And with Edgewonk, we developed the ultimate trading journal platform for you can find proprietary trading indicators for day traders and swing traders. If you are new to the forex world, or you made a few mistakes with the majority of forex traders benefit from a swing trading strategy. This article detail 12 Forex trading strategies that many traders around Swing trading is another common Forex strategy that focuses on. FOREX TRADE COPIER NON VPS REQUIRED

However, you need to properly understand the market to know all the ups and downfalls. The best forex trading strategies Forex trading plans should be manual or automated to create trading signals. This article will go into detail on 12 Forex strategies that many traders around the world have used to make consistent returns over time. The basic principle here is to identify two currencies against each other, one being your base currency and the other being your counter currency.

You then look at how these two currencies are performing against each other and trade based on this information. It involves looking for solid price moves momentum and trading in the same direction as the move. For example, if you see a strong uptrend, you would buy into the market. When trading breakouts, you are looking to buy or sell when the price breaks out of these ranges. It can be a very lucrative approach if done correctly. The overview expressed in this guide can be used in both bullish and bearish markets, and these guide rails should be thought of as a starting point for new traders to begin their journey.

The individual strategy and types of trading are explored, but it is up to the individual trader to figure out which way is right for them. That being said, in general, trading can be broken down into three different styles. One of the most important things that traders often overlook is psychology. For example, it is quite common for somebody who is comfortable trading one of the styles to be completely uncomfortable trading the other. It will come down to your personal psychology, and it is something that you should pay close attention to.

If you are to choose a style, pay close attention to how you feel about the trade. If you are comfortable in that type of environment, then it is the right style for you. However, if you find yourself overly concerned about the trade, then you may want to reevaluate how you are choosing to approach the market. In fact, listening to your own psychology is one of the most important things you can do as a trader. Scalping Scalping involves getting in and out of positions very quickly, and in fast succession.

Scalpers will quite often trade in one direction, only to turn around and trade in the opposite direction rather quickly. They are looking for quick and small gains, but over time, if a scalper is good they can see their profits add up rather significantly. Intraday Trading Intraday trading strategies focus on setups that are opened and closed in a single trading session. Quite often, they pay close attention to the daily chart in order to get the overall direction of the market, and then look for setups on lower time frames, closing their positions at the end of their trading day.

Swing Trading Swing traders spend much longer time in their positions than scalpers or day traders, as they are trying to take advantage of trend changes. These positions can last days, weeks, or even months. They are less concerned about the noise on short-term charts, and more concerned about riding a move as far as they can. Should be noted that it takes a significant amount of patience to be a swing trader, but for those who have limited time to devote to the markets, swing trading can be a very profitable way to trade.

This is because you are not worried about what happens in the market while you were away at work, for example. You are placing a trade based upon where you think the markets will go over the next several days or weeks. It is also worth asking yourself if you are comfortable holding a position overnight. Some traders are, some traders or not.

If you are not, then swing trading is going to be almost impossible. However, if you have the ability to place the trade and walk away, swing trading might be your forte. These are meant as a starting point, and not a comprehensive guide to strategies. As you read these strategies, think about whether or not it fits with how you view the markets. If one of them does resonate with you, then you know how to go about developing your own system.

The idea is that the market does not go in one direction forever, and occasionally will have a pullback against the overall trend. This can be observed in both uptrends and downtrends. When the market pulls back against the trend and then shows signs of exhaustion, traders will quite often enter the market in favor of the original longer-term trend.

The pullback is quite often a simple matter of traders in the longer-term trend taking profits and offering those who have been patient enough to wait for the pullback a chance to join the longer-term trade. There are multiple ways of identifying an entry, which can come down to a Fibonacci retracement level, a previous support or resistance level, or even simple candlestick patterns.

Breakout Trading One of the most common ways to trade a currency or any other market for that matter is breakout trading. The trader looks at the market and identifies an area of consolidation, where the price is going back and forth in a relatively well-defined pattern. Understanding that markets consolidate from time to time in the backdrop of longer-term trends, a trader can look at these areas as an opportunity to take advantage of inertia building up in the market.

