10 Free Swing Trading Strategies That Work (Backtested Buy And Sell Signals)

Last Updated on September 14, 2021 by Oddmund Groette

The internet is flooded with anecdotal evidence about how to swing trade and how to make money.

Unfortunately, almost all articles consist of unproven and untested swing trades. To make money swing trading is difficult, but we believe you face much better odds the more you backtest and generate trading ideas.

Below we provide you with 10 free swing trading strategies that work. They are all backtested many years ago, some were published on this website as far back as 2012, and the swing trading strategies have proven to hold up well after they were published.

What is swing trading?

First, we need to define what we mean by swing trading.

As we see it, swing trading is a trading style that is longer than day trades, but not more than a couple of months. Day trading buys and sells the same day, while position trading and buy and hold have time frames that last years and even decades.

We believe that time frames are a wonderful tool for diversification – an important tool to smooth drawdowns:

If you are interested in learning more about swing trading we recommend reading this swing trading guide.

Why swing trade? The advantages of swing trading

Buying and holding stocks have returned about 10% annual CAGR over the last 100 years, and many see little value in trying to time and trade the markets by swing trading.

Our answer is: yes, for the majority it makes sense to buy some mutual funds and forget about it (but save regularly). Time will compound your capital while you do nothing and continue your everyday life. But of course, this is a “get rich slowly” approach that requires decades.

Warren Buffett has made 99% of his wealth after he turned 50! This is how compounding works: you need time, a long runway, and lots of patience.

The main advantage of buying and holding is that it works as long as we as a society are able to become ever more efficient. Efficiency gains are transferred to owners of companies that produce goods and services and thus owners are rewarded in the long run.

Because of this, we believe that a buy-and-hold portfolio consisting of mutual funds/ETF and stocks (or both) should always be the cornerstone of your savings and capital.

However, why not do both – swing trading and buy and hold – as we do? If you backtest and do swing trading systematically, we believe most rational investors can make really good risk-adjusted returns.

The advantages of swing trading can be summarized like this:

  • Lower drawdowns by being invested only when you have an edge.
  • Lower drawdowns mean you can use a bit of leverage (if you want to use leverage).
  • Can turn around capital fast – little idle money. You are only invested when you have an edge.
  • Swing trading is scalable. Read more here for scalable vs non-scalable. You can make money quickly.

Swing trading comes with risk

However, you can also end up wasting both time and money if you don’t make swing trading work for you. Swing trading is not easy, and please make sure you only risk money that you can manage to live without.

Always start small and trade smaller than you’d like to avoid behavioral mistakes. Furthermore, the trading strategies below can only be looked upon as ideas – they might even contain some minor mistakes. Always do your own research and never trust anyone except yourself. Always verify the strategies yourself!

Victor Niederhoffer had a relevant comment in The Education Of A Speculator:

Self-trust is the foundation of successful effort.

10 free swing trading strategies

All the strategies below are taken from our landing page of free trading strategies. These are articles we have published since 2012.

However, we remind you that our best trading edges/strategies are reserved to those who pay the subscription fee:

All strategies below are backtested in Amibroker. If you would like to have the code for the strategies, you can order them here.

Some of the strategies are available in Tradestation/Easy Language code.

As a bonus, you get all the code for all the other free trading strategies we have published since 2012. However, most of them are only provided in Amibroker code.

Relevant articles about swing trading:

If you are new to trading and don’t understand the terminology, these articles provide you with relevant information:

Free swing trading strategy no. 1: Monday reversal in the S&P 500:

This strategy can be traded both in the ETF with the ticker code SPY or the futures market: the e-mini or the recent micro contract.

This strategy was published in 2012 and in plain English works like this:

  1. Today is Monday.
  2. Today’s close is lower than Friday’s.
  3. Friday’s close was lower than Thursday’s close.
  4. If 1-3 are true, then buy at the close.
  5. Exit at the close next Monday or Tuesday if Monday is a holiday.

This is all there is to it, pretty simple.

