Swing Mapping Part 1: Key Principles

27 במרץ

Welcome to the first instalment of our 3-part series on swing mapping – a highly underestimated technique that can be applied to any market on any timeframe.

In Swing Mapping Part 1: Key Principles you will learn:

• Why it’s the bedrock of all market structure analysis
  
  
• How to swing map in four simple steps
  
  
• Why it’s so important to do it yourself rather than use an automated tool
  
  
• Other key benefits of swing mapping
  

What is Swing Mapping?

As the name suggests, swing mapping involves identifying swings within market structure to understand the dynamics of price movement.

This may seem too simple to be of much real-world value, but as is often the case in trade, seemingly simple and robust tools can be highly effective and highly nuanced.

When done correctly on a real-time forward-looking basis, swing mapping has the potential to be integrated into many different trading strategies.

Defining a Swing

A swing is simply an uninterrupted high or low. At its core a swing is a three-bar sequence in which the middle bar represents a turning point in the market.


Past performance is not a reliable indicator of future results

Not all swings are equal. The more bars either side of the swing high or low, the larger the peak or trough in the market – the more significant the turning point.

Swings are the bedrock of all market structure analysis. Swings define support and resistance, they define if a market is trending higher or lower, they define if a market is in a range, and they help to define if volatility is contracting or expanding.

Swing Mapping in Action

Swing mapping is at its most useful when it’s conducted in real-time on a bar-by-bar basis. For the purposes of outlining the method, we will use the 1min candle chart and map every potential swing.

Swing mapping is a 4-step forward looking process:

Identify Swing: Identify a swing using the definition provided above (a three-bar sequence in which the middle bar represents a turning point in the market).


Past performance is not a reliable indicator of future results

Draw Market Structure Line: Once a swing is identified draw a solid horizontal line on your chart. The line remains solid until the market has broken and closed above it.


Past performance is not a reliable indicator of future results

Monitor Response: Should the market break through the solid line you have drawn, change the style of line from solid to dotted. If the market fails to break through your line, keep it on you chart as a solid line for as long as you deem to be valid.


Past performance is not a reliable indicator of future results


Past performance is not a reliable indicator of future results

Draw conclusions: Once you’ve repeated steps 1-3 on your chosen trading timeframe, you can then draw important conclusions regarding the market’s current structure.

In our example (below), we followed the S&P 500 as it failed to break to new highs for the day then briefly started to trend lower before moving higher to retest the swing highs which has clustered to form a clear resistance level.


Past performance is not a reliable indicator of future results

Here are just some of the other insights we can gather from mapping swings:

Market Bias: Swing mapping allows you to quickly see where the balance of power lies.

A sequence of dotted swing high lines indicates that the market is consistently breaking to new highs on the day – signalling a bullish bias. Conversely, if a sequence of dotted swing low lines form, then the market has been consistently breaking to new lows – signalling a bearish bias. And finally, if we start to see full lines for both swing highs and swing lows, this signals that a range is developing.

Failure Tests: Failure to break through a swing high or low is the first sign that the market’s current momentum is changing and a new turning point is potentially in place.

In our prior examples we saw a small failure test which led to a pullback, here’s the same chart again:


Past performance is not a reliable indicator of future results

Trend Health: As an uptrend starts to wane, the distance from swing high to swing high tends to shorten. The opposite is true of downtrends. Swing mapping is a great way to identify the health of a trend.

As you become better at swing mapping, you will become more adept at recognising the subtle changes in market structure.


Past performance is not a reliable indicator of future results

DIY - Do it Yourself

There are many tools on the Trading View platform that can do swing mapping for you in real time set to your parameters.

However, to maximise the benefits of swing mapping it is highly recommended that you do this process manually yourself as it will quickly build intuition and rapidly improve your knowledge of market structure.

Drawing the swing lines, waiting for the market to break them and turning them dotted if broken, drawing conclusions as you build a map of broken and unbroken swings, deciding how long to keep unbroken turning point lines solid and valid on your chart. These are all hugely powerful active learning tasks that have the potential to make you a much better trader.

Other Benefits of Swing Mapping

• Any Market Any Timeframe: Versatile across diverse markets and timeframes, enabling rapid skill acquisition.
  
  
• Real-Time Analysis Without Lag: Provides immediate insights into market structure and price action, facilitating timely decision-making.
  
  
• Enhanced Trade Timing: Identifying responses to market swings in real-time optimises trade entries and exits, maximizing profit potential.
  
  
• Effective Risk Management: Precisely identifies support and resistance levels, aiding in strategic placement of stop-loss orders and risk assessment.
  
  
• Adaptability Across Market Conditions: Versatility to adapt to various market conditions ensures consistent performance.
  
  
• Development of Trading Discipline: Fosters discipline and patience, promoting adherence to predefined rules and strategies.
  

In Swing Mapping Part 2, we delve into precise trade entry techniques leveraging swing mapping without additional indicators.

Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.

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