The trading plan is quite simple: Traders are waiting to see the market leave the area, and then jump on board as soon as momentum. The idea is that traders that have been on the opposite side of the trade will have to cover their positions, thereby pushing the market in your direction. It takes an incredible amount of patience, but it can be quite a profitable way to trade the market.

Furthermore, it should be noted that this can be done in any timeframe. That being said, a breakout on a weekly chart carries a lot more weight than a breakout on a five-minute chart. Range bound trading Some traders prefer to wait until the market is going back and forth in a relatively tight and range-bound area. In this scenario, the idea is to go back and forth with the market until it eventually breaks out of this well-defined area.

The idea is that you are trading back and forth and taking advantage of the consolidation until you eventually are proven wrong. If you do choose to trade like this, you have to accept the fact that sooner or later you will get stopped out. However, if you get a good consolidation area, you may win three or four trades before finally having a losing one.

The idea is that you will win more than you lose. It is also common for people to use an oscillator to identify range-bound trading. While it is one of the most liquid pairs in the world, there are some nuances that you need to be aware of.

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Swing trading is a commonly appreciated trading method, often called a strategy in professional texts and reviews. This method is based on the principle that price movements are hardly ever linear. The balance between bears and bulls is continuously shifting, and swing traders spot these shifts as opportunities to benefit from them.

The positions are usually retained from one to six days, though these time limits are not strict, and some of them may last for a few weeks if the trade remains advantageous. The Daily Routine of A Swing Trader On a typical day, swing traders would perform market and sector sentiment analysis mainly through news analytics before entering a trade.

Next, a trader tends to create a watchlist of definite assets by analyzing its potential trading opportunities. Once the conditions take place, the trader can decide whether to enter or exit a trade. On the stock markets, liquidity tends to decrease after 4 pm Eastern time as the exchanges get closed. One significant difference between swing trading and day trading is traders do not hold a position overnight during day trade. Hence, swing trading may incur higher risks of losses.

However, swing trading is considered suitable for beginners as it does not burn out a trader due to stress and is generally more relaxed than day trading. Hence, the results may differ based on your trading rationale. What Is a Swing Trading Strategy? The purpose of swing trading is to catch the trend and take advantage of pullbacks and rallies. A trader enters a trade at the pullback and exits at the rally. Such trading is possible only within the frame of the clear-cut trend. A calm market or periods of high volatility are rather improper.

Traders can choose different strategies for mastering this style, but in any case, they will be based on various combinations of the technical analysis methods. Traders should mind that it is necessary to avoid opening positions before the news can influence the current trend. Swing trading excludes the struggle against the movement. It is more resultative to trade the basic currency pairs and use minimal leverage. The Fundamentals of Swing Trading Strategies To be successful in swing trading, traders need to focus on technical and fundamental analysis.

By understanding these crypto technical indicators and daily charts, traders can better spot opportunities in a short-term trade by precisely entering a trade, setting a stop loss, and take profits. Technical Indicators The purpose of using technical indicators is to help traders make a more logical investment decision.

For instance, traders would compare the crypto value before and after an event or news and then critically identify the crypto offer and demand before investing it. Some of the popular indicators include: Relative Strength Index RSI This indicator defines the strength of the trend and the potential for its change. For example, the market is signaling overbought sell signal when the RSI line crosses And it signals oversold buy signal when the RSI line crosses Hence, swing traders favor the RSI indicator because it can critically detect the oversold and overbought conditions.

When applied correctly, traders can buy at oversold levels and sell at overbought levels for a maximum profit from a trade. Moving Average MA This is a standard swing-trading moving average indicators traders would prefer to determine the support and resistance levels during short-term price fluctuations. The MAs calculate the average price of an asset for a set period, smoothing the short-term volatility that may confuse inexperienced traders.

Bollinger Bands BB There have been debates about Bollinger Bands being the only indicator that a swing trader really needs. To successfully apply a swing trading strategy, a trader needs to rely on the Bollinger bands to indicate the probable price turnaround.

