Swing Trading, The Basics. Part 8: Types of Confirmation

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Part 8: Types of Confirmation

In addition to finding reliable reversal signals, you will need confirmation. No signal should be acted upon for either entry or exit until it has been confirmed independently.

Swing trading reversals can show up in the form of Western signals (double tops and bottoms, head and shoulders, price gaps, failed breakouts) or by way of candlestick signals. Any initial reversal signal can be confirmed by a number of independent signals. These will include:

1. Candlestick indicators. Any reversal signal, including candlesticks, can be confirmed by other candlestick signals. In fact, this is quite common and provides one of the strongest forms of confirmation.

Options for Swing Trading2. Western technical patterns. Confirmation also is found among the double tops and bottoms, gapping price patterns, head and shoulders, wedges, and triangles, to name a few of the most reliable price patterns

3. Volume indicators. In addition to the easily spotted volume spike, many additional indicators have been devised to track strength or weakness in volume trends. Among these, On Balance Volume (OBV), Chaikin Money Flow (CMF), and Accumulation Distribution (A/D) are popular and used most often.

4. Momentum oscillators . Momentum is a measurement of price direction and speed. As a trend approaches its end, momentum tends to slow down. These include Relative Strength Index (RSI), Moving Average Convergence/Divergence (MACD), Bollinger Bands, and the Stochastic Oscillator.

The combination of many different methods for judging price, volume, and momentum are used together to help improve timing of entry and exit. Swing traders can use all of these types of indicators effectively. Even so, swing trading involves specific types of market risks, so as with any strategic approach to trading, swing traders need to build risk reduction and avoidance policies into their strategies. This is the topic of the next chapter.

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