Swing High And Swing Low - Definition And Identification
A swing high refers to a price peak formed by the market before moving lower.
A swing low refers to a price trough formed by the market before moving higher.
You can use swing points to determine your bias, based on market conditions, and then time your entry in that direction. Both of these will be covered in this article.
Using swing points to analyze market conditions
By looking at the swing highs and lows formed by the market, you can judge the current market environment. Doing this allows you to determine your directional bias and look for opportunities.
Let me show you how this can be done….
If the market does the following – Makes a swing low, then a swing high, then a swing low, followed by another swing high – It is rather easy to say there is no definitive direction which means we are in a range.
Range traders will have the bias to buy at the support zone and sell at the resistance zone.
Range – GBPJPY H4
If the market makes a consistent series of swing lows then we are in an uptrend (market is making higher lows and higher highs). Each swing low is the end of a pullback in the trend.
Trend traders will look for opportunities to buy on these pullbacks.
Uptrend – USDCAD H4
If the market makes a consistent series of swing highs then we are in a downtrend (market is making lower lows and lower highs). Each swing high is the end of a retracement in the trend.
Trend traders will look for opportunities to sell on these retracements.
Downtrend – NZDUSD Daily
If the market is in an uptrend but a swing low is broken or swing highs begin to form against the trend, this could signal a reversal.
Reversal traders would look for opportunities to sell.
If the market is in a downtrend but a swing high is broken or swing lows begin to form against the trend, this could signal a reversal.
Reversal traders would look for opportunities to buy.
And that is how you can use swing points to determine the market environment, and, by extension, your directional bias. Next up, how to trade swing highs and swing lows.
Trading swing highs and lows
Once we decide where we believe the market is headed, the next step is looking towards our technical analysis tools and find the areas that favor placing a trade.
Our goal is to use analysis to find a possible swing low when buying and a swing high when selling. Coming up I will briefly explain and give examples of a few ways to do this.
1. Support and resistance
Support and resistance provide traders with zones where supply and demand could shift. In these areas, we can look to go long or short depending on our analysis.
When the market is trending up you should be looking for support levels to buy and join the trend.
When it is in a downtrend look for resistance levels to sell and ride the momentum.
In a range, you should look to sell at resistance and buy at support. Following, we have an example of using support and resistance to identify swing points within a range.
Support and resistance trading – EURUSD H1
Trendlines are dynamic support and resistance because time and price are the two factors that determine their nature.
Drawing trendlines involves connecting at least 2 swing lows or swing highs, the line is then used to gauge where the next swing high (in a downtrend) or swing low (in an uptrend) could form.
We would then look to buy at an upward sloping trendline and sell at a declining trendline.
Trendline trading – EURAUD H4
3. Fibonacci retracements
Swing points are used when drawing Fibonacci, so it is only logical to include this tool. How are they used? When drawing Fibonacci on a chart, we connect the two swing levels of the current wave.
The trading platform then calculates the levels and plots them on the chart, once this is complete the levels are treated the same as conventional support and resistance.
Fibonacci trading – GBPUSD H4
And that brings us to the end of today’s lesson, I trust you will now be able to identify market conditions using swing points and trade them with ease.