For the experienced Forex trader, swing trading is an exciting way to play the markets and, with the right approach, come out on top. It’s a quick action-packed sector of the Forex trade industry and there is plenty of risk involved. But there is also a lot to be gained.
In a nutshell, swing trading is the term attributed to a medium term approach to trading that traders will use when attempting to make some money on the way in which prices swing. And holding a position over the medium term will require any trader to practice a certain amount of patience.
What is most important for you to understand when you begin looking into swing trading is time frames.
Forex is known to be a fast paced world, with traders buying, selling and swapping at an incredible pace, often making handsome profits, with a specific time period.
Those who practice long-term trading are looking at trading over months and sometimes even years. They hold their positions, and sell or swap when the time is right. The short-term traders are those who are only holding their positions open for a matter of hours, minutes or sometimes even seconds.
Swing traders are middle-term traders; they sit between the long term trading and the day traders.
Holding a position over the medium term can mean a few days to a few weeks, and in that time traders will have to carefully watch which way the prices are going to swing. These traders are going to be monitoring a number of day charts at a time and most of their profits will be made from larger price movements as opposed to those short movements that day traders thrive on.
Many will argue that because swing traders are medium-term traders, their position is far better than those held by day traders. Swing traders will work with 4 hour and daily charts, and they will rely on the successful combination of a fundamental analysis and a technical analysis to help them come up with their decisions.
And while many traders tend to try to find a way to trade that will minimise their vulnerability to the volatile risks associated with the industry, swing traders rely on this very uncertainty. The more volatile the price movement is, the more short-term movements there are to benefit from.
There are always going to be risks involved with holding a position but middle-term traders are generally in a relatively safe space.
Swing traders make it their mission to try to identify when a price is going to swing in their favour. Only then will they enter a position.
The Types of Swing Trading
As with most styles of Forex trading, there is a variety of different strategies that a trader can implement. Some are more profitable than others, but it is up to the trader to make sure that they have selected the best possible strategy for their approach to swing trading.
These are some of the types of swing trading:
With this approach, traders will position themselves on the start of an uptrend and they will watch carefully for the price to breakout. Traders will need to enter the position as quickly as possible when the price breaks.
With reversal trading, the trader will be placing all of their hopes on the price momentum. Reversal, even in trading, means a big change in the direction of the price asset movement. Reversals can be either positive or negative in nature, depending on their movement.
This approach allows traders to temporarily reverse their trade when looking at the larger trend. By doing this, the price is going to, only for a little while, retrace its progress to a price point from earlier in the open. Once enough time has passed, the price will move in the same direction.
The issue with retracement trading is that the reversal is so often incredibly difficult to predict and it is difficult to tell them apart from the short-term pullbacks, especially as the reversals are always going to start out as possible pullbacks.
The Advantages of Swing Trading
Every form of trading has its positives and its negatives. Swing trading is no exception but it does most certainly have more advantages than most types of Forex trading. And a lot of the trading advantages are going to be particularly beneficial to new traders.
Longer term trends are more often than not the most profitable route that a trader can take and as you already know, the swing trade relies on those long term positions.
Long trends are less volatile and risky, and they give the trader more time to make the right decisions. Basically, short-term trades are very vulnerable to upset so if you can avoid them, especially when you get started, you are possibly in a safer position than most traders.
The difference between the buying and selling prices of the asset accounts for the main costs involved with trading. This amount can be very small but over a long period, these costs can really affect the amount of profit you end up taking home when your trade closes.
For the swing trader, this cost doesn’t really affect them because a) they place fewer trades than most other traders, and b) they are spreading their trades over a longer period of time.
The more information you have, the better position you will be in to make the right decisions. The swing trader, because they work with medium length trades, have access to 4-hour, daily and weekly indicators which can be used to assist them in making the right decision.
Short-term trades, those that are closed within minutes or hours of opening, are going to require a lot more attention than the long-term trades which can be more or less left alone until closing. The time frames for swing trading is a lot more trade friendly and requires traders to do far less analysing than other trading time frames would allow.
Frequently Asked Questions
What is swing trading?
Go here for a comprehensive explanation of swing trading.
What is the best swing trade strategy?
The most successful swing trade strategy is referred to as “Fade the Move”. Other swing strategies which have been proven to work include “Stuck in a Box” and “Catch the Wave”.
Is swing trading better than day trading?
Swing trading yields profits and losses slowly when compared to day trading but they can result in big gains over time.
Is swing trading good?
With the right strategy, yes, although the gains will be small over the short term. When a strategy is carried out consistently, the gains quickly add up to quite a profitable annual return.
Does anyone make money swing trading?
Yes. Although, since many swing traders get comfortable when they start earning a monthly set amount, they never really go beyond that in terms of profit making.