Anda di halaman 1dari 5

Swing Trading Strategy- Trading Divergence Patterns And Making 100-400 Pips per Trade!

Swing trading is a style of trading like scalping. In swing trading, the quality of trade is much more important than the quantity of trade. It basically means riding the trends in the market. A swing trade can last from a few days to a few weeks. In swing trading, we try to identify the trend as soon as it starts and try to jump on it before the crowd. Then we continue riding the trend as long as it lasts. The most important thing in swing trading is identifying the start and the end of the trend accurately. Most traders identify the trend when it is already halfway and then continue riding it when it has already ended. Using the swing trading strategy that has been described below, you will be able to identify the trend before it starts. Once you have identified the start of a new trend, you will confirm it using the steps described below. After you have the confirmation, you will enter into a long or a short trade and continue in the trade as long as the trend lasts. With 2-4 good swing trades in a month, one can easily achieve an ROI above 100%. What Is A Divergence? In this Swing Trading Strategy, we will be using divergences to make the entry and exit decisions. Divergence develops when the indicator is moving opposite to the price action. So if the price action is making a higher high while the indicator is making a lower low, it is an indication of bearish divergence meaning price is reaching the top and soon a reversal will take place. In the same manner, if the price action is making a lower low and the indicator is making a higher high, it is an indication of bullish divergence meaning price is reaching the bottom and soon a reversal in the up direction will take place. The popular indicators for finding divergences are MACD, Stochastic,RSI, CCI, William %R and OsMA. Types of Divergence Patterns Regular Divergence also known as Normal Divergence Bullish Bearish Irregular Divergence also known as Hidden Divergence Bullish Bearish As shown in the above table, divergence can be regular as well as irregular. Hidden divergence develops when the price action is making a lower high while the indicator is making a higher high or when the price action is making a higher low while the indicator is making a lower low. Regular Divergence is a trend reversal signal while Irregular or what we call Hidden Divergence is a trend continuation signal. Regular Divergence can be bullish or bearish in the same manner hidden divergence can be bullish or

bearish. If you are not clear about divergences, please read this 15 page PDF that explains divergences in detail. Read this post that explains divergences in great detail using videos that includes an one hour long recorded seminar on trading with divergence patterns! Swing Trading Using Divergence Patterns! This simple swing trading strategy entails catching the trends on H1, H4, D1 and even lower timeframe like M15 using divergence patterns. This is how this simple swing trading strategy works. Suppose we are trading on H1 timeframe. When we spot a bullish divergence pattern, we will go long. We will continue in the trade as long as a bearish divergence pattern does not appear. When a bearish divergence pattern appears we will close the long trade and open a short trade. Now we will continue in the short trade as long as a bullish divergence pattern doesn't appear. When a bullish divergence pattern appears we will close the short trade and open a long trade. Each trade using this swing trading strategy on H1 timeframe can make 100-300 pips on H1 timeframe and can last from 1-4 days. In the same manner, if we are trading on the H4 timeframe, we will use the same rules as stated above. We will go long on the bullish divergence appearing on H4 timeframe and continue in the trade as long as there is no bearish divergence. When we spot a bearish divergence pattern on H4 timeframe, we will close the long trade and open a short trade and continue till there is no bullish divergence on H4 timeframe. When we spot a bullish divergence pattern, we will close the short trade and open a long trade. A trade on H4 timeframe can make 200-400 pips and can last from 2-10 or even more days. The same rules apply for the D1 timeframe. The only difference being the size of the stop loss. When you trade on H1 timeframe, you can find an entry with a much lower stop loss as compared to on H4 or D1 timeframes. However, the size of the market move is much bigger of higher timeframes like D1 and H4. Now let's discuss this swing trading strategy in more detail.

We will be using MACD, Stochastic and RSI oscillators to spot the divergence patterns. Take a look at the above screenshot. As you can see, a strong bearish divergence pattern is being shown by MACD, RSI as well as the Stochastic indicators. For the purpose of our swing trading strategy, we need at least two

indicators to show divergence before we start planning for the trade. In this case, all the three indicators are showing divergence so we start planning for a trade. In order to make the entry we shift to the H1 timeframe and draw a minor trendline as shown in the screenshot below.

