We usually find the term swing high in technical analysis. It represents the peak reached by a security’s price or an indicator before it declines.
A swing high happens when the high reached is higher than the number of highs around it. If there are numbers of consecutive higher swing highs, then there will be an uptrend, soon. It can happen during a trending market, also.
Many traders use it when they do trend trading or trading in a range. Besides, it can also be used fully if traders use technical indicators. Analyzing these highs can help traders decide the trend’s strength and direction.
How does it Work?
It appears when the price moves higher than the recent highs, No one knows the exact high level of these highs until there is a price drop.
Besides, traders can also have a higher swing high, if it happens higher than the prior high price. These are usually associated with uptrends since the asset’s price keeps climbing higher.
The far can those highs go represent the trend strength. If the most recent of it is far above the prior high, then the asset has a lot of strength and buying interest. On the other hand, if it barely above the prior high, then it does not move as strong as the previous example, yet it is still in an uptrend.
Besides, we also have a lower swing high. What happens when the price is in the rally, but then it drops slightly before it reaches the prior swing highs. It usually signals a downtrend or the uptrend that is losing its momentum.
The Strategies
It can be used for various analytical purposes in trading. Here are a few examples.
Trend Trading
During the downtrend, a swing high signals the end of it. Thus trend traders can take a short position once they notice a swing high.
Trading in Rangebound Market
During the ranging price, when it moves sideways between support and resistance, traders can have a long position near the prior swing lows at the support. Traders need to wait until the price goes close to the support and forms a swing low.
