SWING HIGH AND SWING LOW in Indian Market:

Swing High and Swing low is one of the oldest yet effective patterns to set up a trade and find out potential trend reversal.

In this blog, we will cover how to swing high and low are formed, how to plot them and what would be the trade logic.

Let’s start with understanding: What is Swing High and Swing Low?

When a stock moves in a trend, be it an uptrend or downtrend, it doesn’t go in only one direction. The stock always moves in a zig-zag pattern.

If a stock is in an uptrend, it would go up in zigzag format, creating a lot of Highs and lows as shown in the figure:

Covid Cases Nifty

In an uptrend, each high is higher than the previous high called higher high, and each low is also higher than the previous low called higher low.

So, stock moves up. In a swing of highs and lows and uptrend is marked by higher high and higher low and each high is called swing high and each low is called swing low.

In a downtrend also, stock moves down in Zig zag way creating a series of highs and low as shown in the below figure:

Covid Cases Nifty

In a downtrend, each high is lower than the previous high called lower high, and each low is also lower than the previous low called lower low.

So, stock moves down. In a swing of highs and lows and the downtrend is marked by lower high and lower low and each high is called swing high and each low is called swing low.

How to make trades based on this pattern?

As learned above, higher highs mark the confirmation of uptrend, so when we see stock breaking previous high and forming a higher high, we buy with swing low as our SL.

Here is the explanation using an example:

Covid Cases Nifty PVR

This chart is of Bata India I have market lows in red boxes and highs in green boxes.

We can see that each red box is almost higher than the previous red box and each green box is higher than the previous green box, indicating the formation of Higher high and higher lows.

Our Entry point will be as soon as the stock goes above 2nd green box, we notice stock is heading to create a new high and previous 2 red boxes are also higher low, so the pattern is confirmed and we buy above the high of 2nd box, with 2nd red box (swing low) as our SL.

Our trade setup would look like this:

Covid Cases Nifty Bharti Airtel

Similarly, for a downtrend following is our trade setup:

As learn above, lower lows mark the confirmation of downtrend, so when we see stock breaking previous lows and forming a lower low, we short with swing high as our SL.

Here is the explanation using an example:

Covid Cases Nifty HDFC Bank

We have a market swing high with green boxes and swing low with red boxes.

We can see each high is lower than previous high and each low is also lower than the previous low, indicating clear downtrend, we short at the break of 2nd low and keep swing high as our SL.

The trade setup looks like this:

Covid Cases Nifty Reliance

Trend reversal using swing high and swing low concept:

If higher high and higher lows of stock converts into lower high and lower low it indicates uptrend has exhausted and new downtrend is established. The setup looks like this:

Covid Cases IRCTC

In the chart, you can see first half the chart we had higher highs and higher lows, and in 2nd half of the chart, we have lower highs and lower lows indicating uptrend converted into a downtrend.

Similarly,

Covid Cases IRCTC

Lower lows and lower highs getting converted into higher high and higher low indicating downtrend has changed to an uptrend.

This is how we use swing high and low concept to understand trade set up and reversal pattern.

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