Setting Profit Targets in Swing Trades

One thing that separates swing trading from most of the other commonly used technical analysis strategies is the fact that critical support and resistance levels that have been established by the swing move can be used as clear levels for conservative profit targets. This is not something that can be seen when traders are employing a breakout or trend-based strategy.

For example, in long trades, we can see that prices have found a resistance and started to fall back. A long swing trade would have been established once this decline showed signs of ending (and coming back to resume the uptrend). So, at this stage, we are in a long position within the uptrend. Profit targets, however, will be set on approach of the resistance level seen previously. “The reason for this lies in the fact that even though we are in a strong uptrend,” said Haris Constantinou, currency analyst at TeleTrade , “there is still some chance that prices will once again find resistance in the same area as before.” This complicates things for bullish traders, and if you are generally of the conservative mindset it is prudent to simply close your trade and take your profits. With all of this in mind, swing trading allows for a more conservative approach, which calls for profit targets at clear resistance levels.

Short Trades

In short trade scenarios, we can see that prices have found a level of major support and have then started to rise. A short swing trade would have been established once this rally showed signs of ending (and coming back to resume the downtrend). At this stage, we would be in a short position within the downtrend. Profit targets would need to be set on approach of the support level seen previously because even though we are in a strong downtrend, there is still some chance that prices will once again find support in the same area as before. Because of this, we look for profit targets at clearly defined support levels.

Key Advantages When Using These Strategies

Swing trades can offer investors important alternative strategy options whenother types of methods (such as a breakout approach) are not appropriate given the state of market conditions. In these cases, switching an approach to an alternative method (such as a swing trade) can give traders some additional flexibility that can be adapted to the current market conditions. One similar element that should be clear in both of these strategies, however, is that they are primarily technical in nature and rely mostly of chart formations and price behavior. Swing strategies have the added advantage of allowing traders to buy low and sell high, while at the same time enabling positions to capitalize on the strong momentum that is seen in the underlying trend.

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