Hello traders, Today’s article is based on a very basic teachings where i’ll show you how to draw swing lines on candle charts to identify the price momentum like higher-highs,lower-lows etc.To understand price action momentum correctly on charts, you must know how to draw these swing lines correctly as this is the base of all other components of reading price action.After publishing a few post regarding price action trend momentum. i received lot of mails people asking “how to draw the swing lines”. On this article, we’ll try to understand price candle’s momentum along-with it’s swing points & will also learn how to draw trend swings on chart.
There are different types of scenarios you’ll see while analyzing price momentum behavior & drawing swing lines.As all the different types are not possible here to discuss, i’ll be talking 4 different cases of price momentum & trend behavior to draw the swings out of many others which we discuss in our MEMBER SECTION.
TYPE-1 >> CANDLE’S HIGH & LOW
Below chart shows you total 7 candles in it.Candle-2 has broken the prior candle-1’s high(marked with red circle) and the same happened for candle-3 & 4.Then candle-5 has broken prior candle-4’s low & again the same happened with candle-6 & 7 where all candles broke prior candle’s low(marked as blue circle).These are some general price movement we see on chart on a daily basis.Now how to draw swing lines on this chart ?
In below chart, i’ve added all the candles breaking prior highs with a single line from point-A to point-B with a red arrow.With a blue arrow,i’ve added all the candles breaking prior lows from point-B to point-C.Here, A to B is an UPSWING & B to C is a DOWNSWING. So, we can summarize saying that price moved up from A to B & then price came down from B to C. Now we know how to draw swing lines when a candle’s high or low is broken. Note here, i’ve started drawing the upline from candle-1’s low as the upmove started right from that point & i ended drawing the line on candle-4 which is point-B’s top as the upmove stopped right there.While drawing the down-line from point-B,i’ve started drawing the downline from candle-4’s high as the downmove started right from there & downward line will go on till price doesn’t break a prior candle’s high and so point-C will not be considered as a turning point for the swing but it’ll be considered as a continuation point where price is resting currently.
In below chart, i’ve shown a sample chart where i’ve drawn multiple swings using break of highs & lows of prior candles. Price moved up from point-1 to point-2 breaking prior highs & from point-2 price started breaking prior low which made us drawing downward line towards point-3.Price again started breaking prior highs from point-3 hence we’ve drawn an upline from point-3 to point-4 & the same way we kept drawing point-4 to point-5,6 & on point-7 price is currently resting with an existing downswing.
SUMMARY : whenever a candle’s low is broken we’ll draw line towards downside adding low of candles & when a candle’s high is broken, we’ll draw lines towards upside adding highs of candles.
TYPE-2 >> INSIDER CANDLE
Next type of candle momentum behavior you’ll see on chart is called as “INSIDER CANDLE” . “Insider candle” is a candle which doesn’t break prior candle’s high & low (shown in below pic with a red circle) where the candle is residing between the high & low of it’s prior candle. There can be multiple “insider candles” residing in a prior big candle which is shown in blue circles.Now we’ll learn how to draw swing lines when you see this kind of candle which doesn’t break prior candle’s high & low.
We’ll be ignoring all “insider candles” while drawing a swing line as the insider candle has no values at all since price neither broke prior candle’s high or low.Mostly, insider candles are nothing but “sideways market structure” where it gives no clues of buying pressure or selling pressure hence no market direction.Like in below chart, i’ve drawn an up swing line from point-A to B ignoring the insider candle formed in it as if it doesn’t exist & the same say i’ve ignored all the blue circled “insider candles” while drawing lines from point-c upward as candle formed after insider candles broke the high of prior candle(candle before insider candles formed)
TYPE-3 >> OUTSIDER CANDLE
Now, How to draw swing lines when a candle breaks it’s prior candle’s both high & low at the same time ???
This form of candle is know as “OUTSIDER CANDLE” which i marked in chart below with red arrow.
If you see an outsider candle(in pic below – point”B” black outsider candle) while price is moving up with an upswing momentum from point-A to point-B , then continue drawing the upward line till outsider candle’s high & then move the line towards it’s low.So we’ll have to depend on the existing swing momentum’s trend while drawing outsider candle swing.If the existing swing momentum is up before an outsider candle forms, then we’ll take the outsider candle’s high first & then draw line towards the outsider candle’s low.If the existing swing momentum is down(like in below pic from point-B to point-C) & then an outsider candle forms(like the white outsider candle formed on point-c here), we’ll continue drawing the line with the existing downward swing momentum upto the low of outsider candle & then we’ll draw line towards the high of the outsider candle(which is point-d here).From point-d, i’ve drawing line on the downside as the outsider candle’s low got broken after point-d.
TYPE-4 >> INSIDER SWING TREND
This one is a bit tricky as it’ll be hard for me to make you understand with a simple chart here.There are a lot of variations generally we see on this pattern while drawing swings lines based on swing trend.Still i’ll try to present you a basic description of how this type works.
Like insider candles, when you see insider swing trend build-up(1,2,3 candles between point-D & E in below pic) in a main trend(point-C & D here), we’ll ignore the insider swing trend momentum (ignore adding pointD-1-2-3candles swing line) & will draw swings based on the main trend only.
Like candle’s high & low, we have swing’s high & low as shown below. Till the time, price doesn’t break prior swing’s high & low, anything & everything happens between this(point-C & D here) will be known as insider swing trend & should be avoided while drawing swing momentum line on chart.
I’ve selected a random chart on nifty on a monthly timeframe & have drawn swing lines that we discussed above.Have a close look on the chart & try to understand the types of swings i marked there as per our discussion till now.
As i’ve already said, this article will give you a basic idea of drawing swing lines on chart using candles as well as trends but a lot of other components are left on the same topic yet which you’ll find in my advance course member’s forum.So, don’t get panic while following me in blog as you may see different way of swing pattern drawing which i didn’t cover here.Finally, price action is an interesting topic of technical analysis where everyday is different with different positioning of price behavior & being price action traders we love to communicate with price with the same way but in a different shape or a different manner. Feel free to mail me your queries related to this article & i’ll happy to exchange messages with you in my facebook page.
Finally as i believe, READ price momentum context – RECOGNIZE the pattern going on – TRADE the pattern till it ends and to learn it all join me in my MEMBER FORUM & trade with me realtime using higher & lower timeframe charts.