The goal of all swing trading strategies is to enter high probability trades based on an anticipated direction of price.  Swing traders can trade either counter-trend, or trade with the trend.  By going with the major trend, you are following the smart money.  Following the smart money greatly increases your chances of placing winning trades.  There are four main processes of any swing trading strategy.

Step 1:  Identify the Trend

The price trends for a specific time frame can only exist in one of three scenarios;  up trend, down trend or sideways trend. Trades should ideally only be placed in the direction of the main trend.  Trends can be identified using a variety of different tools from price action to indicators.

Step 2:  Wait for a Price Retracement against the Trend

Once the main trend has been identified, you should be waiting or looking for some kind of "pullback".  Pullbacks against the trend are representations of profit taking taking place before another move in the direction of the trend occurs. By trading pullbacks to an area that offers lower risk, swing traders once again increase their odds of entering a profitable trade by making sure they get in at a good price.

Step 3:  Identify Risk vs. Reward

You should only trade when the anticipated profit is two to three times the amount you are willing to risk. By having a 2:1 or 3:1 profit/loss ratio for your trades you only have to win a 35-40% of your trades to make a profit. If the risk/reward ratio is not adequate you should pass on the trade.

Step 4:  Place the Trade

With the trend correctly identified price at a level which is in your favor, you can now place your trade knowing the EXACT possible outcomes.

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