signals on ONGC stock. The strategy is summarized as a nice way to profit from swing trading but combining it with other technical tools

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RayzwanRayzman
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1K views

Simple Swing Trading Strategy

This document describes a simple swing trading strategy using three moving averages - 10 SMA, 20 SMA, and 200 SMA. It explains that the 200 SMA identifies the larger trend, and traders only take long positions if the price is above the 200 SMA or short positions if below. It also details that traders go long when the 10 SMA crosses above the 20 SMA with the price above the 200 SMA, or short when the 10 SMA crosses below the 20 SMA with the price below the 200 SMA. An example is given of how the strategy worked effectively in three signals on ONGC stock. The strategy is summarized as a nice way to profit from swing trading but combining it with other technical tools

Uploaded by

RayzwanRayzman
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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A Simple Swing Trading

Strategy Using 10 SMA, 20


SMA and 200 SMA
Description: Swing trading or positional trading is a style of investing wherein the investor
holds onto a position for just a few days. Unlike intraday trading where a position is opened and
closed within the same day and requires constant monitoring, swing trading is well suited for
those working professionals for whom monitoring the markets constantly throughout the day is
not possible. It provides them the freedom to invest passively in the markets with ease.

Today we are going to discuss a simple swing trading strategy using just three moving averages
i.e., 10 SMA, 20 SMA and 200 SMA. But before we begin, let’s understand the role of moving
averages and how they are helpful in taking trading decisions.

First of all, moving averages help us to define trends. By saying so, we mean that a moving
average being an ‘average’ of price, it helps us to understand whether we are in an uptrend or in
a downtrend. When price trades above a certain moving average, we say that price is
showing strength with respect to that particular moving average. Similarly, when price is
trending below a certain moving average, we say that price is showing weakness with respect to
that particular moving average. In a nutshell, it helps us to understand a great deal about the
inherent strength or weakness of a particular financial instrument.

Secondly, as the name suggests, moving averages move. As a result they act as moving
trendlines. As we know that a trendline when broken signals a trend change, moving averages
also do pretty much the same job of identifying trend changes once broken.

So, without much ado, let’s dig into our simple moving average trading strategy using 10 SMA,
20 SMA and 200 SMA.
Step 1. Identify the Trend

The first step of this swing trading technique involves identifying the larger degree trend. In
order to do so, we use the 200 day simple moving average (SMA). When prices are trading
above the 200 SMA, we know that there is inherent strength in the stock and only consider long
positions. Similarly, when prices are trading below the 200 SMA, we know that there is inherent
weakness in the stock and only consider trading from the short side.

Step 2. Signal Triggers

We go long when the shorter moving average i.e. 10 SMA crosses above 20 SMA as prices are
trading above the 200 SMA

Conversely, we go short when the shorter moving average i.e. 10 SMA crosses below 20 SMA
as prices are trading below the 200 SMA.

In the above example of ONGC, we can see how effectively the swing trading strategy worked in
all the three signals.
200 SMA is the main trend indicator, no buy trade when price is below 200 SMA and no sell
trade when the price is above 200 SMA.

To conclude, we can say that swing trading using moving averages is a nice way to rake in
profits. However, they can be combined with other technical tools to pack in a punch in your
overall trading strategy.

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