The Swing Three strategy is a basic momentum/breakout trading system developed by Donald Pendergast. Based upon the most common technical indicators, such as simple (SMA) and exponential (EMA) moving averages, it is best suitable for volatile, high-volume stocks and ETFs that show smooth, regular swing and/or trend moves.

The main principle of the strategy suggests that the entries be taken when their direction is aligned with the trend. In this particular strategy, the trend is determined by the 50 period EMA of the Close price (customizable via strategy input parameters). The strategy also calculates two simple moving averages: SMA of High price and that of the Low price, to be used as signal lines. Once all the three averages are calculated, the strategy will add simulated orders upon the following conditions:

  • A Long Entry order is added when price exceeds the SMA of High price by the specified number of ticks (5 by default) and the previous bar has closed above the EMA;

  • A Long Exit order is added when the Low price fails to exceed its SMA;

  • A Short Entry condition is inverse of the Long Entry one: it is added when price falls below the SMA of Low price minus the specified number of ticks and the previous bar has closed below the EMA;

  • A Short Exit order is added when the High price goes above its SMA.

Input Parameters

Parameter Description
sma length The number of bars used to calculate SMAs of High and Low prices.
ema length The number of bars used to calculate the EMA of Close price.
tick sizes Defines the number of ticks in the offset from the EMA; used in entry signal conditions.


Ema The exponential moving average (EMA) plot.
SmaHigh The simple moving average (SMA) of High price plot.

The simple moving average (SMA) of Low price plot.

Further Reading

1. "Swing Trading With Three Indicators" by Donald Pendergast. Technical Analysis of Stocks & Commodities, December 2013.

Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.

Technical analysis is not recommended as a sole means of investment research.

For educational purposes only. Not a recommendation of a specific security or investment strategy.

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