As you can see in the above screenshot, all the 3 indicators are showing bearish divergence. So we have a strong signal that the market is about to fall. We draw a minor trendline as shown in the above screenshot and wait for the price to break it. After 2 candles, the minor trendline is broken. The top was at 1.5259. When the trendline get broken, we wait for one more candle to make sure that this is not a false break. On the next candle, we go short at 1.5238. Our risk is 21 pips. If we had used the H4 timeframe, out entry would have been around 1.5214. So we have been able to reduce the risk from 45 pips to 21 pips by using a lower timeframe for making the entry.

Now after having made the entry, we shift back to H4 timeframe and continue in the trade as long as there is no bullish divergence pattern appearing on the chart. Price continues to drop and reaches 1.5033 and a clear bullish divergence pattern is now appearing on the chart. So we close the trade at 1.5045 making a total of 193 pips in 2 days. Both the Stochastic and the RSI are showi ng very strong bullish divergence pattern developing. So we shift to the H1 timeframe looking for a suitable long entry in the market.

We draw a minor trendline as shown in the screenshot below and wait for the price to break it. This time in the updirection. Price breaks the minor trendline after 3 candles and we enter long at 1.5051. Our risk for this trade is 18 pips. In the next 2 days, price rises to 1.53637 and we closed the trade at 1.5342 making a total of 291 pips. Risk And Money Management! The crux of this swing trading strategy lies in finding a low risk entry. In the first trade, our stop loss was 21 pips and we made 193 pips. In the second trade our risk was 18 pips and we made 291 pips. We had shifted to the lower timeframe to find the low risk entry. As you know risk and money management is one of the most important component of any strategy. Now let's discuss the risk and money management part of this swing trading strategy. Aggressive Approach Suppose we have $1,000 as equity in our account. First let's take the aggressive approach. This is for those trader who have been trading with this swing trading strategy for a long time and have enough practice with it so that they make above 80% winning trades using this strategy. In the aggressive approach, we will use 0.2 lot for the first trade. Our risk is 21 pips or $42 which comes to be 4.2% in percentage terms. So we are risking 4.2% of our account equity in this trade. We made 193 pips which translates into $386. This is our profit. Now we have $1,386 in our account as equity after closing the first trade. In the second trade that we made our risk was 18 pips. The equity in the account is now $1,386 which means we can now trade with 0.35 lot size. Our risk is 18 pips or $63. In percentage terms this comes out to 4.5%. Since we had made 291 pips in the second trade, this comes out to be $1018.5. So we made an ROI of 73% in just 1 trade. What this illustrates is the point that we had made in the beginning of this hub. The quality matters more in swing trading as compared to quantity. So if you are good and are able to catch a big move in the market with low risk, you can make 50-100% return in just 1 trade. Now the total profit that you made in 4 days of trading was $386+$1,018=$1,404 which translates into making a gain of 140% in just one week while the risk was not more than 4.5% per trade.

Conservative Approach Now let's discuss the conservative approach. A new trader should always be conservative in taking risk. Only increase risk once you have mastered a strategy. So if you are a new trader, you will take the conservative approach and use 0.1 lot in the first trade. Your risk for this trade would have only be $21 or 2.1% in percentage terms. You would have made $193 in the first trade. In the second trade also you would have traded with 0.1 lot and your risk would have been $18 or 1.5% in percentage terms. You would have made $291 in the second trade making a total profit of $193+$291=$484 which comes out to be making a gain of 48.4% in just one week. Making a return of 48.4% with low risk in just 1 week is not bad for a new trader. More Trading Examples of This Swing Trading Strategy! GBP/USD Trade Examples With This Swing Trading Strategy on H1 Timeframe! On H1 timeframe this swing trading strategy works great as most of the time you will be able to catch the big moves with a stop loss lower than 20 pips. GBP/USD Trade Example Using This Swing Trading Strategy on H4 Timeframe! GBP/USD Trade Example using this Swing Trading Strategy on H4 Timeframe that made 485 pips!!