There are different styles for trading the Forex market such as scalping, day trading, swing trading, and position or long-term trading. The choice of which style to follow is a matter of the trader’s preference and personality. Here we’ll discuss swing trading: what it is, the timeframes involved, and a couple of strategies you can use to trade this way.
What is Forex Swing Trading?
This is a style of trading where the trader tries to benefit from short-term price trends. The trader tries to capture the price move from a swing low to the next swing high and vice versa. The trades tend to last from a few days to a couple of weeks.
Swing traders can make use of technical or fundamental analysis alone or a combination of the two in finding the right time to enter and exit the market. Greater volatility in the market is a delight for swing trading as there would be more short-term price moves to benefit from.
Which Timeframes are Involved?
The different styles of trading employ different timeframes. While a scalper makes use of the ultra-short timeframes, such as the five-minute and one-minute timeframes, and a day trader employs the 60-minute, 30-minute and maybe 15-minute timeframes; a swing trader usually makes use of the four-hour timeframe.
Many times, he uses the daily timeframe to get a better perspective of the market but rarely makes use of the weekly and monthly timeframes which are typically used for a long-term style of trading. Sometimes though, a swing trader may step down to a one-hour timeframe to get better entry points after spotting his setup in the four-hour or daily timeframes.
Simple Swing Trading Strategies
Swing trading is not a strategy in itself rather it is a style of trading. A lot of strategies work with this style of trading as with other styles too. Here we’ll present a few simple strategies that work in swing trading. Some of them, such as the trend following and the countertrend swing strategies, are price action-based while the others are indicator based — moving average crossover.
Trend Following Swing Strategy
Price usually moves in waves in every market and it is even much better in a trending market where you can easily see the different swings — impulse waves and corrective or countertrend waves. A trend following swing strategy tries to benefit from the impulse waves.
Thus you need to:
- identify a trend – watch this video on How to Identify a Trend Easily
- wait for the corrective wave to complete
- enter the market in the direction of the trend after the corrective move has played out so as to benefit from the next impulse wave.
To identify a trend using price action, you have to look out for higher swing highs and higher swing lows for an uptrend or lower swing lows and lower swing highs for a downtrend. The chart below clearly shows an uptrend. The down-wave which ended about 8.00 on the 13 July was a corrective wave and made a higher low than the low of 11 July. Entering the market after price resumed in the direction of the uptrend would have a profitable trade.
This is basically trying to benefit from the corrective waves. Certain factors, such as strong resistance or support levels, can make the corrective wave strong and large enough to give some meaningful profits. Traders that use this strategy have already mastered these factors.
To trade this strategy, you need to:
- identify the trend as usual
- identify major price levels that may push the price back such as major resistance/support levels, major round numbers, etc
- wait for that level to hold and price to turn
- enter in the opposite direction to trend and place your hard stop loss a little beyond the swing high/low as the case may be.
In the chart above, the move from 8.00 on 12 July to 8.00 on 13 July was a reasonable countertrend move to benefit from. We specifically have a strategy and indicator for Trend Reversal.
Moving Average Crossover Swing Strategy
The moving average indicator smoothens the price data so that one can see the trend more clearly. Using two moving average indicators, one of longer duration and another of shorter duration, is a simple and effective way for swing trading. When the shorter moving average crosses the longer moving average, it could indicate that price has changed direction. Moving Average Crossover are simple trading strategies. We have created a momentum strategy that make it more reliable than just using MA Crossover. We call it the Elite Swing Trader System.
Profit Taking Strategies in Swing Trading
Swing traders make use of different strategies for taking profits. While some place take-profit limit order, others don’t; instead, they let the profit run for as long as possible and trail the profits. Some combine both by taking partial profits at targeted levels while trailing the remaining portion. All the strategies have their pros and cons; you choose whichever one that you prefer.
Swing trading is a style that offers a combination of frequent trading opportunities and less time in front of computer screen. Some simple strategies work with this style just as they do with other styles. Usually, when we talk about Swing Traders, we usually talk about traders that trade higher time frames like H4 and D1 timeframes.
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