Analyzing swing trading skills! How to make good use of short-term market fluctuations for profit?

What is range trading?

Range trading is a trading strategy that profits from short-term price fluctuations, with holding positions generally lasting from a few days to a few weeks.

This is different from the long-term investment style of 'buy and hold'. Long-term investment focuses on broader and longer-term market trends and cycles, with positions held for many years, whereas range trading emphasizes short-term price movements, usually with clear profit-taking and stop-loss targets, and strict adherence to established trading strategies.

Range trading mainly utilizes technical analysis to identify trading opportunities, while fundamental analysis can also be used as a supplement. Because range trading involves relatively short-term operations, technical indicators can provide more operational guidance, and using fundamental analysis can help enhance trading success and reduce trading risks.

Common range trading strategies

A complete range trading process involves evaluating the short-term potential direction of the market, establishing positions, and closing positions.

In other words, the range trading strategy actually consists of three key elements:

• Trading direction

• Entry timing

• Take profit/stop loss levels

Common swing trading strategies include pattern trading, channel trading, breakout trading, and indicator trading.

Pattern trading mainly involves capturing trading opportunities using common chart patterns such as head and shoulders, flags, and triangles. Once these chart patterns are identified, investors can confirm potential trading directions and set potential profit targets based on the patterns.

Channel trading typically uses channel lines or technical indicators like Bollinger Bands to assist in trading. When stock prices are in a relatively regular trending market, if investors can draw a channel line, they can buy low and sell high using the channel line. In most sideways markets, using the Bollinger Bands indicator can assess the potential price range and lead to good results when buying high and selling low.

Breakout trading refers to when the price strongly breaks through a key resistance or support level, indicating a significant change in market supply and demand. The market may continue to move in the direction of the breakout, providing potential 'boarding' opportunities for some investors. In practice, the market often releases some false breakout signals, and investors need to learn to better identify true and false breakouts to improve trading success.

Indicator trading involves trading based on buy/sell signals released by technical indicators such as moving average crossovers, MACD indicator crossovers, and overbought/oversold signals released by some momentum oscillators. After moving average and MACD indicator crossovers, the market usually develops further in the direction of the crossover; while after overbought or oversold signals appear in the momentum oscillators, the market may experience a short-term reversal.

3. Case Analysis

Chart 1 shows that after a strong gap breakthrough in the stock price, it continues to run at high levels around two horizontal lines, indicating that the market has entered a consolidation phase, waiting for further guidance. In this case, investors can appropriately engage in swing trading, that is, sell high and buy low between the two horizontal lines.

We know that the market cannot always remain in a range-bound state. After a period of time, the market will either break upwards or develop downwards. In order to better understand the dynamic development of the market, investors can use certain trend indicators to assess trend changes, such as moving averages.

Chart 2 shows that after a period of range consolidation, the stock price seems to have found support at the 50-day moving average (MA50). Specifically, the stock price tested the 50-day moving average for several consecutive trading days, and each time it touched the average line, it bounced upwards, implying that the bulls are gradually gaining the upper hand and may be preparing to break the pattern of stock price range volatility. In this case, investors may need to prepare for a market breakthrough to the upside.

Chart 3 shows that the stock price once again found support near the 50-day moving average, and then forcefully pierced through the horizontal resistance level with a strong bullish candlestick. From the perspective of volume, before the breakthrough, there was a significant decrease in volume as the stock price approached the horizontal resistance level, implying that market selling pressure increased, supporting the potential for a market breakthrough to the upside. When the stock price officially breaks through, the volume significantly increases, indicating the potential for further upward development in the market. Therefore, investors may consider riding the trend and betting on the stock price to rise further in the short term.

More technical indicators and drawing tools can be found and used through the following path:

This content discusses technical analysis. Other methods, including fundamental analysis, may provide different perspectives. The examples provided are for illustrative purposes only and do not reflect expected results.

All investment involves risk, including the potential loss of principal, and no investment strategy can guarantee success.