Dominant Moving Average Strategy For Swing Trading (Part 1)

Dominant Moving Average Strategy for Swing Trading (Part 1)

Key Moving Averages Used

• 20-period moving average (MA)
• 40-period moving average (MA)
• The 200-period MA remains relevant but is less dominant in swing trading. It is more commonly used in day trading alongside the 20 MA.

Rationale for Using Moving Averages

• Most indicators are lagging and can distract traders from focusing on price, which is the most important factor.
• Moving averages help determine the “state” of the stock or asset, such as:
  • Bullish
  • Bearish
  • Quiet
  • Volatile
  • Uncertain
• Understanding the state is crucial because it guides whether to adopt a day trading or swing trading approach.

Swing Trading Methodology Using Moving Averages

• Use the 20 and 40 MAs as a “buddy system” to identify the best swing trading states.
• Look for the “railroad track” formation, where the 20 MA and 40 MA run nearly parallel and the price trajectory aligns with both.
• This formation signals a strong trend characterized by:
  • Normal pullbacks that are buyable dips (non-violent drops).
  • Violent drops (sharp, one-bar moves wiping out multiple bars) that serve as warnings to pause and reassess.
• When railroad tracks form, hold trades longer to capitalize on larger moves instead of frequent in-and-out trades.

Swing Trading Entry Signal

• The primary swing entry trigger is a color change (e.g., from red to green).
• Best entries occur when the color change happens near or off the 20-period MA or within the railroad track zone.
• This zone represents a “juicy buy zone” for swing traders.

Application Across Time Frames

• The strategy is applicable on various time frames, including:
  • Hourly charts
  • 4-hour charts
  • Daily charts

Examples Discussed

• S&P 500 daily chart showing railroad track formation and normal pullbacks.
• JPMorgan (JPM) daily chart displaying a clear railroad track pattern at about a 45° angle.
• Meta Platforms (formerly Facebook) daily chart demonstrating pullbacks to the 20 MA and color change entries.

Key Takeaways

• Avoid indicator dominance; focus on price and simple moving averages.
• Use the 20 and 40 MAs to read market states and identify optimal swing trading setups.
• Recognize normal vs. violent pullbacks to manage risk effectively.
• Swing trade entries are best timed with color changes near the 20 MA or within the railroad track zone.

---

Tickers/Assets Mentioned

• S&P 500 (index)
• JPMorgan (JPM)
• Meta Platforms (formerly Facebook)

---

Disclaimers

The presenter emphasizes that indicators should not replace price action analysis. No explicit financial advice or guarantees are given; this is an educational strategy overview.

---

Presenter/Source

• Unnamed presenter, likely a professional trader or educator sharing their moving average-based swing trading methodology.