In most cases, BB is used to define the price position concerning its standard trading amplitude. Typically, the three curves include the moving average in a middle band, where the upper and lower bands are the standard deviations of the middle band. It clearly illustrates the daily price movements of the asset within a specified period. Here are some of the samples: Triangle Trading Patterns Triangle pattern belongs to the group of continuation patterns. And swing traders would use them to gauge the possibilities for decreasing market volatility to break the trends and go in reversal.

There are three types of this pattern, including the Symmetrical Triangle, Ascending Triangle, and the Descending Triangle. These triangles aim to provide analytical insights into the current, forthcoming conditions and help traders formulate better breakout strategies when swing trading. Ideally, the triangles trading patterns are used in day trading.

Flag A flag is another type of continuation patterns. It can be observed when the crypto price pulls back, making several small ups and downs along the way. Then the price returns to the last move. Head and Shoulders This is a price reversal pattern that helps traders recognize a possible trend reversal. It is formed by three tops with the highest one in the middle. Swing Trading Strategies A successful trade must be built from a solid foundation that involves research, analysis, and formulating the perfect strategies.

Though a trading style may differ from one another, the fundamental remains. Here are the top five swing trading strategies every trader should know. Trend Catching Strategy Trend traders tend to hold their position until the trend changes, while swing traders exit a position whenever a target profit is reached. For example, a trader can rely on price momentum changes and profit via trends. However, the uptrend is signaling a shortcoming; traders can seize the opportunity to enter with a short position when the price is below the support level.

Since the crypto market is very unlikely to move in a straight line. The strategies that we are going to discuss in this section are not tradable right away, and serve more to demonstrate the main concepts of the article than anything else! And if nothing else, they are great sources of ideas for your own strategies. Short Selling in Equities. As a beginner in the stock market , you should never begin trading by going short.

The reason is that the stock market and equities, as a whole, always go up in the long term. If you decide to go short on this long term trend, you are making things very hard for you. Instead of having the upward drive working in your favor as a trader who goes long has, it works against you. Finding edges and strategies that work well for shorting equities is MUCH harder than finding strategies that go long.

This is the main reason why traders should only focus on going long at the beginning of their trading career. Mean Reversion Strategy Examples swing trading indicators So, since the goal of mean reversion is to spot when the price has gone too far, and capitalize on the reversion of the trend, we first must try to define oversold and overbought conditions. And while two definitions aim to target the same edge, the performance difference could be massive. That is why we are going to cover a couple of different strategies that define overbought and oversold conditions in different ways.

To make things easier to follow, these are the two market conditions that we are going to define as swing trading indicators in varying ways: Oversold- When the price has fallen too much and should rise soon the entry signal Exit- Where we exit the trade, meaning that we believe the reversion is complete.

Since short selling is seldom a good idea in equities, we are leaving the overbought option, and focusing solely on the exit for the long trade. RSI The RSI indicator is a momentum oscillator that measures the rate of change of recent price action to come up with overbought and oversold conditions. The default length of the indicator is 14 , and the traditional interpretation is that readings above 70 indicate overbought conditions, while readings under 30 indicate oversold conditions.

The RSI is traditionally considered a mean reversion indicator, but in our own testing, we have repeatedly found that it works at least as well for momentum trading. Still, that does not mean that it does not work for mean reversion.

We use RSI in quite a lot of our strategies, and it really is an effective way of capturing the swings of the market. What we also have found is that the 14 day RSI seldom works well and that the real edge lies somewhere between , so that will be the settings we use for this test. That way we go long when the market has fallen too much, and exit once it has reverted.

Here is a chart that shows two trades using these rules: RSI2 Strategy While these rules on their own could be enough, there are a lot of things you could add in order to enhance the strategy. Be creative, experiment, and discover what works through your own testing! Here are some examples of modifications you could make to the logic, while still not straying away from the RSI indicator: RSI should be under 10 for at least two bars in a row, effectively delaying the signal and requiring the security to go deeper Require that RSI was over 90 within three bars prior to the entry signal.

Thus, we want there to have been a fast decline from an overbought level before we got our signal. Bollinger Bands Bollinger Bands was invented by John Bollinger, and is a trading indicator that takes into account the volatility and direction of the market. It consists of a moving average, from which a standard deviation of the recent price movements is added and subtracted, creating one upper and one lower band.

