It is not a coincidence that they say we are living in the information era. Looking at any field, you can easily be confused by the sheer volume of info that is available to choose from.
As a forex trader you can also be easily inundated by the various trading styles and strategies that are out there. Not to mention the details of each of these strategies. The technical analysis aspect, the indicators, the techniques, etc. This is where the infamous notion of decision fatigue can kick in.
So, to help you choose one of the best forex trading strategies, in this article we want to focus on one particular strategy known as swing trading.
Difference Between Swing Trading and Other Trading Styles
What makes a certain trading style different from other trading styles? Well, there are many details and specifications that make trading styles such as day trading, swing trading, scalping, etc., different from one another.
However, there is a key factor that can be considered here. And that is the holding period. How long do you need to hold a position or wait for one?
Consider day trading, which is the most popular and well-known form of forex trading. Day trading positions can be opened and closed even in the matter of seconds.
But in swing trading, traders need to keep a look out for profitable swings in the market. This period can take anywhere between days to even weeks.
What Is Swing Trading in Forex?
As in many occasions, the secret lies within the name. Ergo, swing trading is merely the trading style wherein forex traders attempt to profit as much as they can from the smallest swings or volatilities that occur in the market.
But what exactly is a swing? A swing is merely a breakout in the trend of a price. As such each swing is made of swing points and of course the swing body.
The most important part is of course the swing body wherein the traders can make the maximum profits.
The swing points can obviously be profitable as well. However, it is rather difficult to exactly pick out the lower and upper points of a swing. Clearly, any mistake in picking the points can result in serious losses.
This is why the swing body is mostly used as the fertile ground for profitable trading in swing trading style.
How to Start Swing Trading in Forex?
Now we want to show you step by step how you can perfect your swing trading game. It might take some time getting used to this trading style. But with enough repetition, you’ll get into the swing so-to-speak!
Daily time frame is a good point to start
Of course there are different time frames that can be used for forex trading. However, it is highly recommended that you start with a daily time frame first, and become profitable. Then you can move on to other time frames. This is why we recommend that you start with a chart that tracks the closing of the New York session. Work hard to profit from the daily time frame. After that you can move to other time frames, such as the four-hour period.
As always, pay attention to resistance and support
Similar to any other trading style or strategy, with swing trading it is highly important to pay enough attention to the resistance and support levels. These two crucial levels can help you avoid losses perhaps more than anything else. Apart from resistance and support lines, trend lines are also vitally important here. Not only here, but in any other trading style. But with swing trading they can help you pick your point of entry based on a trend and also to notice any potential trend reversals.
Momentum should be evaluated
After picking the right time frame to start with and also identifying the key levels of support and resistance, it is time to evaluate momentum, as it is also vital in swing trading.
Generally speaking, there are three types of momentum in the market – namely upward trends or those with higher highs, downward trends or those with lower lows, and a sideways trend where movement is not diagonal in either direction.
When the momentum of the market is upwards, this is where we have swing points that go higher and higher compared to their previous one. When swing points go higher one after the other, the recommended position in swing trading is the long position.
On the contrary, when the momentum is one of downward, this is where we can see swing points that go lower one after another. Obviously in this case, it is recommended to take a short position.
What about the momentum in which we see sideways movement? While this might be a bit enigmatic to the novice forex traders, professionals know that such sideways movements can create some of the best opportunities. Why? One reason could be because detecting and drawing the support and resistance levels become much more straightforward, thus allowing forex traders to make decisions on the swing bodies with more ease.
Be on the lookout for signals of price action
So, after having identified the market momentum, it is time to look for price action signals. Of course depending on the momentum and trend that is detected in the market, you need to be watchful for different price actions. Clearly, when the momentum is upwards, buy signals must be identified.
These signals, regardless of the momentum, can help you pinpoint the swing points as well as signals to buy or sell. The key point here is to detect as much of the swing body as possible. Of course, it might be near impossible to detect the entire swing body. But even if you detect the majority of it, you can profit from it.
Exit points are just as important as entry points
Caution is always key in forex trading. And identifying a properly calculated exit point is very important in order to avoid losses and guarantee successful trading in the future.
In order to calculate a proper exit point, two factors of profit target and stop loss ought to be specified. And neither is more important than the other, in fact, they are both crucial. Many traders pay more attention to profit targets and neglect stop loss. Don’t make this mistake. Specify both of these factors for yourself.
Whatever You Choose, Make It Your Own
After all that has been said, it is important to point out that swing trading can be technically regarded as a trading style. There are not many trading styles, and yet in their few numbers lies a world of variability.
This variability comes from personalization and customization of such trading styles. Whether you want to choose day trading, scalping, or the namesake of this article, i.e. swing trading, make it your own.
You can pick and choose the details, the techniques, even the indicators that you want to apply to this trading style.
So, always know that you as the forex trader are in the driving seat. You make the decisions, no matter which trading style or strategy you choose.
One of the most popular styles of trading is known as swing trading. When it comes to swing trading, attempts are made by forex traders to profit from the swings that occur in any given foreign exchange trading pair. Although there are many details to put on your checklist on your way to becoming a professional forex swing trader, once you get over the basics, you can keep trading and add your touch of trading style to it.