I frequently get questions about swing trading options, so writing a quick guide on the methods I personally use felt appropriate. If you've ever wondered whether swing trading options can be a profitable venture, the answer is a resounding yes! In this guide, I’ll outline the simple approach that I personally use to find and execute swing trade ideas. If you want to trade alongside our plays, check out the Swing Trade Radar, where we post all of our swing plays with a full technical breakdown - Including entry (live swing trade alerts included), exit, targets, the logic behind the trade, and regular updates.

Whether you're a seasoned trader or just starting, this guide will equip you with the necessary tools and strategies to navigate the markets and capitalize on short to medium-term price movements. Through a deep understanding of market structure, technical analysis, and effective risk management, you'll discover the potential that lies within options swing trading.

Grasping Market Structure

What is Market Structure?

Before swing trading options, we need a “Bird’s Eye view” understanding of the market. This is where market structure comes in. In simple terms, market structure refers to the arrangement of price movements on a chart, revealing trends (higher highs, higher lows), support, and resistance levels. By analyzing the market structure, we gain valuable insights into the market's sentiment, which is crucial for successful options swing trading.

Identifying Support and Resistance Levels

One of the cornerstones of market structure analysis is identifying support and resistance levels. Support acts as a price floor, where buying pressure typically exceeds selling pressure, leading to potential price reversals. On the other hand, resistance acts as a price ceiling, where selling pressure outweighs buying pressure. Support and resistance are also frequently referred to as supply and demand - The terms are different but the concept is exactly the same. Recognizing these key levels helps us identify potential entry and exit points for our options trades. Generally speaking, we want to be looking at buying calls at support, and buying puts at resistance.

The Wyckoff Price Cycle Theory

Understanding the Wyckoff Price Cycle Theory can provide valuable insights into identifying where price is within the market cycle. This theory is based on the premise that markets move through four distinct phases: Accumulation, Markup, Distribution, and Markdown. During the accumulation phase, institutions (“smart money”) accumulates positions, leading to a range-bound market. The markup phase follows, characterized by significant price advances as the smart money drives the uptrend. Distribution then takes place, with smart money selling their holdings to less informed participants, causing the market to flatten. Finally, the markdown phase sees a downtrend as the market corrects. By recognizing these phases, we can better time our options swing trades for optimal profitability.

Technical Analysis Tools for Options Swing Trading

Using Moving Averages

I’m personally not big on indicators, but that is a discussion for another time. When it comes to swing trading, the popular moving averages can be helpful when used in conjunction with market structure. Moving averages (MAs) are helpful tools for trend identification and smoothing out price fluctuations. I tend to focus on the highly watched MAs such as the 21-day, 50-day, and 200-day, to identify intermediate-term and long-term trends. Of note, if you have been trading for a couple of years you have probably heard of “MA crossover” strategies. Avoid these as they offer absolutely no edge to swing traders.

Embracing Candlestick Patterns

Candlestick patterns offer valuable insights into price action and market psychology. Patterns like doji, hammer, and engulfing are very simple and reliable price developments that provide clues about potential trend reversals and continuation. By learning to interpret these candlestick patterns, we can confirm signals from other technical indicators and enhance our decision-making process.

Navigating Long Calls and Long Puts - Swing trading directional options

How to choose the right option strike and expiry to swing trade

Selecting the appropriate option strike price and expiration date is essential for effective swing trading. Remember that when we are swing trading options, the goal is not to hold them to expiration. The main point of swing trading options is to simply gain leverage on the underlying stock because we expect a big move to materialize. That being said, Matching the strike price with your market outlook and aligning the expiration date with your anticipated swing duration are key considerations for successful options trading. A general rule of thumb is to buy more than enough time on your options - Meaning if you expect the move to happen within 3 weeks, buy contracts that expire in 6-8 weeks. Time on your options contracts is in itself a hedge. For strike selection, we must consider factors such as liquidity, bid-ask spread, and the option's implied volatility. Opt for options with higher liquidity to ensure smoother order execution and minimize slippage. I usually opt for contracts that are 1-3 strikes out of the money from the current at-the-money contract. If you’re looking for option swing trade alerts or need help selecting a strike and expiration for your swing ideas, check out our Swing Trade Radar.

Executing Your Options Swing Trades

Setting Entry and Exit Criteria

With our analysis and options selection strategy in place, it's time to execute our trades. Start with a higher timeframe analysis to determine where the stock is in the Wyckoff Cycle. Is the stock rangebound, or is there a clear trend? From there, define clear entry and exit criteria based on market structure and technical signals. Ideally, we are aligning market structure, key levels (support and resistance), and moving averages to find the highest probability swing trade opportunities. As a general rule of thumb, we usually want to look for long opportunities at a retest of support and a key moving average. Make sure the candle that “triggers” your trade and provides the signal is fully closed before taking an entry. For swing trades, it is usually best to focus on the daily timeframe chart. Develop your trade plan, stick with it, and avoid letting emotions drive your decisions.

Managing Risk and Position Sizing

No trading strategy is complete without risk management. Determine the maximum amount you're willing to risk on each trade and adjust your position size accordingly. This approach ensures your trading capital is safeguarded, even in turbulent market conditions. It can be useful to use a scaling approach when initially taking and exiting swing trades. Use partial positions to your advantage.

swing trading options - faq

What is the Best Way to Swing Trade Options?

The best way to swing trade options involves a combination of technical analysis, market structure assessment, and effective risk management. Start by identifying well-defined support and resistance levels to gauge potential entry and exit points. Utilize moving averages and candlestick patterns to confirm signals and time your trades. Always have a clear trading plan, including predefined entry and exit criteria. Most importantly, make sure you are buying enough time on your contracts. This is a common pitfall that option swing traders make - They don’t buy enough time on their contracts, resulting in loss - Even though they got the direction correctly. If you need help picking higher probability swing trade ideas with the proper strike selection, sign up for our Swing Trade Radar.

Is Swing Trading Profitable in Options?

Yes, swing trading can be profitable in options if executed with a well-defined strategy. Unlike day trading, swing trading gives options traders more time to capture price movements, making it suitable for those who can't monitor the markets constantly. Swing trading is a great option for those that can’t spend too much time in front of the charts to monitor for intraday trade entries. However, profitability relies on strong market analysis and a sound understanding of options contracts and their behavior. If you don’t yet have a strategy in mind or are new to options or trading in general, get yourself educated: check out the Options Mastery Course. Proper risk management is essential to preserve capital and mitigate potential losses. With discipline, knowledge, and consistent execution, swing trading options can indeed be a profitable endeavor.

What is the Best Time Frame for Swing Trading Options?

The best time frame for swing trading options is typically in the range of several days to a few weeks. This time frame allows traders to capture meaningful price movements while avoiding excessive exposure to short-term market noise. Swing traders analyze the underlying stock's technicals and the broader market sentiment to identify potential opportunities within this timeframe. The best charts to look for swing trade signals are going to be the daily timeframe and weekly timeframe charts. However, the choice of time frame ultimately depends on individual trading preferences, risk tolerance, and market conditions.