As such, price appearing outside the bands could be seen as an extreme movement, that soon should be followed by a reversion to the mean. Bollinger bands are very useful in trading, and can be used in a variety of ways. In this strategy our conditions will be: Oversold: Closing under the lower Bollinger Band Exit: Closing above the moving average in the middle Bollinger Band Swing Trading Strategy As you can see in the image, once the security closes below the lower Bollinger band , it has performed a serious down move.

In other words, the security is oversold. Then, the middle line, which is the moving average, serves as our exit level. If you look at the image above, you will notice how the outer bands inflate and deflate with the change in volatility. This feature is very helpful since a market that experiences high volatility most likely will have to fall a greater distance before it reverts.

Here are some examples of additional things you could add to enhance the strategy, while still limiting yourself to the Bolling Bands: Require the 2 previous closes tp bo under the Bollinger Band. That way, you may increase the tension and make the price snap back up with greater force.

Demand a certain Bollinger bandwidth the width between the lower and upper band. This becomes a volatility condition, where you trade only during low or high volatility. Instead of going long when the security closes under the lower Bollinger Band, wait until it crosses the lower band from below. That way you basically wait for a confirmation that the price indeed has turned around. Require the moving average to be rising, while the lower band is falling.

What this means, is that the increase in volatility is enough to offset the upward trend of the moving average. Counting Down Days Another example of a mean reversion logic is to count the number of days that the market goes down. The idea is that the market, after having performed x number of down days, becomes oversold, and will revert soon.

Here are the conditions we use in this swing trading strategy: Oversold: Three down days Exit: First up day So, we enter a trade when the market has performed three down days , and exit as soon as we see one up-day. Here are a few examples: Swing Trading Strategy The type of exit that we use for this swing trading strategy is one that tends to produce a lot of small winners, but fewer big losers.

All in all, this is in line with the general tendency of mean reversion strategies, but exits that take profit very soon tend to amplify this tendency. Here are some conditions that you could add to the strategy to improve it: In the logic above, we only require the down days to close lower than they opened. Require each bar in the pattern to have a greater range than the preceding one. This implies that the downward movement is increasing in strength and momentum, which could be a signal that price will shoot up considerably soon.

Distance to Moving Average This example of a swing trading strategy makes use of a moving average in quite an unconventional way. Instead of looking for crossovers or breakouts over the moving average , we will measure the distance of the price to the moving average.

Here are the conditions for the strategy: Oversold: When the security is trading more than x-percent lower than the moving average. You calculate this by dividing the price of the security by the moving average Exit condition: When the security crosses over the moving average As you can see, in this strategy we have two parameters that we will have to define.

The first one is the length of the moving average, and the second one is the percentage threshold for the distance of the moving average to the price. You will have to experience with these settings to find what works best for the market you are working with. To remind you one more time, what we are presenting to you are not final strategies, but more examples of a few ideas that you may refine further!

Here is an example of the logic of the strategy applied to a chart: Here are a few things you could test to improve the strategy: Experiment with different types of moving averages. For example, in our experience, exponential moving averages tend to work better in many strategies! Require the moving average to be rising or falling. Momentum Trading Strategies Momentum trading strategies, as we have learned earlier, are the opposite of mean reversion strategies. Instead of catching a falling knife, they aim to profit from market strength by trading in its direction.

We also made a distinction between breakout strategies and trend following strategies. However, we will not make this distinction when listing a couple of strategies here, since the two often go hand in hand. For example, a trend following system often enters on a breakout of some sort. Price Channel Breakout — The Turtle Method The price channel breakout strategy is probably one of the most famous trading strategies in history. Used by the famous turtle traders, this is a strategy that has attracted the attention of many!

This strategy is also a good example of that you do not need complicated and complex logics and codes to succeed in the markets. These are the conditions that this strategy uses: Entry: A close above the 40 day high Exit: A close below the 20 day close This really is as simple as a trend following system gets, and still, it worked so well!

