Swing Trend

Indicator Description

Rather than moving in a straight line, a trend is characterized by a series of highs and lows, resembling a series of successive waves. The Swing Trend indicator show series of higher highs and higher lows in an uptrend. Conversely, in a downtrend, you’ll see lower lows and lower highs. In an uptrend, a low which breaks below the prior swing low marks the beginning of a downtrend. In a downtrend, a high that breaks above the prior swing high is needed to start an uptrend. Therefore, swing trend and market structure analysis is a technical term for describing what the market has been doing in the past and what it needs to do in the future in order for the bulls or the bears to maintain their positions.

Major and minor trends

The zigzag plot connects the alternating swing highs and lows. When new price bars are added, the current leg is either extended, or a new leg is added in the opposite direction. There are two conditions required for drawing a leg in the opposite direction:

• Prices must retrace by an amount equal to or larger than the set minimum deviation
• Prices must take out the highs of the prior N bars for a new leg up, or the lows of the prior N bars for a new leg down(N = Swing Strength)

The minimum deviation can be set in points, ticks, as a percentage or as a multiple of the average range or average true range. The swing strength is set as an integer larger or equal to one. A zigzag plot can be built by selecting the minimum deviation and by selecting the swing strength. One may also limit the requirement to one of the two thresholds. When the minimum deviation is set to 0, the zigzag is only built considering the swing strength. When the swing strength is set to 1, the zigzag is only built considering minimum deviation.

Paintbar Plots

The indicator allows for displaying the major and minor trend via paintbars or backflooding. The major trend refers to the breaking of the HL/LH levels. On the other hand, a minor trend refers to the direction of the current swing leg. It will revert when a new swing leg is added in the opposite direction. A change of the major trend can be plotted as T-signal. Minor trend changes are shown via triangles. The indicator can also be set to plot a trailing stop representing the minor trend. Depending on the swing trend settings, you may replicate a Chandelier Stop or an ATR Trailing Stop.

Finally, the indicator can also be set to show the size and the cumulated volume of the swing legs. Major and minor trend, trade signals and information on leg size and volume can be programmatically accessed via NinjaScript or the strategy builder.

Please review our posts on Swing Trend Analysis and Trend Trading System Design for suggestions on how to apply the indicator in a trading setup.