Forex trading is an industry where a trader can make profits in any number of ways. There is no fixed method or way by which a trader can make money or make good trading decisions. The trader must tailor his strategy and his trading method in a way that suits his character. Choosing a method or strategy that is opposite to one’s character is sure to be a disaster in the long run.
Some traders like to take it slow and steady. If they start to do day trading where trading decisions have to be taken within a few minutes and trades come and go within a very short period of time, such traders are going to struggle. The same holds good when we try to make traders, who like quick trades and are good at making decisions quickly and also do not have the patience to sit on their hands for long, to take up trades which last for several days.
So, among the trading methods, there is scalping which refers to open and close of trades within a few mins, then there is day trading where trades are opened and closed during the course of a day and then there is swing trading which is basically open and close of trades in the medium term.
Swing Trading Basics: What is Swing Trading and How Does it Work
Swing trading, as mentioned before, refers to the trading style where the traders open and close trades in the medium term. The trade is generally open for a few days and the trader is looking to gain some good profits of at least a few percentage points from every swing trade that he would be taking. This style of trading may not be suitable for all as it involves catching a large price move at close to the price bottom or price top for a specific move and coming to sit on the trade till the trade achieves the target.
Such trades have medium-sized take profits and stop losses as well and hence this may not be suitable for those who do not practice strict money management. It would also involve analyzing charts with a timeframe of more than an hour (H1) to the daily charts to determine where the swing bottom or top is and place the right trades at the right time. It may even be advisable to place limit orders rather than wait for the price to reach the targets and then open or close the trade. This type of trading is generally practiced by those who have a lot of patience and who are ready for their trades to take their own time to turn into profits. It is also preferred by those who do not have a lot of time to spend on analysis, especially during the daytime. Such traders may be able to watch the charts or analyze or see their positions only for less than 30 mins a day or only during the weekends and unlike day traders, they may not be able to trade full time or sit in front of the trading platform all through the day.
It does require a lot of emotional and mental control as the profits and losses are likely to swing wildly in both directions as the prices swing from day to day but it does require a lot of conviction and only those traders who can have that sort of conviction would be able to trade this method. Those who cannot stand to witness their profits or losses melting away each day only to come back the next day should not be attempting this type of trading. As mentioned earlier, money management is also key in this type of trading as the trader should not only know where he is going to take profit and stop loss but also ensure that he has enough funds in his account to accommodate such trades and his position size should also be adjusted accordingly to ensure that he stays in the game even if he is faced with many unsuccessful trades.
Why is Swing Trading Better Than Day Trading?
Forex swing trading has its own advantages as well as disadvantages over day trading. While day trading is very attractive to those people who want to see quick profits and who cannot tolerate profits going to zero or a loss, it is also the graveyard for many good traders. It requires that the traders keep watching the market almost through the entire day for trading opportunities and also to ensure that their positions are going fine and according to plan. Doing this day in and day out over a long term is likely to take a mental and emotional toll on the trader. Of course, this doesn’t mean that day trading cannot be done by anyone but it is just a matter of personal choice and the trader has to decide whether it would work for him or not.
Day trading also involves taking several trades in a week to achieve profits and this is likely to place a lot of pressure on the trader to not only ensure that he takes enough trades to make a decent profit but also ensure that his win rate is high as well. Such pressures and difficulties are not there for a trader who does swing trading.
In swing trading, first of all, the trader has a lot of time for analysis. He is likely to rely on the hourly charts or the daily charts only for his analysis which means that the time available for analysis is a lot. Also, the time needed for analysis is low as the higher time frame charts do not change within a few minutes or in a couple of hours unlike in day trading. So, this means that the trader can afford to just analyze once or twice a day and then maybe on the weekend to determine his entries and exits.
Also, the trader is likely to take only 2-3 trades a week which means that the pressure to take more trades to gain profits is not there and the time needed for such analysis is also very less. So, along with the swing trading, the trader can also be going about his work or job in the meantime as the trade gets set up or moves towards the take profit. Such luxury is not there for a day trader. Of course, swing trading also has its disadvantages as it could lead to a wild swing in the profit or loss column which the trader should be able to tolerate but if the trader has that emotional balance, then it is likely that swing trading is the better choice.
What is the Best Forex Swing Trading Strategies
There are many forex swing trading strategies but it all depends on what the trader is comfortable with, in the long term. Not every such strategy would be workable for every such trader and so he needs to be very careful in choosing something that suits him. He can rely on support and resistance levels or swing trading indicators to make his decisions but at the end of the day, what matters is what he can execute day in and day out with success.