However, its performance has degraded over time, and you probably would not want to apply this strategy as is. However, with some minor modifications, we have managed to make this strategy work on a few markets, so it is definitively worth having a look at! Here is an example of the strategy.

We use Donchian Channels to keep track of the past lows and highs of the market: Donchian Channels As you see, once the market hits the upper band, a buy signal is issued. The fact that the market has had enough momentum to break the 40 day high is the sign we need to expect the market to rise even further. Then, we wait for the market to hit the lower band, and once it does, we exit the trade.

That is really all there is to it! Of course, the parameters are not set in stone, and could be changed to better fit with the market you are playing with! Here are some ways you could try to improve on the system: Make use of the high, low and open, in addition to just using the close price. Include a volume condition to ensure that the move is backed up by enough market participants.

Buy Pullbacks in Strong Trends Even the strongest of trends have moments when the price retraces a bit, and this is a tendency that you could take advantage of! Here are the conditions: Entry: This time we have three conditions The medium-term moving average to be rising ADX with the length set to 10 shows a reading of more than 20 The RSI2 indicator is less than Exit: Profittarget and Stoploss This is a strategy where we try to profit from a trend by entering when the market is in a temporary pullback.

By requiring that the medium-term moving average is rising and a high ADX reading, we know that there is an underlying strength in the market that is likely to push it further up. The exit is a plain stop-loss coupled with a profit target. Depending on the market and the contract size, you will have to adjust these so that they fit with the market. Momentum Swing Trading Strategy In the image, you can see how all the conditions are checked.

Once the trade is entered you just have to wait and see whether the stop loss or profit target is hit first! And now to some ways you can try to improve the strategy: Look for potential support levels where the price might revert, and use them as additional information.

Instead of entering when the RSI goes below 10, wait for it to start going up again. This becomes a sort of confirmation. Improving Swing Trading Strategies When it comes to building strategies in general, you want to start with your raw idea, and then improve on it by adding filters and additional condition.

In this section, I thought that we would mention some of the things we use ourselves when we test our strategies. Of course, there is no limit to the types of filters you could use, and we certainly use more things than we could ever cover in this guide. Still, the filters mentioned below are powerful and will hopefully serve well as inspiration! Volume While the price graph gives a visual impression of what the market is doing, the volume gives you more clues about the conviction with which the market moved.

Using volume when making decisions is often like adding a second dimension to your trading. Sometimes it could dramatically improve the performance, and other times you will find that it has nearly no impact at all.

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Next, you can easily identify the ebb and flow of the market the price goes higher, then makes a pullback, then goes up higher again, etc. So as a swing trader, you want to buy when the market makes a pullback towards the period moving average, and sell just before it reaches the previous swing high. Also, the distance from the period moving average to the swing high is your potential profit—and usually offers a 1-to-1 risk-reward ratio or more.

In this market condition, the market is still in an uptrend but, the pullback is much deeper and tends to respect the period moving average or support. So you can do swing trading with indicators, like the moving average, to identify market conditions to trade in. Let me give you an example.

Look at this chart below… The market is in a healthy uptrend and approaching the swing high. Now if you were to buy right now, where would you put your stop loss? So if your area of value is the period moving average, then let the price come closer to it before taking a long position. By using a trading strategy that is properly tested and has been vetted through tough robustness testing, every trader has a realistic chance of becoming profitable in the market!

However, before we show you these strategies, we will go cover the two big categories of swing trading strategies. We will also provide some strategies that we think demonstrate the logic in a nice way. Just keep in mind that these are just examples and might not work.

While many people believe that a good swing trading strategy is one that incorporates advanced logic and a myriad of rules and conditions, they could not be more wrong! The best trading strategies are those that use few and preferably simple conditions. With more conditions, you run the risk of curve fitting, which in short means fitting your rules to random market noise rather than true market behavior. Some of our best swing trading strategies are made up of as few as two!

For example, have a look at this swing trading strategy. It consists of not more than 2 conditions with simple logic that everybody can understand, and exits the trade with a simple time exit. The strategy only consists of buying conditions. No Edge The first reason is very common and could be said about the most popular concepts in trading. Candlesticks , chart patterns, and popular trading strategies; with a few exceptions, none of them work when used in the traditional way.

