The Basics Of Swing Trading

If you think about forex trading as a mere battle of strategies, you are partially wrong. While trading strategies are specific to every trader, having a trading style is equally important.

Trading styles typically define broad groups of forex market participants and are fewer in number than strategies; hence, it’s way easier to identify your style first before looking for a strategy that suits you best.

What is Swing Trading?

Swing trading is one of the most popular styles used by forex traders today. The list includes day trading, scalping, position trading, and high-frequency trading. Each of them has hundreds, or even thousands, of strategies that you can later select upon choosing the most appropriate style. This means that there are many ways to utilize day trading, just as swing trading can be done in different ways.

From the term itself, swing trading is simply an attempt to make a profit from market swings. Swings normally have two parts – the swing point and the body. If you’re a swing trader, it is your job to time your entries to catch the majority of every swing body. This implies carefully examining possible trends and holding your trades for days or weeks so you can observe the market closely.

Maximizing profits through swings requires patience. This is so you can afford to wait for the price action to signal a buy or sell decision. Swing trading is the exact opposite of day trading. It’s normal to have very short holding periods in the latter, which may just be seconds in certain situations.

If you have a full-time job or school but still manage to stay updated with the global economy, swing trading will fit you. Just dedicate a few hours to keep up with your market analysis, and you’re good to go, even when you couldn’t monitor the daily chart the entire day. Furthermore, lower liquidity and larger spreads in trading pairs are acceptable if you’re a swing trader.

Why (or why not) swing trade?

Like any other trading style, there are pros and cons to swing trading. Because you try to reap medium-term gains, you are more exposed to weekend and overnight risks that may lead to a price gap the next day. However, this can be mitigated by an established reward-risk ratio that considers your stop loss and even profit targets.

The pros are as follows:

• Requires lesser time in monitoring trades than day trading;

• Maximises the potential for short-term profit by catching the bulk of forex market swings; and

• Technical analysis can be relied upon exclusively, thereby simplifying your trading process

On the other hand, its cons are:

• Trade positions are exposed to weekend and overnight market risks;

• Substantial losses may result if market reversals are abrupt; and

• Longer-term trends can be missed as a tradeoff for shorter-term market moves

Given this list of pros and cons, you’ll most likely experience trades that go against you, especially during your holding periods. To continue trusting your analysis and remain calm amidst circumstances like this is a must.

How is swing trading accomplished?

Different trading strategies can be implemented by swing traders. The four most popular strategies are as follows:

1. 1. • Retracement trading – another term for pullback trading; retracement strategy means you will search for a price that will temporarily reverse under a larger trend. The usual case is that the price retraces to an earlier point but goes on to move in a similar direction later.

   2. • Reversal trading – this strategy relies on a change in price momentum, which can be negative or positive. For instance, an upward trend may reverse, and the price begins to move downwards. As opposed to retracement, reversal trading looks more closely at the changes in a larger trend and uses it as an advantage.

2. 1. • Breakdown strategy – with an initial phase of a downtrend, you take an early trading position.  As you spot a breakdown point for your price, you easily enter into a position as the price breaks below support.

        1. • Breakout trading – this is the opposite of the breakdown strategy. You initially take a position on an uptrend’s early side. As soon as price breaks through a crucial level of resistance, you enter in another favourable position, as deemed helpful.

How does a swing trader act?

You can be a swing trader if:

• You’re fine holding your trades for a couple of days;

• You accept fewer trades but always settle for those with very good setups;

• You can tolerate large stop losses; and

• You are patient and can stay calm even when the trade moves against you.

On the contrary, you can’t be a swing trader if:

• You’re fond of fast-moving and engaged trading;

• You can’t wait to know the results of your trades;

• You get anxious when trades go against the trend; and

• You hate analyzing the market every day.

Every trading style has its own pros and cons, and swing trading is no exception. While you can always choose a style, to begin with, consider the advantages and disadvantages first, so you get the best alternative that works for you.

Start trading with Blueberry Markets for as low as $100 when you open a live account. We offer very low spreads and lightning-fast trade executions so you can take advantage of winning opportunities.

About The Author

Ben Clay

Ben Clay is a skilled and experienced CFD trading professional and writer with 14 years of experience in the industry. As a part of the Blueberry Markets team, Ben is known for his ability to simplify complex concepts into insightful and engaging content. His profound understanding of CFD trading, coupled with his exceptional communication skills, has established him as a trusted contributor who delivers insightful information to a wide audience.
Expertise: Forex and CFD trading

See author's posts