DEFINITION of 'Swing High'

Swing high is a term used in technical analysis that refers to the peak reached by an indicator or a security’s price. A swing high forms when the high of a price is greater than a given number of highs positioned around it. A series of consecutively higher swing highs indicates that the given security is in an uptrend. A swing high can occur in a rangebound or trending market. The opposite of a swing high is a swing low.

             Example of a Swing High            

Example of a Swing High

BREAKING DOWN 'Swing High'

Swing highs can be used by traders to identify possible areas of support and resistance, which can then be used to determine optimal positions for stop-loss orders. If an indicator fails to create a new swing high while the price of the security does reach a new high, there is a divergence between price and indicator, which could be a signal that the trend about to reverse. A swing high may be part of a broader chart pattern, such as a double top or head and shoulders formation. (To learn more, see: What Does it Mean to Use Technical Divergence?)

Trading Using Swing Highs

Traders can use the following two strategies when using swing highs:

Trending Strategy: Swing highs in an overall downtrend form at the end of retracements. Traders could take a short position once a swing high is in place and momentum reverses back to the downside. Indicators and Japanese candlestick patterns could be used in conjunction with the swing high to increase the chance of a successful trade.

For example, a trader could require that the relative strength index (RSI), was overbought (above 70) when price made the swing high and that the three black crows candlestick pattern has subsequently appeared to confirm a return to the overall downtrend. A stop loss-order could be placed above the swing high to minimize losses if the trade does not move in its intended direction. 

Range Bound Strategy: During periods of consolidation, traders could initiate a long position at a swing low and use a corresponding swing high to set suitable profit targets. For instance, a risk-averse trader might set a profit target halfway between the two swing points. Aggressive traders may set a profit target at the swing high.

The Fibonacci retracement tool can also be applied to the chart to show probable resistance areas between the swing high and swing low. For example, in the chart of the Standard and Poor’s 500 index (S&P500) below, traders who went long near the swing low could set a profit target at either the 38.2, 50%, 61.8% or 100% Fibonacci level. (For further reading, see: What is Fibonacci Retracement, and Where do the Ratios that are Used Come From?)                      

                                   Example of Fibonacci Levels

Image depicting Fibonacci levels.

RELATED TERMS
  1. Swing

    A swing is a fluctuation in the value of an asset, liability ...
  2. Accumulative Swing Index (ASI)

    The Accumulative Swing Index (ASI) is a trendline indicator used ...
  3. Swing Option

    A type of contract used by investors in energy markets that lets ...
  4. Active Trading

    Active trading is the buying and selling of securities with the ...
  5. Test

    A test is when a stock’s price approaches an established support ...
  6. Fibonacci Time Zones

    Fibonacci time zones are an indicator used by traders to identify ...
Related Articles
  1. Trading

    Are You a Trend Trader or a Swing Trader?

    Swing traders and trend traders execute market timing strategies that require different skill sets.
  2. Trading

    Introduction to Swing Trading

    The swing trading style, between day trading and trend trading, may be a good one for beginners to try.
  3. Trading

    Day trading versus swing trading: Pros and cons

    Day trading involves making dozens of trades in a single day, while swing trading involves holding positions over a period of days or weeks.
  4. Trading

    ETFs With Major Recent Breakouts

    These ETFs have all experienced a major technical breakout recently.
  5. Trading

    Is Scalping Or Swing Trading Right For You?

    A look at how scalping strategy is different from a swing trading strategy.
  6. Trading

    What Type Of Forex Trader Are You?

    Timing may be the key to uncovering your true strength as a forex trader.
  7. Trading

    How to Calculate Bitcoin's Next Price Move

    Technical analysis can offer a roadmap to where Bitcoin prices are headed next.
  8. Trading

    Catching A Falling Knife: Picking Intraday Turning Points

    Trying to pick the absolute top and bottom points can lead to excessive losses. This strategy allows you to hedge your risk.
  9. Trading

    These Stocks are Setting up for More Upside (PHM, CTSH)

    With the former downtrends having likely converted to uptrends, these stocks are poised for more upside.
RELATED FAQS
  1. What are common trading strategies used in a bull market?

    Discover four commonly used trading strategies by investors and analysts to make profits from a prolonged bull market, including ... Read Answer >>
  2. What are the most common strategies to place retracement levels?

    Find out how traders place Fibonacci retracement levels, and learn what it means when a price retracement seems to reverse ... Read Answer >>
  3. What is Fibonacci retracement, and where do its ratios come from?

    A Fibonacci retracement is a popular tool that can be used to identify support and resistance levels, and place stop-loss ... Read Answer >>
  4. Volatility From the Investor's Point of View

    Increased volatility in the stock market provides greater opportunities to profit for both long- and short-term traders. Read Answer >>
  5. Is there a buy-and-hold strategy in forex?

    Most of the Forex traders tend to be short term traders, constantly timing the market swings in the hope of profiting from ... Read Answer >>
Trading Center