Swing trading is a popular trading strategy across multiple asset classes. Understanding the swing trading technique in forex is critical for beginners
Swing trading is a popular trading strategy across multiple asset classes. Understanding the swing trading technique in forex is critical for beginners
Each trader is different and has unique abilities, personalities, and attitudes towards trading. What works for one trader will not work for another. This is why it’s critical to learn about various strategies and test them to see what fits you best.
Swing trading FX strategy is highly popular among traders. Intraday traders open and close positions within a day to avoid swaps. When it comes to swing trading, orders remain open longer. It may last a couple of days or even a couple of months. Forex trading swing strategy aims for high probability trades, and therefore, trades need to be well calculated and planned. Swing traders are generally using the combination of fundamental and technical analysis. And the fundamental analysis in more important in swing trading than in day trading.
Let’s dive deep and find out more about swing trading in FX trading.
As the name implies, the purpose of swing trading is to catch price swings in the market. Intraday traders place more orders than swing traders. Which means that swing traders need to be more selective. Usually, swing trades have higher probabilities of positive outcome and good risk to rewards ratio. However, in order to swing trade, traders need a working strategy, discipline and risk management.
Swing trading generally use hourly and larger timeframes. Hourly timeframes are great for finding entries and exists, while daily and weekly charts help make predictions about general market direction. In their analysis, traders use chart, candlestick patterns and indicators, as well as fundamental information.
Economic announcements are more important for position and swing traders than for intraday traders, as economic news takes time to manifest on the charts.
Swing strategy for Forex traders involves fewer trades and more opportunity hunting. If you prefer more active trading, swing trading might not be for you. Traders only enter markets when great opportunities present themselves. On the other hand, swing trading gives traders less screen time and flexibility.
It’s worth mentioning that there’s no evidence suggesting that swing trading is more profitable than day trading or vice versa. Profitability depends on a trader. Some traders make more money day trading and others profit better when swing trading. The key to success is to try different methods and see what works best for.
A number of indicators can make it easier for traders to place successful swing trades. Some of the most frequently used indicators in swing trading include:
A certain shortlist of important events can help traders identify and map out the release of data that considerably affects the market. These events are, but are not limited to:
Much like other forex strategies, swing trading can take advantage of easily identifiable pattern formations on the market – such as:
Triangles – triangles are very common. Traders enter when price breaks out and place stop loss behind trendline that was breached.
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Falling Wedges – Used to identify continuations or reversals. In this example, the pattern is continuation as price breached a trendline upwards. If the opposite was the case, the pattern would be reversal.
Pennants – are created in fast moving markets and continue trends.
Much like any other trading strategy, wing trading comes with its unique features, pitfalls and pros and cons. Traders need to carefully consider these factors to decide whether swing trading is the best course of action for their trading objectives in forex.
To better visualize the use of indicators in swing trading, we can look at the swing strategy example.
Using the RSI, we can mark buy and sell signals on the price chart. Buying and selling points are in line with some of the lowest and highest points visible on the RSI.
The latest buy signal toward the tail end of October shows an RSI of over 50, which represents a short buying window before the pair enters the overbought territory of 70. Traders can place a stop-loss near this point to limit downside and take advantage of the price as it enters the 70 RSI territory, where traders can sell and lock in profits.
Swing trading does not require constant monitoring of the market, and the bulk of the work is done while gathering fundamental information about which currency pair to place trades for. Using stop-losses and take-profits can significantly reduce stress levels for traders when swing trading.
Swing trading can be quite cost-effective and depends on the size of positions held by traders and the number of hedging tools used to reduce risk. Although it may be very little, the main cost of swing trading is rollover swap fees that accumulate for keeping positions active overnight.
It depends on the trader. For some traders, earring 500 USD per month is a lot of money. While for others, it’s 5,000 USD. The more money you wish to make, the larger your trading balance needs to be, however, it’s critical your trading strategy to be profitable. In general, swing trading needs more capital than day trading, as day traders place more frequent orders and their risks per trade can be smaller.