100 000 invested in 1993 and compounded until July 2021 returns this equity curve and drawdowns:

  • No. of trades: 261
  • Average gain per trade: 0.82%
  • CAGR: 7.3% (buy and hold 10.4%)
  • Time spent in the market: 18%
  • Max drawdown: 17%
  • Profit factor: 1.95

Free swing trading strategy no. 2: Overnight swing trading strategy in the S&P 500

The strategy can be traded both in the ETF with the ticker code SPY or the futures market: the e-mini or the recent micro contract.

The strategy is like this in plain English:

  1. Today’s close must be down for the third consecutive day.
  2. If 1 is true, then enter at the close.
  3. Exit at the open tomorrow (no matter what).

This is the equity curve:

  • No. of trades: 591
  • Average gain per trade: 0.14%
  • CAGR: 2.9% (buy and hold 10.4%)
  • Time spent in the market: 8%
  • Max drawdown: 8%
  • Profit factor: 1.73

Free swing trading strategy no. 3: Buy When S&P 500 Makes New Intraday High

The strategy can be traded both in the ETF with the ticker code SPY or the futures market: the e-mini or the recent micro contract.

The strategy works like this:

  1. Today’s IBS must be lower than 0.15.
  2. Today’s high must be higher than yesterday’s 5-day high.
  3. If 1 and 2 are true, then enter at the close.
  4. Exit when today’s close is higher than yesterday’s high.

This is the equity curve:

  • No. of trades: 205
  • Average gain per trade: 0.46%
  • CAGR: 3.25% (buy and hold 10.4%)
  • Time spent in the market: 11%
  • Max drawdown: 21%
  • Profit factor: 2.27

Free swing trading strategy no. 4: Monday/Tuesday trade in Nasdaq

This strategy can be traded both for the ETF with the ticker code QQQ or the futures market: the NQ e-mini or the recent micro contract.

In plain English the strategy can be described like this:

  1. Today is Monday or Tuesday.
  2. Today’s IBS is 0.15 or lower.
  3. If 1 and 2 are true, then buy the close.
  4. Sell when today’s close is higher than yesterday’s high.

100 000 invested in 1999 and compounded until July 2021 returns this equity curve and drawdowns:

  • No. of trades: 271
  • Average gain per trade: 1.21%
  • CAGR: 15.1% (buy and hold 9.1%)
  • Time spent in the market: 19%
  • Max drawdown: 28%
  • Profit factor: 3.1

Free swing trading strategy no. 5: Rotation strategy in SPY and TLT

This strategy rotates between being invested in SPY and TLT and is always invested. The strategy was first published in 2017.

  1. Every month rank SPY and TLT from the month’s close to the previous month’s close.
  2. On the next day’s open, buy the ETF with the best performance the last month. If you are already long the one with the best performance, keep holding.
  3. Rinse and repeat.

100 000 invested in 2002 and compounded until July 2021 returns this equity curve and drawdowns:

  • No. of trades/switches: 110
  • Average gain per trade: 1.98%
  • CAGR: 10.3%
  • Time spent in the market: 100%
  • Max drawdown: 22%
  • Profit factor: 2.7

Free swing trading strategy no. 6: Rotation strategy in SPY, EEM and TLT

This strategy rotates between being invested in SPY, EEM, and TLT – always invested. The strategy was developed in 2017 and thus we have 4 years of out-of-sample testing.

  1. Every month rank SPY, EEM, and TLT from the month’s close to the previous month’s close.
  2. On the next day’s open, buy the ETF with the best performance the last month. If you are already long the one with the best performance, keep holding.
  3. Rinse and repeat.

100 000 invested in 2002 and compounded until July 2021 returns this equity curve and drawdowns:

  • No. of trades/switches: 136
  • Average gain per trade: 1.87%
  • CAGR: 12.1%
  • Time spent in the market: 100%
  • Max drawdown: 23%
  • Profit factor: 2.3

Free swing trading strategy no. 7: XLP mean reversion strategy

This strategy is meant for the consumer staples: the ETF with the ticker code XLP.

The strategy is like this:

  1. Calculate an average of the H-L over the last 25 days.
  2. Calculate the (C-L)/(H-L) ratio every day (IBS).
  3. Calculate a band 2 times lower than the high over the last 25 days by using the average from point number 1.
  4. If XLP closes under the band in number 3, and point 2 (IBS) has a higher value than 0.4, then go long at the close.
  5. Exit when the close is higher than yesterday’s high.

