Swing trading is a medium-term trading strategy used by forex traders to profit on price swings.
It is a trading method that necessitates patience in order to hold trades for multiple days at a time. Swing trading is a popular trading method that falls between day trading and position trading.
Swing traders detect potential trends and then hold the trade(s) for a period ranging from two days to many weeks.
It is great for individuals who are unable to watch their charts during the day but can devote a few of hours to market analysis every night.
Swing trading is best suited for individuals who work full-time or attend school yet have enough free time to keep up with the world economy.
Swing trading tactics use fundamental or technical research to determine if a certain currency pair’s price will rise or fall in the near future.
Swing trading seeks to spot “swings” inside a medium-term trend and enter only when a high possibility of winning appears.
In an upswing, for example, you want to buy (go long) at “swing lows.” In the opposite direction, sell (go short) at “swing highs” to capitalize on temporary countertrends.
Because deals continue considerably longer than one day, greater stop losses are needed to weather volatility, and forex trader must adjust their money management plan accordingly.
Because there can be significant price movements over shorter time periods, you will most likely see trades go against you during the holding period.
It is critical that you remain cool at these times and have faith in your analysis.
Spreads will have less of an impact on your overall profitability because trades often have higher targets.
As a result, trading pairs with wider spreads and lower liquidity are considered acceptable.
Types of Swing Trading
What is a swing trade?
Swing traders frequently employ a variety of trading tactics.
The four most common are as follows: reversal, retracement (or pullback), breakouts, and breakdowns.
Reversal trading is based on a shift in price momentum. A reversal is a shift in the price trend of an asset. For example, when an upward trend loses momentum and the price begins to fall. A reversal can be bullish or bearish (positive or negative).
Trading retracement (or pullback) entails seeking for a price to reverse temporarily inside a bigger trend. Price temporarily retraces to a previous price point before continuing to move in the same direction.
Reversals can be difficult to foresee and distinguish from short-term pullbacks. A reversal is a trend change, but a pullback is a shorter-term “mini reversal” within an existing trend.
Consider a retracement (or pullback) to be a “minor countertrend within a major trend.”
Price moving in against the primary trend should be transitory and brief if it is a retracement.
Potential pullbacks always precede reversals. The difficulty is determining whether this is merely a pullback or a true trend reversal.
Breakout trading is a method in which you take a position on the early side of a UPTREND and wait for the price to “breakout”. You enter a position when the price breaks through a critical level of RESISTANCE.
A breakdown strategy is the inverse of a breakout approach. You enter a position on the early side of a DOWNTREND and wait for price to “breakdown” (also known as a downward breakout). You enter a position as soon as the price breaks through a critical level of SUPPORT.
You Might Want to be a Swing Trader if:
- You don’t mind holding your trades for several days.
- You are willing to take fewer trades but more careful to make sure your trades are very good setups.
- You don’t mind having large stop losses.
- You are patient.
- You are able to remain calm when trades move against you.
You Might NOT Want to be a Swing Trader if:
- You like fast-paced, action-packed trading.
- You are impatient and like to know whether you are right or wrong immediately.
- You get sweaty and anxious when trades go against you.
- You can’t spend a couple of hours every day analyzing the markets.
- You can’t give up your World of Warcraft raiding sessions.