Forex Swing Trading for Beginners

What is forex swing trading? Swing Trading is a method of trading forex in which the trader holds positions open for a minimum of two days and a maximum of a week. There are sometimes exceptions where trades may be left open for as long as two weeks, but never more than that.

Swing trades are used by traders to catch short-term moves of a currency pair without getting unduly exposed to intraday market noise. The name, “swing” gives some insight as to what prices are doing in the market. Usually, prices will swing from one end of the chart to another, in the context of the main trend which is only seen on a daily chart. At these times, it can be seen that the asset may be moving predictably between short-term support and resistance areas. These support and resistance areas may be occurring within the context of a larger trend, in which case they represent peaks and troughs of market action.

Many times, both bullish and bearish trends are present, but the asset moves in a rather predictable sequence between parallel resistance as well as support areas. The resistance is the highest point the market reaches as it moves up and then pulls back. As the market surges up again, the lowest point it reaches before it climbs back is known as the support. It should be noted that there are swing trading opportunities in this scenario as well, with the trader taking an extended position near the support area and taking a short position near the resistance area.

Introduction to Swing Trading

Swing trading uses technical analysis to establish the trend of assets, which they can ride for a period of time. Once an asset has formed a trend, it will ride the trend for some time. The problems most traders have are:

  1. They are too impatient and try to profit from intraday market noise.
  2. They sometimes get confused by candlesticks and pull out of profitable trades way too early.
  3. The do not understand the trade mechanics that the big guns use in the markets to collect steady profits while sticking to sound risk management practices.

If you want to make it big in forex trading without staying so long in the market, then you have to ride the waves of swing trading. All the big guns in the market do this, so why not you?

Swing trading requires discipline and patience in the trading approach. Discipline helps you to stay in trades that are retracing, even when you are in a major trend. Discipline also aids you to set up proper risk management so that even if trades go south, you do not lose more than 3% of your account. Patience will enable you ride the wave to the very end of the tape. A successful swing trade can get a trader good returns. Returns of at least 3 pips for every 1 pip risked are commonplace with profitable swing trades.

Swing trading identifies swings within a trend and enters only when there are high chances of winning. For instance, in an uptrend, traders attempt to go long (buy) at “swing lows.” On the other hand, they go short (sell) at “swing lows” by taking advantage of temporary countertrends. Swing trading gains are captured overnight or after they have been held for some weeks. It is essential for traders to know that larger stop losses are required if they are to pull through market volatility. This is because swing trades last much longer than one day. As such, it is important that traders devise a proper risk management strategy. The right money management plan will help ensure that they survive those periods when trades are likely to go against them during the holding time, as many price fluctuations may occur during shorter timeframes.

Swing trading is ideal for individuals who:

  • Do not mind holding their positions for many days.
  • Do not have a problem putting up with larger stop losses.
  • Are ready to make fewer trades and pay enough attention to ensure that their trades are excellent setups.
  • Have nerves of steel that let them remain during those periods when trades go against them.
  • Are patient.

Individuals with full-time jobs who are looking to augment their incomes can take to swing trading. However, the strategy is best suited for those who have enough free time to follow economic events on a global scale. Being current with the news plays a major role in how successful one becomes in the trade. Looking for scheduled events like economic data points, earnings reports, regulatory events, etc., help traders to identify currencies that could make for a swing trade. Also, it is important for a trader to be willing to execute trades without second-guessing themselves.

Unlike other trades, volatility is not all bad news for swing traders. This is because it gives traders a reason to seek an exit before some gains get erased.

Importance of Swing Trading

What are those important elements of swing trading? Swing trading is important for the following reasons:

  • Swing trading makes it possible for traders to earn good returns. Swing trading enables traders to benefit from the market over the medium term.
  • Swing trading lets traders make money from the trend.
  • Swing trading uses mathematically based rules and objectives to determine what currencies to buy or sell. This procedure helps to eliminate the emotional aspects that are usually associated with selecting currencies.
  • Swing trading allows the use of methods that reduce the need for labor-intensive analysis.
  • Swing trading teaches a trader to focus on both long term and short-term investment goals. This prepares them for the demands of other trades.
  • Profits made from successful swing trades can only be eroded by several losing trades.

Advantages of Swing Trading

Swing trading is a trade of many advantages. It benefits traders in ways that include:

  • Swing traders can trade without the distractions that stem from intraday trading.
  • Swing trading is suitable for traders of all kinds. Whether you are an advanced, intermediate, or beginner trader, swing trading has enough room to accommodate all.
  • Swing trading provides traders with enough tools to analyze price patterns, trends, as well as the intrinsic fundamental value of currencies, to ascertain their trading pattern.
  • Swing trading enables individual investors to benefit from short-term price movements without having to compete with persons or companies with a large volume of trades.

Swing Trade Example

Here is a typical swing trade that was held for about 5 days. It featured a short trade on the descending triangle pattern, seen on the daily chart of the Ripple/USD chart.

Conclusion

Swing trading is one of the best trading strategies for those who are looking to reap medium-term gains in the financial markets. Note that in swing trading, success comes when you identify the trend rightly and invest accordingly. As such, it is important that you develop several strategies that could help you to determine the pattern exhibited by an asset.