“Swing high” and “swing low” are terms that refer to a piece of price action that moves in a particular direction. It usually involves several bars or candlesticks that are in groups. After a swing, traders typically see a swing move in a sideways or opposite direction.
In a situation where a swing in the same direction follows the pattern, it means that it’s a continuous part of the same swing. The swing low is the lowest price of a certain move, while the swing high is the highest price of a particular move.
How to identify the swings
Traders spot swings when the market makes two successive higher highs and higher lows or two successive lower lows and lower highs. Typically, the swings appear on the charts in different shapes and sizes. As long as traders understand the concepts of lower lows and lower highs and vice versa, it is actually quite simple.
The image above shows price forming a swing high on the EUR/USD chart
If it gets more complicated in the charts with price making non-consecutive lows and highs, traders should remember the following rule of thumb: If there’s a bullish swing and a lower low exists in the midst of it, the price will remain bullish until it reaches a point where there are successive lower lows and lower highs.
The image above shows price forming a swing low on the EUR/USD chart
It’s quite easy to identify a bullish and bearish swing. If the price moves downward and makes two lower lows and lower highs, it means that it’s a bearish swing. If the price moves upward and makes two successive higher highs and higher lows, it’s a bullish swing.
When the swings form, they usually continue as one until a swing forms in the opposite direction. Traders will notice that the market sometimes makes a new high when there’s a downtrend, but this is false unless there’s a corresponding higher low after the new high and another new higher high.
How to confirm key levels with the swing high and swing low
Professional traders don’t sit and wait for pin bars. Instead, they take the initiative to use all price movements to evaluate the direction of the market. Traders can start with a daily time frame and then work their way through the different levels of support.
Pay close attention to the chart above and look out for two things: the three levels of support and a wedge pattern. Traders should note that the support lines on the chart were there before the wedge pattern breakout based on future price action.
What does that imply? It means that the moment traders open a new chart, the first thing they should do is mark significant levels of support and resistance. It also means that traders have to base their key levels on previous price action in the market, which means that swing highs and swing lows are essential to confirm the accuracy of previously defined levels.
The second chart below displays how the bearish price signified that it was safe to go short. When traders look at the chart, the first thing they may notice is how the first key support level used the swing low to begin the wedge formation. One of the best places to take a profit is at the point where traders find wedge breakouts.
After seeing the previous charts, the next thing to look forward to is what happens after the wedge breaks down, which is what we’ll illustrate in the chart below. Traders must study the charts properly to have a full grasp of what’s happening if they want to profit.
The chart above shows pure price action at work, but it also proves that successful traders do more than simply wait to identify inside bars or favourable pins at key levels. Traders need to be good at reading the price action with the levels the market provides.
The bottom line
As smooth as the swing highs and swing lows seem, one thing is certain: the market will not always respect a trader's levels perfectly all the time—and that isn’t necessarily bad. Traders should experiment with the pattern and feel free to modify the levels as price action unfolds on the chart. After all, nobody teaches a trader better than the market that confirms the accuracy of levels.