One of the usual swing strategies that are used is called reversal trading. This is a strategy where the trader waits for a reversal to happen to the current trend and then picks off the trade. It has to be remembered that trading this way is not very easy as it requires that the trader choose the right moment when he believes that the current trend would reverse. He needs to choose both the right time and the price region where the reversal is most likely to happen and then places a trade. Of course, if the time or the price region is incorrect, then it means that he would be caught in the opposite direction of a trend and this could get ugly pretty quickly. So, like all good trading strategies is it also better to take trades using a stop loss.
The other strategy which is similar to the reversal strategy is called a retracement strategy. This swing trading strategy involves taking the trade in the middle of a strong trend but the position would be opposite to the trend in the hope that the trend would undergo a retracement in due course of time. Again, this is something that is taken in the middle of a trend and so you must have a stop loss in place to make sure that you don’t get a margin call in case the trade goes terribly wrong. Every trend is likely to have retracements during its course and so the swing trader would be hoping to catch some of these retracements. The reversal and the retracement strategies are basically strategies that go against the current trend of the instrument and hence needed to be handled very carefully.
The next one is a strategy in which the trader is trying to catch the trend. This is called a breakout strategy and usually in this, the opportunity for trade comes after a period of consolidation. The price keeps moving within a range for a period of time and then the breakout happens and this can mean that the breakout makes the price move lower or higher. The idea is to take a trade in the direction of the breakout. It is again important to be careful with this strategy as it could so happen that the breakout could retrace and the price could move right back. So, the idea is to make the range in which the price is moving and any breakout from this range, in a strong manner, should be utilized to take a trade but if the price moves out of the range pretty quickly, then it is better to wait for a retracement back towards the range before taking a trade.
The other strategy for taking a swing trade could also be to mark off regions of support and resistance on charts with higher timeframes, study the price movement when the price comes near such regions and then decide to take a buy or sell depending on what the outcome that is best suited for the price action is. This type of strategy is usually used by experienced traders as it is important to understand how price action works and then study the current price action and take the trade accordingly.
Is Swing Trading Right for You?
To answer this question, you first need to understand what is forex swing trading. You need to realize that not all strategies are for everyone. You also need to realize that specific types of strategies will fit only for specific persons and that is highly dependent on their character and so it is always better to choose strategies that are quite close to the personality and the character of a person is. Swing trading requires a very calm head under all circumstances and it is also something for which a lot of patience is needed.
Swing trades can go on for days together and sometimes it may take even more than a couple of weeks for the trade to hit the target. During this period, the trader should have enough mental strength and calmness to view all the profits and loss swings that he is likely to see in his trades during the course of those 2 weeks. He needs to strongly believe in his strategy and believe that his trades will work for it to achieve what he wants, which is a success. So this may not be suitable for all kinds of people.
Once you have made up your mind and are strong in your decision that swing trading is indeed for you, then the next step is to find the right broker and ensure that you manage the trades in the right manner. Without a proper stop loss, likely, swing trading may not become successful for you. These trades run for several days and during this period, you may get caught in the opposite direction of a trend and under such circumstances, you must have the right mindset to exit the trades and take the losses and continue with your trading with a calm mind. If you can manage all of the above, then it can be said that swing trading is right for you.
Forex Swing Trading with $1,000 or Less
Ideally, how much you have a balance in your account should in no way determine what type of trading you choose. As long as your money management is very good and you continue to be in the trading game for 100s of trades, how much balance you have really shouldn’t matter. Make sure that you risk only 1% or 2% per trade and also make sure that your risk to returns ratio is at least 1:1 and this will ensure that you will be able to take several trades even if many of them go wrong. It is also important to ensure that you have a very good trading strategy that will be profitable and consistent in the long term. If you have that confidence in your trading strategy, you should not be worried about your account balance and you should not be worried about a few trades not going the way you thought they would. Keeping these in mind would help you to achieve overall success in the long run.
There have been traders who have converted their four-figure accts to 8 figure accounts but of course, such traders are very few and far between. It is important to not get misguided by such stories and understand that each one has a different path to trading success and ensure that the trader sticks to the plan and what his idea of success is so that he can make the right trades at the right time and ensure that the trader would be successful with the right swing trading strategy in the long run. The key to success is consistency and not winning or losing trades here and there. This needs to be driven into the mindset so that the right trading strategy can be chosen and traded. Once that is achieved and the mindset is changed, then it would be easy to accept the occasional losses that come along the way on any kind of trading or strategy and then move on to the next trade and the focus would be on consistency and long term success and not the individual trades which are just a means to achieve an end.