Swing trading is a popular technique of fading into a trade against the trend, it can he highly effective in range bound days. However, it is important to first identify that the market is not in a trend, and direction is likely to change.

A classic swing day in crude oil (CL). Market rotates above and below the mornings price.

The chart above shows the crude oil market on 11th September 2017. The technical analysis indicators are as follows :

  • Pink line is the Volume Weighted Average Price (VWAP)
  • Blue lines are one standard deviation from the VWAP
  • Grey lines are 3,4, and 5 deviations from the VWAP
  • Volume-by-time is shown along the x-axis
  • Volume-by-price is shown along the y-axis (right)
  • Price is shown by a candlestick bars in white (bullish) and grey (bearish)

Note : all times are in European Central Time

As can be seen from the chart, in the morning we were in a tight range, shown by the narrow VWAP bands. We ranged from the top to the bottom of the VWAP bands.

When the US oil market around 3pm, the market began to sell-off

If the trend was to continue down, then price would usually stay below the pink VWAP line. As we strongly broke above the pink VWAP line later in the afternoon, it showed that the market wanted to range back to the top of the VWAP standard deviation lines (grey).

How I would identify a market swing.

On this example chart, I would identify a potential swing day by :

  1. In the morning trading the market was ranging from the top to the bottom of the VWAP bands, it was not staying above or below the pink VWAP line. This indicates market swing behavior
  2. I knew from previous research there was major resistance at around $47. If we failed to break below that, it was likely the market would rally back up
  3. We broke back up above the pink VWAP line with strong volume, this indicates the market would likely continue the move to the top of the (grey) standard deviation lines

About the author

Trading and Investment

Traded the markets for over 15 years, including Commodities, Bonds, Currencies, Equities, and Indices. I have also worked as a Chartered Financial Planner.
CeMAP, CeFA, DipFA, AdvDipFA, Ba(Hons) Economics, Chartered ALIBF

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