Last Updated on 11 September, 2023 by Samuelsson

What Is Best The Swing Trading Setup? Having a good trading setup will go a long way in determining your success with swing trading. Traders are always searching for the right way to improve their trading, so what do you consider the best swing trading setup?

There is no best swing trading setup for every trader. What works so well for one swing trader might not work for another. There are many swing trading setups, such as the mean-reversion, breakouts, and momentum/trend-following setups. A good place to start might also be our articles about swing trading strategies. You should try out a few setups to see the one that works best for you. Moreover, no one setup works well in all market conditions.

In this post, we will examine the common categories of swing trading setups, such as the mean-reversion, breakouts, and momentum/trend-following setups. Keep reading!

Mean reversion setups

Mean reversion is one of the most common strategies used in swing trading. The concept is based on the fact that the market tends to make over-exaggerated moves to either side of its mean and then tries to revert to the mean, but in the process, overshoots again and tries to revert to the mean again.

This up and down swinging creates tradable opportunities that traders can benefit from using some reliable setups. They can be bought and sell setups, but since stocks have unlimited upward potential, we will only consider buy setups. Here are some of the mean-reversion setups:

The RSI setup

This setup is formed by a 2-day RSI and 200-day, and it gives a buying signal. Here’s how the buy setup is formed:

• The price is above the 200-day moving average indicating that there’s an uptrend
• The 2-day RSI crosses below 10, showing that the market is temporarily oversold

You can close your trade once the 2-day RSI crosses above 60.

The Bollinger Band setup

This setup uses the Bollinger Bands indicator to determine the price mean and the oversold level. The Bollinger Bands indicator consists of three lines — a 20-period moving average line at the middle plus a lower band and an upper band that are two standard deviations away from the middle band.

A buy setup is formed the price closes below the lower band of the Bollinger Bands indicator. You exit your trade when the price climbs above the middle band.

The moving average setup

Here, we use a moving average to estimate when the price has made an over-exaggerated move so that we trade the mean-reversion move.  

A buy setup is formed when the price falling below a predetermined level below the moving average. You may use a bullish reversal candlestick pattern, such as the hammer or bullish engulfing pattern, as an entry trigger. The right to exit is when the price climbs above the moving average.

The double seven setup

This is a price action setup that requires no indicator, but you can use a 200-day moving average to know when the trend is up.

A buy setup is formed when the price closes at a new seven day low. You exit your trade when the price makes a new seven day high.

Momentum or trend-following setups

Momentum or trend-following setups are based on a different concept from that of mean-reversion strategies. Unlike the mean-reversion concept that tries to benefit from price correction from an overstretched move, momentum setups indicate the price potential to continue moving in its present direction.

The main focus of trend-following setups is to capture the big impulse swings in the direction of the trend, so they tend to give huge profits when you manage to get a good trade. However, the setups tend to a poor winning rate, but the huge winners will always offset the many losses.

Nevertheless, the trend following setups can be very hard to trade from a psychological perspective. You may not have the mental strength to continue placing order after order and keep getting stopped out with a loss or at breakeven.

An example of a trend-following setup is buying a pullback reversal in a strong uptrend. The idea is to identify when a price pullback has ended, with the price about to resume in the trend direction so that you go long with the emerging upswing.

The buy setup is as follows:

• A rising medium-term moving average
• A 10-day ADX showing a reading of more than 20
• The 2-day RSI indicator is less than 10

You can set your profit target just below the next resistance level and your stop loss below a nearby support level.

Breakout setup

A breakout setup occurs when the price rises above a specified price level that acts as a resistance level (where the price had reversed in the past). By breaking through that level, the price has shown that there is a huge buying potential in the market, so the price is likely to continue to move higher.

A popular example of the breakout setup is the Turtle Method — the price channel breakout. The buy setup is formed when the price closes above the 20-day high. You close your trade when the price closes below the 20-day low. Here, we will use the Donchian channel to show the 20-day high and low levels.

Swing Trading Course

Therefore, our course includes four ready-to-trade strategies that we use ourselves!

1. How long does a swing trading setup usually last?

A swing trading setup can last anywhere from a few days to several weeks, depending on the volatility of the market.

2. What type of analysis is used in swing trading?

Technical analysis is the most common type of analysis used in swing trading. Technical analysis involves the study of price patterns, support and resistance levels, and indicators such as moving averages and stochastic.

3. What type of trading account do I need for swing trading?

A margin account with a broker is required for swing trading.

4. What are the risks associated with swing trading?

Swing trading carries the same risks associated with any type of trading, including the potential for losses if the market moves in the opposite direction of your trade.

5. How can I minimize my risk in swing trading?

Managing risk is essential for success in any type of trading. Risk management strategies include setting stop losses and using position sizing to limit the amount of capital exposed to the market.

6. What is the best time frame for swing trading?

The best time frame for swing trading is usually between 2-5 days.

7. What type of trading strategy should I use for swing trading?

It depends on your individual trading style, but swing trading strategies typically involve the use of technical analysis and support and resistance levels.

8. What type of indicators should I use for swing trading?

The most commonly used indicators for swing trading are moving averages, stochastics, and MACD.

9. How much money do I need to start swing trading?

The amount of capital you need to start swing trading depends on the type of account you open and the size of your trades.

10. What is the best way to learn swing trading?

The best way to learn swing trading is to practice on a demo account and to read up on the basics of technical analysis and support and resistance levels. You can also find plenty of resources online, including blogs, forums, and video tutorials.

Final words

There is no best swing trading setup for every trader. What works so well for one trader might not work for another. Test the various swing trading setups to see the ones that work best for you.

Here you can find our archive with all our swing trading articles.