Swing Charts

What are Swing Charts?

They are stock charts used in charting and study of chart patterns in technical analysis. They are also called as Gann charts because their construction is based on W.D.Gann's method of trading.

These are trend following charting technique. If you disciplined enough to place proper initial stop loss orders immediately after you take position, you will be automatically out of position, if the trend changes against you.


Theory

These charts disregard time factor and does not consider opening and closing prices. They value only absolute price action and consider only high and lows of the price movement.

Since the swing lines move up or down, irrespective of number of elapsed days, time factor is also eliminated. Since these lines keep swinging up and down, these charts are called swing charts.

They progress as the price range moves in the direction of the earlier trend. If the trend changes the direction of the swing line changes in the opposite direction. These charts effectively eliminate the noise.

If the swings are making higher highs and higher lows, it is an up trend. If the swings are making lower highs and lower lows, it is a down trend. They help you keep up with the trend.


How Swing Charts are constructed?

A bar making higher high and higher low is considered as an 'up day bar', even if the close price is below the open price. Similarly a bar making lower high and lower low is considered as a 'down day bar', even if the close price is above the open price.

We can construct charts with 1 day swing are 2 days swing.

One Day Swing Chart

For each up day bars a vertical line is drawn up to match the high of the latest bar. This continues as long as the bar are making new highs. When a down day bar occurs, a small horizontal line is drawn to the next column and the line is drawn down till the low of the latest bar. It is continued till we get an up day bar. Now a small horizontal line is drawn to the next column and the line is drawn up till the high of the latest bar.

Since only high and low are valued, no action is taken if an inside day appears.

In case of an outside day, the chart is updated only on the following day. If we get an 'up day bar' following an 'outside day bar', the line is drawn down to the low of the 'out side day bar' and then turned up to the high of the latest 'up day bar'. If we get a 'down day bar' following an 'outside day bar', the line is first drawn up to the high of the 'out side day bar' and then turned down to the low of the latest 'down day bar'.


Study the chart given below and compare it with the bar chart.


1 Day Swing Chart for Technical Analysis in Stock Trading

This is one day swing chart.



Study the chart below. Here above 1 day swing chart is superimposed on the bar chart. 


1 Day Swing Chart superimposed on Bar Chart for Technical Analysis in Stock Trading


Two day Swing Chart

Construction of these charts are similar to the above description except a minor difference.

Charts with two days swing need two days of price movement against the earlier trend to reverse the direction of the line. An up swing is turned down only when we get 2 consecutive down day bars and a down swing is turned up only when we get 2 consecutive up day bars.

This enormously reduces the noise and the whipsaws. Single day pull backs will not change the direction of the lines.


Study the charts given below.


2 Day Swing Chart for Technical Analysis in Stock Trading

This is two day swing chart.



Study the chart below.

2 Day Swing Chart superimposed on Bar Chart for Technical Analysis in Stock Trading

Study the chart above. Here, 2 day swing chart is superimposed on the bar chart for better understanding.


How Swing Charts are traded?

Higher high and higher low swings tells us that the present trend is up. We have to look to buy in this market.

Buy when the prices turn up to form higher low, with the stop loss below the previous swing low. Add the previous range to the present low to get the probable target. Move with the trade with trailing stop loss, until the target is reached.

Similarly lower high and lower low swings tells us that the present trend is down. We have to look to sell in this market.

Sell when the prices turn down to form lower high, with the stop loss above the previous swing high. Subtract the previous range from the present high to get the probable target. Keep moving the trailing stop loss, until the target is reached.

This is one of the wonderful trading system for short term trades.



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Related Readings

There are many types of charts used in stock analysis. You may click on the name of each chart listed below to learn and understand more about them.

  1. Bar chart
  2. Bar charts also called as OHLC charts or open-high-low-close charts. They are used in charting and study of chart patterns in technical analysis. Each bar is a symbol created by connecting a series of price points, typically used to illustrate movements in the price of a financial instrument.

  3. Candle chart
  4. Candle chart or simply candlesticks charting is an ancient Japanese method of technical analysis. Candlesticks dramatically illustrate supply and demand concepts defined by classical technical analysis theories. Candlestick patterns not only display the absolute values of the open, high, low, and closing price for a given period in a format similar to the modern day, bar chart. But they also indicate trend continuation and trend reversal more clearly and more precisely.

  5. Candlevolume chart
  6. Candlevolume Chart combine the features of Equivolume charts and Candlestick charts. These charts have the wicks or tails and filled/unfilled body features of Candlestick charts, as well as the volume-based body width of Equivolume charts. This combination gives us the unique ability to study Candlestick patterns in combination with their volume.

  7. Equivolume chart
  8. Equivolume Charts display the relationship between price and volume in a bar. They presents a highly informative picture of market activity for stocks, futures, and indices. They differ from candlesticks by not considering open and close prices, and they differ from bar charts by not considering time factor.

  9. Kagi chart
  10. Kagi Charts differs from traditional stock charts, such as the Candlestick chart by being independent of time and volume.

  11. Line chart
  12. Line charts are created by connecting a series of data points together to form a line. This is the basic type of chart common in many fields.

  13. Point and figure chart
  14. Point and Figure charts just like in Kagi charts, disregard the passage of time and the chart changes only when the price changes. Rather than having price on the y-axis and time on the x-axis, these charts display price changes on both axis.

  15. Renko chart
  16. Just like in Kagi chart & Point and Figure chart, Renko charts also disregard the time factor in X axis. These charts are similar to Three Line Break charts except that a brick (or a line) is drawn in the direction of the prior move only if a fixed amount of the box size has been exceeded. The bricks are always of equal in size.

  17. Three line break chart
  18. Three Line Break Charts originates from Japan and gets its name from the default number of line blocks typically used. They use an up block (line), a down block (line) and a reversal block (line). These charts disregards the time factor, which is usually plotted on the X axis, in commonly used stock charts.




Compare Swing charts with Kagi charts 

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