Price Action 101: Swing Highs and Swing Lows with Examples - Price Action Trading Guide for Beginners (2024)

TLDR (Too Long Didn’t Read):

Swing high and Swing Low are technical terms that describe the peaks and troughs of the price of a security. They show the reversal of the price direction and the strength of the trend. They can be used to trade with the trend or against the trend, depending on the strategy and risk tolerance. This guide provides comprehensive information on the topic, covering basics to advanced tips, practical application of concepts, skills, and strategies.

What are Swing Lows and Swing Highs?

Swing Highs and Swing Lows are terms used in price action methodology to describe the points where the price of a security changes its direction.

A Swing High is a peak where the price starts to fall after reaching a high level.

A Swing Low is a trough where the price starts to rise after reaching a low level.

Swing highs and lows can be used to identify trends, support and resistance levels, and potential entry and exit points for trades. For example, in a downtrend, traders can look for swing highs to sell the security at a higher price and buy it back at a lower price when it reaches a swing low. A new low or high in a security that has made a significant move indicates that we have a new swing low or high point.

How to Identify Swing Low Point?

Swing Highs and Swing Lows are important points in price action analysis that show the reversal of the price direction. To determine the Swing Low point, we need to wait for the price to form a bottom that is higher than the previous bottom. This means that the price has stopped falling and started to rise.

A Swing Low point can be a good opportunity to buy the security at a low price. However, we should not enter the trade too early, because the price may continue to fall and form a lower bottom. We can confirm the Swing Low point when the price breaks above the previous high.

How to Identify Swing High Point?

To determine the Swing High point, we need to wait for the price to form a top that is lower than the previous top. This means that the price has stopped rising and started to fall. A Swing High point can be a good opportunity to sell the security at a high price.

However, we should not exit the trade too late, because the price may continue to rise and form a higher top. We can confirm the Swing High point when the price breaks below the previous low.

Understanding Swing Points:

Swing points can help us to identify the trend, which is the general direction of the price over time. A bullish trend is when the price is making higher highs and higher lows, which means that the price is going up.

A bearish trend is when the price is making lower highs and lower lows, which means that the price is going down. Swing points can also help us to find the best entry and exit points for our trades, which are the points where we buy or sell the security.

We can use swing points on any time frame, such as weekly, daily, or hourly charts. Swing points are widely used by algorithmic traders, who use computer programs to execute trades based on predefined rules. Swing points can make our trading more enjoyable and profitable, as they give us a clear picture of the price action.

See also Higher Highs and Lower Lows

Who are Swing Traders?

Swing traders are traders who use swing trading as their strategy. Swing trading is a method of trading that involves holding a position for a short to medium term, usually from a few days to a few weeks, depending on the market trends and the trader’s risk tolerance.

Swing traders aim to capture the price movements between the swing highs and swing lows, which are the points where the price changes its direction. They use technical analysis, such as price action, trend lines, supply and demand zones to identify the swing points and the trend direction.

Also they can trade on any time frame, such as 4-hour, daily, or weekly charts, depending on their preference and risk tolerance. They can be a profitable and flexible way of trading, as it allows traders to take advantage of the market fluctuations and adjust their positions accordingly.

See also Breaker Blocks Trend Reversal Roadmap

How to Trade Using Swing High – Swing Low Strategy?

These are some of the swing points trading strategies that can help us to trade more effectively and profitably. However, we should always use other technical analysis tools, such as chart patterns or candlestick patterns, to confirm our analysis and signals, and use risk management techniques, such as position sizing to protect our capital and maximize our returns.

Stop Point Determination:

This strategy involves setting a stop point, which is the price level where we close our position to limit our losses or protect our profits. We can use the swing points to adjust our stop point according to the trend direction.

For example, if we are in a long position in an uptrend, we can set our stop point below the last swing low, which is the lowest point of the price before it started to rise again. This way, we can stay in the trade as long as the price is making higher highs and higher lows, and exit the trade when the price breaks below the last swing low, which indicates a possible trend reversal.

Similarly, if we are in a short position in a downtrend, we can set our stop point above the last swing high, which is the highest point of the price before it started to fall again. This way, we can stay in the trade as long as the price is making lower highs and lower lows, and exit the trade when the price breaks above the last swing high, which indicates a possible trend reversal.

Trend Retracement:

This strategy involves entering a trade in the direction of the main trend after the price has retraced or pulled back from a swing point. We can use the swing points to identify the retracement levels and the entry points for our trades.

One of the most useful tools for retracement trading is the Fibonacci retracement tool, which is a technical analysis tool that divides the price movement between two swing points into ratios based on the Fibonacci sequence, such as 50%, 61.8%, and 78.6%. These ratios are used to mark the potential support and resistance levels where the price may bounce back and resume the main trend.

For example, if the price is in an uptrend and has reached a swing high, we can use the Fibonacci retracement tool to draw a line from the swing low to the swing high, and look for the price to retrace to one of the Fibonacci levels before entering a long position. This way, we can join the uptrend at a lower price and increase our profit potential.

Trend Reversal:

This strategy involves entering a trade in the opposite direction of the main trend when the price has reversed its direction at a swing point. We can use the swing points and the higher highs and lower lows concept to identify the trend reversal points and the entry points for our trades.

The higher highs and lower lows concept is a simple way of defining the trend direction based on the price movement.

See also How Do We Find Order Blocks in the Chart?

A higher high is a point where the price has reached a higher level than the previous high, and a lower low is a point where the price has reached a lower level than the previous low.