That is not to say that they are worthless! We use them a lot in our trading, but most times in unconventional and innovative ways, that very few people trade. In general. Not a Complete System The second reason simply is that the trading strategy is not complete. When many traders focus on entries, they often forget to even think about the exit.

In fact, a profitable system could be turned into a losing system, just by changing the exit condition! Is there Nothing Good to Find Online? Well, there certainly is, but for a beginner with no point of reference, it certainly is not easy. This is why we recommend you to never take a swing strategy you read online for a working strategy. Instead, use it as inspiration We certainly have been able to build strategies from ideas that in themselves were worthless, but that managed to spark an idea that led us right eventually.

In short, it explains how extreme events are very likely to be followed by more normal events. Or in other words, that things tend to even out over time. In the world of trading, and particularly swing trading, this is a concept that we use a lot — and most importantly — that works! The tendency of a market to overreact and then correct that move, can be seen in many markets, but is especially apparent in stocks and equity indexes.

One of the reasons why mean reversion strategies work so well on these markets, is that they are heavily impacted by greed and fear. While this is true for every market that is traded by human beings, these markets could be said to show more signs of it than others. This is because the stock market is heavily traded by retail traders and largely inexperienced market participants, who tend to play more by their emotions than evidence-backed rules. The consequence of this is that the market is not priced correctly.

Instead, it is a reflection of the current demand and supply, which in turn is a reflection of the mood of the market participants. Now, since the market is not priced correctly all the time, we are bound to get swings in one direction that go too far, and they are then corrected by swings in the opposite correction. In other words, the market is performing a wild swing, away from its mean, which is followed by the reversion to the mean.

Do not miss our article: The best swing trading indicator Using Mean reversion Strategies In Swing Trading So how do swing traders use this tendency to their advantage? Well, since price tends to swing too far to both sides, they try to identify these situations and go long when the price has swung too far to the downside, and ride the correcting wave up. Like in the image below: Oversold in Swing Trading Traders typically use the terms oversold and overbought when they refer to these levels.

Overbought levels are levels where price has been pushed up too far by buyers Oversold levels are levels where price has been pushed down too far by sellers. Disadvantages of Mean Reversion Strategies Mean reversion strategies often have a high percentage of winning trades. However, once you get a losing trade, it tends to be quite big! While this might not seem like a disadvantage, it could become a serious issue for traders who do not realize this tendency.

With a high winning percentage, it is easy to become overly confident in the strategy. And if that leads to excessive risk-taking, it could end in disaster once you experience those big losing trades. However, one of the biggest disadvantages of mean reversion trading is that it requires big stop losses. Due to the nature of mean reversion the more the market goes down, the higher the probability that it will revert soon.

That means that if you are stuck in a mean reversion trade that goes against you, for each time the security drops one more point, the better the edge gets. Cutting such trade and incurring a big loss is not optimal by any means, but is sometimes required to keep the portfolio risk at an acceptable level. Our approach to this is to simply reduce the size of our trading strategies to a size where stop losses are not needed anymore.

Momentum Swing Trading Strategies Momentum trading is the second major swing trading strategy type. Instead of betting that the market is about to revert to its mean, a momentum trader expects the market to continue rising if the market shows upward strength.

In other words, while mean reversion strategies aim to capture the correcting swing of a market that has gone too far, momentum trading strategies make use of the very opposite market behavior. Using momentum Strategies in Swing Trading Depending on how you see it, you could divide momentum strategies into two subcategories: Breakout strategies Trend Following strategies A breakout occurs when price extends over or under the set breakout level. The idea behind breakout strategies is that if the market is strong enough to reach and penetrate the breakout level, there still is enough strength left for you to profit from.

Trend following strategies is a little different in that they are not that focused on the beginning of the trend. The main focus of trend-following strategies is to capture the big moves in the market. So, while these two make use of the very same market tendency, breakouts trading could be said to take advantage of the beginning of the trend, while trend following tries to capture a substantial slice of the movement that follows the breakout.

Here is an image that hopefully makes it all a little clearer: Trend Following VS Breakout Still, the distinction we made is not as clear cut as it might seem. Many times, trading strategies do not fall under one category but become mixes of different logics and strategy types.

Also, many trends following strategies enters on a breakout. Disadvantages of Momentum Strategies Contrary to mean reversion strategies, momentum strategies tend to have very few winners. While this type of strategies tend to work very well, they can be very hard to trade from a psychological perspective.

Placing order after order and either getting stopped out or brought out of the trade at no profit, again and again, is no easy task. With trend following systems there is a risk that the trader will not have the mental strength to stay with the system to gain those very few trades that really make it all worthwhile. The small amount of big winners also means that you cannot afford to miss a trade. You never know if the next one is going to be the big winner that makes trading the strategy worth it!

Before we begin, just a word of caution! The strategies that we are going to discuss in this section are not tradable right away, and serve more to demonstrate the main concepts of the article than anything else! And if nothing else, they are great sources of ideas for your own strategies. Short Selling in Equities. As a beginner in the stock market , you should never begin trading by going short.

The reason is that the stock market and equities, as a whole, always go up in the long term. If you decide to go short on this long term trend, you are making things very hard for you. Instead of having the upward drive working in your favor as a trader who goes long has, it works against you. Finding edges and strategies that work well for shorting equities is MUCH harder than finding strategies that go long. This is the main reason why traders should only focus on going long at the beginning of their trading career.

Mean Reversion Strategy Examples swing trading indicators So, since the goal of mean reversion is to spot when the price has gone too far, and capitalize on the reversion of the trend, we first must try to define oversold and overbought conditions.

And while two definitions aim to target the same edge, the performance difference could be massive. That is why we are going to cover a couple of different strategies that define overbought and oversold conditions in different ways. To make things easier to follow, these are the two market conditions that we are going to define as swing trading indicators in varying ways: Oversold- When the price has fallen too much and should rise soon the entry signal Exit- Where we exit the trade, meaning that we believe the reversion is complete.

Since short selling is seldom a good idea in equities, we are leaving the overbought option, and focusing solely on the exit for the long trade. RSI The RSI indicator is a momentum oscillator that measures the rate of change of recent price action to come up with overbought and oversold conditions.

The default length of the indicator is 14 , and the traditional interpretation is that readings above 70 indicate overbought conditions, while readings under 30 indicate oversold conditions. The RSI is traditionally considered a mean reversion indicator, but in our own testing, we have repeatedly found that it works at least as well for momentum trading.

Still, that does not mean that it does not work for mean reversion. We use RSI in quite a lot of our strategies, and it really is an effective way of capturing the swings of the market. What we also have found is that the 14 day RSI seldom works well and that the real edge lies somewhere between , so that will be the settings we use for this test. That way we go long when the market has fallen too much, and exit once it has reverted.

Here is a chart that shows two trades using these rules: RSI2 Strategy While these rules on their own could be enough, there are a lot of things you could add in order to enhance the strategy. Be creative, experiment, and discover what works through your own testing! Here are some examples of modifications you could make to the logic, while still not straying away from the RSI indicator: RSI should be under 10 for at least two bars in a row, effectively delaying the signal and requiring the security to go deeper Require that RSI was over 90 within three bars prior to the entry signal.

Thus, we want there to have been a fast decline from an overbought level before we got our signal. Bollinger Bands Bollinger Bands was invented by John Bollinger, and is a trading indicator that takes into account the volatility and direction of the market. It consists of a moving average, from which a standard deviation of the recent price movements is added and subtracted, creating one upper and one lower band.

As such, price appearing outside the bands could be seen as an extreme movement, that soon should be followed by a reversion to the mean. Bollinger bands are very useful in trading, and can be used in a variety of ways. In this strategy our conditions will be: Oversold: Closing under the lower Bollinger Band Exit: Closing above the moving average in the middle Bollinger Band Swing Trading Strategy As you can see in the image, once the security closes below the lower Bollinger band , it has performed a serious down move.

In other words, the security is oversold.

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