The Basics of Swing Trading

The trading style solely depends on the individual agenda and preferences. One of the effective way to trade forex is swing trading. What is swing trading anyway? What is common misconception about swing trading? How can you swing trade efficiently?  

Swing trade means placing a trade only when the opportunity strikes and hold it for a few hours or even a few days.  Forex traders that use swing trading technique aim to catch large price movements instead of small ticks. In order to swing trade you have to concentrate on fundamental analysis of the currencies, since it is mostly fundamentals that force forex market to move one way or another.

In order to catch large price movements, forex swing traders tend to hold open positions for more than 24 hours, sometimes even for several days. The good thing about the low frequency of trades is low transaction costs (compared to, for example, day trading). The disadvantage of swing trading is the rollover fees, however even this is nothing compared to the spreads and the potential profits. 

Now, what are the basic methods to swing trade? Below are several techniques to get you started:

1.     Know the Support and Resistance Levels 

The agenda of forex swing trader is to find support or resistance levels which have been tested and held before. 

2.     Look out for the Momentum

In swing trading it is important to catch the right movement of the price – a strong progress towards the support/resistance level. Once you spot the movement, you need a confirmation that price momentum is going to turn. 

What kind of confirmation are we talking about here? A swing trader needs a confirmation, which shows that the price momentum is declining. Once the momentum is fading, the percentage of the turn is very high. 

The best indicator to confirm the turn is stochastic indicator. Most swing traders consider stochastic an overall necessity. The reason behind this is the fact that stochastic indicator is a visual indicator. 

So, for example, when the market is moving up to resistance level, the stochastic lines in most cases will both point up. On the other hand, when the market is moving down, the stochastic lines will both point down. 

When is the right time to make a trade? The confirmation you need to look for is when the stochastic lines cross each other and point either up (support has held) or cross and point down (resistance has held). 

3.     Find your Target

Once you have entered a trade, you must have a target. The indicator for target hunt is Bollinger Band. In case of volatile move, the prices will be at the top or bottom of the band. The target you should be looking for is the price returning to the middle band. Once you hit the band (or land nearby), it is time to walk away and take the profit. 

What are other things to look out for? Below is the list of things you should follow as a swing trader: 

·         Trade spiky volatile price movements into valid and major support and resistance. 

·         Find your target and get out without hesitations. 

·         Take your time and wait for stochastic lines to cross in order to enter a trade. 

·         Be prepared for several days of swing trade. A typical swing trade may last for 5 days! 

·         The profits will build up over time with low risk high reward trades.

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