A higher low is a point where the price has reached a higher level than the previous low, and a lower high is a point where the price has reached a lower level than the previous high.

For example, if the price is in an uptrend and has reached a swing high, we can look for the price to break below the previous higher low, which indicates that the price has made a lower low and has reversed its direction.

This is a potential entry point for a short position, as the price may continue to make lower highs and lower lows, forming a downtrend. Similarly, if the price is in a downtrend and has reached a swing low, we can look for the price to break above the previous lower high, which indicates that the price has made a higher high and has reversed its direction.

This is a potential entry point for a long position, as the price may continue to make higher highs and higher lows, forming an uptrend.

See also Market Structure Breaks and How to Profit from It

Profitable Examples of the Swing Highs and Swing Lows:

Here are some examples of how to use the swing points in different scenarios:

EXAMPLE #1:

In the first example, the price is in an uptrend, which means that it is making higher highs and higher lows. The price is correcting after reaching a new high, which means that it is retracing or pulling back from the swing high.

After each correction, the price resumes the uptrend from the swing low. We can join the uptrend by buying at the swing lows, or if we have entered the trade earlier, we can move our stop loss to the swing lows to protect our profits.

EXAMPLE #2:

In the second example, the price is in a downtrend, which means that it is making lower highs and lower lows. The price is correcting after reaching a new low, which means that it is retracing or bouncing back from the swing low.

After each correction, the price resumes the downtrend from the swing high. We can join the downtrend by selling at the swing highs, or if we have entered the trade earlier, we can move our stop loss to the swing highs to protect our profits.

EXAMPLE #3:

In the third example, the price is also in a downtrend, but this time the corrections are smaller and shorter. The price is making lower lows and lower highs, but the lower highs are not very far from the previous lows. This indicates that the sellers are stronger than the buyers, and the downtrend is likely to continue.

We can join the downtrend by selling at the lower highs, or if we have entered the trade earlier, we can move our take profit to the lower lows to lock in our profits. We should be careful not to be greedy and wait for the price to reverse, as the price can change at any time. It is better to take profits regularly and follow the trend with the swing points.

Top 6 Tips for Trading the Swing High and Swing Low:

1. You can use swing points on any chart, in any time frame. Whether 15 minutes or weekly. The strategy does not change depending on the time frames you use, only the time criterion of your position changes.
2. You can use these levels to determine stop points.
3. These levels provide you with sensitive entry points during price pullbacks.
4. You can use these levels effectively in the price reversal.
5. You can make your transactions more organized with these points.
6. Use Fibonacci retracement tool to find the best entry and exit points for your trades based on the swing points.

Common Misconceptions When Trading with Swings:

• Swing trading is only for short-term traders.
  
  This is not true, as swing trading can be applied to any time frame, from minutes to months. Swing trading is based on capturing the price movements between the swing highs and swing lows, which are the points where the price changes its direction. Swing trading can also be used to diversify or hedge a long-term portfolio.
  
• Swing trading is easy and requires little effort.
  
  This is not true, as swing trading requires patience, discipline, and a solid trading plan. Swing trading is not a get-rich-quick scheme, but a method of trading that involves holding a position for a short to medium term, usually from a few days to a few weeks. Swing trading also requires constant market analysis, risk management, and emotional control.
  
• Swing trading is based on luck or intuition.
  
  This is not true, as swing trading is based on technical analysis, fundamental analysis, or a combination of both. Swing trading uses various tools, such as indicators, trend lines, support and resistance levels, chart patterns, candlestick patterns, and Fibonacci retracements, to identify the swing points and the trend direction. Swing trading also uses a systematic approach, such as entry and exit rules, stop loss and take profit orders, position sizing, and money management, to execute the trades.
  
• Swing trading is the same as day trading.
  
  This is not true, as swing trading and day trading have different characteristics and objectives. Swing trading aims to capture the price movements between the swing points, which can last from a few days to a few weeks. Swing trading does not require constant monitoring of the market, as swing traders can hold their positions overnight or over the weekend. Day trading aims to capture the price movements within the same day, which can last from a few minutes to a few hours. Day trading requires constant monitoring of the market, as day traders close their positions before the end of the trading day.
  
• Swing trading is suitable for everyone.

  This is not true, as swing trading has its own advantages and disadvantages, and may not suit every trader’s personality, style, and goals. Swing trading can be profitable and flexible, as it allows traders to take advantage of the market fluctuations and adjust their positions accordingly. Swing trading can also be challenging and stressful, as it exposes traders to overnight and weekend risks, market volatility, and emotional swings. Swing trading also requires a significant amount of capital, time, and experience, as well as a reliable trading platform, broker, and internet connection.

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Conclusion:

Swing trading is a short-term trading strategy that involves holding a position for a few days to weeks, using swing points to identify trends, supply and demand zones, and potential entry and exit points. It can be applied to any time frame, market, and security and can be combined with technical analysis or fundamental analysis.

However, it requires patience, discipline, a solid trading plan, capital, time, experience, and a reliable platform. Swing traders should use other price action analysis concepts and risk management techniques to maximize returns.

The main idea of this lesson is to learn how to trade price action by using the market’s reaction at important support and resistance levels, rather than just candlesticks.

This is a simple but necessary ability for trading raw price action. We don’t just blindly follow signals, but we use market cues to make smarter trading decisions and preserve our wealth. We also use market movements to validate critical levels, regardless of the tactics we employ, such as Engulfing Candlestick or Failure To Return – FTR Patterns.

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