100 000 invested in 2000 and compounded until May 2021 returns this equity curve and drawdowns:

 

  • No. of trades: 429
  • Average gain per trade: 0.46%
  • CAGR: 9.5% (buy and hold 7.7%)
  • Time spent in the market: 31%
  • Max drawdown: 17%
  • Profit factor: 1.93

 

Free swing trading strategy no. 8: MACD-Histogram on the S&P 500

We read about the MACD-histogram for the first time in Alexander Elder’s Trading For A Living. The indicator is based on the MACD indicator and you can read more in this article:

In plain English the strategy works like this:

  1. Today is the fourth day in a row where the MACD-histogram is down compared to the day before.
  2. The fourth latest bar must have been below zero.
  3. The current close of the S&P 500 must be lower than the day before.
  4. If the above three criteria are true, then buy at the close.
  5. Exit on the close when today’s close is higher than yesterday’s high.

100 000 invested in 1993 and compounded until July 2021 returns this equity curve and drawdowns (the strategy has not performed well during the last 4 years:

  • No. of trades: 139
  • Average gain per trade: 1.05%
  • CAGR: 5.1% (buy and hold 10.4%)
  • Time spent in the market: 5.7%
  • Max drawdown: 16%
  • Profit factor: 4.7

Free swing trading strategy no. 9: The turn of the month strategy in the S&P 500 (and Nasdaq)

The stock market shows abnormal returns at the end of the month and the first days of the new month. The turn of the month strategy can be used as a stand-alone strategy, but we use it after adding one filter (in the Monthly Trading Edges).

In plain English the strategy is as follows:

  • Buy at the close on the fifth last trading day of the month.
  • Exit at the close of the third trading day of the new month (after seven trading days).

This is all there is to it. It’s a simple strategy that is only invested about 33% of the time, but it helds up pretty well with buying and holding, that spends 2x more time in the market.

  • No. of trades: 341
  • Average gain per trade: 0.66%
  • CAGR: 7.6% (buy and hold 10.4%)
  • Time spent in the market: 33%
  • Max drawdown: 21%
  • Profit factor: 2.1

The equity chart for QQQ is not as good as the dot-com bubble forced it into a drawdown of 51%, still substantially better than the index 83% drawdown. The CAGR since inception is still a respectable 7.3%:

Free swing trading strategy no. 10: Trend-following by using the 200-day moving average and the 12 month moving average

My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.

This is what Paul Tudor Jones once said about the 200-day moving average. It turns out he is somewhat right: the 200-day moving average is an efficient tool to keep you out of problems.

However, it has its downsides. One of them is frequent whipsaw trades that can lead to underperformance. As long as the asset you are swing trading doesn’t have any major drawdowns, you are unlikely to beat buy and hold. This is evident in the S&P 500 after the GFC in 2008/09 (the S&P 500 being fueled by quantitative easing).

We have covered the 200-day moving average before in these two articles (we used the 12-month moving average in the article about gold):

Let’s test this simple strategy in the S&P 500:

  • If the close crosses above the 200-day moving average, we buy at the close.
  • If the close crosses under the 200day moving average, we sell at the close.

You can also buy at next day’ open because it doesn’t change the strategy much.

The performance since 1960 is like this (this is the cash index and doesn’t include reinvested dividends):

The main advantage of the 200-day moving average is exactly what Paul Turdor Jones said: it keeps you out of big trouble and acts as a good defense. The biggest drawdown is only half of the buy and hold strategy: 28 vs. 55%.

  • No. of trades: 187
  • Average gain per trade: 2.5%
  • CAGR: 6.75% (buy and hold 7.1%)
  • Time spent in the market: 70%
  • Max drawdown: 28%
  • Profit factor: 2.8

12-month moving average trading system in gold

What about gold?

It turns out the simple 12-month moving average does a great job in keeping you out of problems:

 

The simple 200-day moving average trend following system beats buy and hold by a wide margin.

The reason why the strategy beats buying and holding gold is that it keeps you out of the worst drawdowns.


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Disclaimer: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities.