Best Swing Trading Strategy- Magic Band and RSI
Swing Trading Strategy- Magic Band and RSI
This swing trading strategy belongs to the category of trend following
trading system, this system allows a trader to enter into the particular trend and
continue in the existing trend until it gives trend reversal signals. This is one of
the easiest Swing trading strategies because we do not predict the trend in this
trading system, we just simply enter into an existing trend. The only thing we
have to do is find a proper entry point and exit point. We must select stocks that has momentum for this strategy, I have already posted a blog on How to
Select Momentum Stocks? Please read it for further information.
What do we need for this Swing Trading Strategy?
We need a Weekly chart of the stock, moving averages and RSI; you can use
20 Simple moving average to find the short-term trend of the stock and RSI for
finding the momentum of the stock.
How to plot Moving average as a band?
Plot two 20 Simple moving averages on your chart, select first 20 simple
moving average and go to the settings of the moving average then select “inputs”
there you can see “source”, change source into “high”. Then select the second 20 moving average change the source to “low”.
What is the setting of RSI?
Select Period 14, overbought 60 and oversold 40. As a swing trader your
entry-point should be above 60.
When to enter and when to exit?
If the price is above the simple moving average band, the stock is in an uptrend.
If the price is below the band the stock is in a downtrend. If the price is above
the magic band and the RSI is also above 60 levels you can enter into the trend,
the perfect entry point is when the candle takes support at the magic band. In both
scenarios RSI must be above 60 levels, we can see that when a stock enters into
above RSI 60 level the bullish momentum increases. it’s important to select the
stock which has the momentum to get better returns. You can place your stop-loss
below the entry candle or below the magic band. When RSI is cooling down or the candle breaks the low of the magic band you can exit the trade.
See the Example, Weekly chart of Glenmark;
The stock price went to 687 from 530(from our entry point).
