Investing & Trading

Swing Three Strategy

By Samantha Baltodano


TL;DR:

The Swing Three Strategy is a swing trading system that uses technical indicators like SMAs and EMAs to determine entry and exit points for trades. It's best for volatile stocks with smooth swing or trend moves. Long and short entry signals are generated when prices cross over or fall below certain SMA levels, and long and short exit signals are generated when prices fail to exceed or go above certain SMA levels.


What Is the Swing Three Strategy?

The Swing Three Strategy is a basic swing trading system developed by Donald Pendergast. 


It’s based on the most common technical indicators, like the Simple (SMA) and Exponential (EMA) Moving Averages, and it’s best suited for volatile, high-volume stocks and ETFs that show smooth, regular swing and/or trend moves.


The main principle of the strategy suggests that the entries (both long and short) should be taken when their direction is aligned with the trend. 


For this particular strategy, three moving averages are used:



Once all the three averages are calculated, the strategy will generate trade signals under the following conditions:


  • A Long Entry order is added when price crosses over the SMA of High price by the specified number of ticks (5 by default) and the previous bar has closed above the EMA;
  • A Long Exit order is added when the Low price fails to exceed its SMA;
  • Short Entry conditions are opposite of the Long Entry conditions: it is added when price falls below the SMA of Low price minus the specified number of ticks (5 by default) and the previous bar has closed below the EMA;
  • A Short Exit order is added when the High price goes above its SMA.


Summary

  • Swing Three Trading is based on Simple and Exponential Moving Averages, and is best used for volatile, high-volume stocks and ETFs with smooth, regular swings or trends.
  • The strategy calculates 3 Moving Averages: a 50-day exponential moving average (EMA) of the security's closing price (determines the trend), and two simple moving averages (SMAs) of the high and low prices (used as signal lines).
  • The strategy generates trade signals based on the relationship between the security's price, the SMAs, and the EMA. 
  • Long and short entry signals are generated when the security's price crosses over or falls below the relevant SMA, and the previous bar has closed above or below the EMA. 
  • Long and short exit signals are generated when the security's low or high price fails to exceed or goes above the relevant SMA.

Swing Three is just one of many strategies that Archaide automates. For a full list of strategies and studies available click here.


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