Swing High and Swing Low: Marking the Turns on a Chart

Two bars on each side. It is a common place to start. It is also a choice. Make it on purpose, then keep it.

The rule itself is mechanical. Pick a number of bars, say two. A bar is a swing high when its high tops two bars on each side. A swing low is the same test turned upside down, using lows.

Finding one on a chart

One consequence follows straight from the rule. You cannot confirm a swing high until the bars after it have printed. With a two-bar setting, the swing shows up two bars late. On a daily chart that means two sessions. Anyone who marks a swing high on the day the high is made is guessing, since the next bar could easily push higher and erase it.

Ties need a rule too. If a neighboring bar matches the high to the cent, some traders count the swing and others wait for a bar that clears its neighbors outright, and either approach works as long as you apply it the same way on every chart you mark.

How many bars to use

Two is common. Three, five or more will find fewer swings, and the ones they find are bigger, because each turn has to hold against more bars on both sides before it counts. A one-bar setting catches nearly every wiggle. The chart turns to noise.

There is no correct number. Pick one that fits how long you hold trades, and use it every time, since switching settings after the fact is an easy way to find the swing that suits the trade you already want.

Reading the trend

Swings give trend a definition you can check. Higher swing highs and higher swing lows mark an uptrend. Lower swing highs and lower swing lows mark a downtrend. Anything else, such as a higher high followed by a lower low, is a mixed picture, and many swing traders treat it as a range until the sequence resolves one way.

That definition also tells you when a trend is in doubt. In an uptrend, the most recent swing low is the line. A close below it breaks the pattern of higher lows. A dip that holds above it is a pullback until proven otherwise.

Stops and targets

On a long trade, the classic stop sits below the latest swing low. The logic is structural. If price trades under the last point where buyers stepped in, the reason for the trade has gone, and holding on means hoping for a new reason to show up. Where to put the stop on a swing trade covers how far below that low to go.

On a short trade, the stop goes just above the most recent swing high.

Targets work the other way round. The prior swing high above your entry is the first place sellers showed up last time, which makes it a sensible level to take some profit or at least expect a stall. It is a reference point. Price can run straight through it, and often does in a strong trend.

Once you have a stop at a swing low and a target at a swing high, the distance between entry and each of them gives you the risk and reward on the trade, and the swing trade risk calculator turns those distances into a position size.

Timeframe decides what the swing means

A daily swing low is a small thing on a weekly chart. Daily bars can print a clean sequence of higher swing lows while the weekly chart is making lower highs and lower lows, so the daily uptrend is only a bounce inside a larger decline. That is the case for letting the weekly chart veto daily setups: check the swings one timeframe up before trusting the ones on the chart you trade.

What people get wrong

The first error is marking swings before they are confirmed. The second is moving the bar count until the chart agrees with you. Both come from the same wish, which is to see the turn early.

Many charting platforms offer an indicator, often called fractals or pivots, that marks swing points automatically by the same rule, and before relying on one you should check which bar count it uses, because two indicators with different settings will disagree about where the swings are. Related terms: pullback, support and resistance, and the inside bar.