If you want to learn about swing trading, then this free swing trading course will give you the foundation you need to get started.
Forex presents lots of great opportunities of swing trading.
The key to successful swing trading is being patient to wait for trading setups to form, and also have the patience to wait for the trade to play out.
In addition, you need to have reliable swing trading strategies and prudent risk management practices.
I hope that at the end of this swing trading course, you will have a better understand of how to go about doing swing trading in forex.
Table Of Contents
- What Is Swing Trading?
- Up Swing
- Down Swing
- Best Swing Trading Trade Entry Points
- Swing Trading Vs Day Trading
- Trading Techniques
- What Kind Of Traders Use Swing Trading?
- What Are The Best Forex Swing Trading Strategies?
- Swing Trading And Technical Analysis
- Swing Trading And Fundamental Analysis
- Swing Trading Tips For New Traders
- Advantages Of Swing Trading
- Risks Of Swing Trading
What Is Swing Trading?
Swing Trading should appeal to any Forex trader who has a day job or who does not have time on his hands. Because with Swing Trading Strategies, once a trade is placed and executed, you pretty much let the market do its job.
All you have to do is check you trades about 4 to 6 hrs or a day later and manage it.
That’s the beauty of Swing Trading.
If you have been a swing trader for some time, you may find new swing trading techniques and ideas or build upon what you already know and go from there. Or you can find a new swing trading strategy that you can use also.
Swing Trading, what is it? What Is The difference between swing trading strategies and day trading strategies or scalping or trend trading strategies?
In here your questions will be answered.
Wikipedia describes swing trading as a speculative trading activity in any financial market whereby instruments such as currencies are
bought or sold at or near the end of up or down price swings.
But that being said…if you are swing trading dummy:
- would you have a clue of what price swings are?
- would you have a clue of what is an upswing or downswing?
- do you know what is a price rally or pullback? Do you know what they mean?
I bet you don’t (or maybe you’d know little).
So lets get into more detail, shall we? This is your introduction to swing trading.
What Are Swing Trading Strategies?
The forex market (or any other market) never stays stagnant, it moves. Its like when you inhale and exhale, how you see your tummy grow when you breathe in and tummy grows smaller when your breathe out.
It a similar fashion, the forex market breathes and cycles and this is represented by up and down price movements you see on your forex charts.
- When the market is in an uptrend, prices will be increasing but even while the price is increasing, price will fall back again, then it will continue to rise up going past higher than where it fell from.
- In a similar manner, when the market is a downtrend, prices will be decreasing but there will be times when price will increase and then fall back down to go down further below where it rose from.
These two points above are keys to understanding what swing trading is.
Therefore swing trading strategies are trading strategies that try to capture these “market moves” or “swings” to allow you to become profitable.
Well, see below…
Just notice that this forex chart below, the market is in an uptrend and price is rising but during its rising, its also falling back down.
This falling back down is called the “down swing”.
And when price rises up again and forms a peak, that is called the “upswing”.
This is what a downtrend looks like with price upswings and down swings.
So the point is:
The movement of price action in waves to form peaks(or tops) and troughs (or bottoms) when market is trending either up or down is know and “price swings“. This is where swing trading got its name from.
Have a look at the AUDCAD price chart below and notice those price swings.
(1) price moves up and down and as it does so, it is
(2) forming peaks and troughs
(3) therefore from a peak to a trough is a swing-a down swing to be more precise.
(4) so when price moves up after forming a trough to form a peak, that is called an up swing (0r upward swing)
That’s a pretty easy concept to get.
So price swings are are an easy convept to grasp…
- peak to trough=downswing
- trough to peak=upswing
GBPUSD daily Chart below shows major price swings:
The next thing that you need to understand in swing trading is the concept of price trends and these include but are not limited to the following:
- what is a trend
- how do trends form or how do you know when a trend is just starting?
- when does a trend end or how do you know a trend has just ended ?
- how to identify a trending market?
Now, lets get into more detail…
What Is A Trend?
This is most simplest definition of what a trend is: A trend is the movement of price up or down or sideways over time.
- When price is consistently moving up, forming Higher Highs and Higher Lows, this is called an uptrend.
- When the price is consistently moving down, forming Lower Highs and Lower Lows, this is called a downtrend.
- When Price Price is moving sideways, it is called sideways trend. In such a sideways trending situation, price is neither going up or down.
These bullet points statements above are the keys to identifying a trending market or a sideways trending market.
How Do Trends Form?
In the Daily AUDUSD chart below, notice that when the price was trending down:
- It has a pattern of consistently forming Lower Highs and Lower Lows?
- but when this pattern is disrupted by a formation of peak higher than the previous peak (Lower High), this can be the first signal that the trend may now changing to an uptrend?
Now remember that, this can also be a false signal as shown in the chart above chart where there was a signal that the downtrend may have changed to an uptrend but that uptrend move did not last.
This could have been the Start of an Uptrend (end of the downtrend) but it did not last as price still continued to swing lower-still in downtrend.
Best Swing Trading Trade Entry Points
Now for a swing trader, the ideal location of trade entry would be:
- on where the prices form peaks and troughs.
- If a swing trader enters a trade on these locations, they would stand to make a lot more profits when the market trends nicely.
- When you enter at these peaks or troughs, your risk is minimized and you have less chance of getting your stop loss hit.
Now, the problems is not all swing trading strategies and techniques would allow a swing trader to get in right at these peaks or troughs for price swings:
- some swing trading strategies can can allow you to enter trades exactly on the peaks or bottoms
- some swing trading strategies will have to wait a while to confirm a peak or bottom is formed before a trader enters into a trade
Whatever your choice may be, nobody can tell you what swing trading forex system to use. Its up to you to decide.
Swing Trading Vs Day Trading
What is the difference between swing trading vs day trading? Well, the main difference between swing trading and day trading is that with day trading, all trading activity happens and closes during the day.
A day trader is actively looking for trading opportunities during the day. No trades are carried overnight.
This also means that the day trader is generally looking for smaller profits with each trade made.
On the other hand, you have swing trading. Swing traders are looking to take advantage of momentum and they will hold their trading positions for longer periods than a day trader. The trades can be held for days and even weeks allowing the price momentum to run its course.
So ideally, with swing trading, in an uptrend for example, traders will be looking to buy on pullbacks and in a downtrend, traders will be looking to sell in a rally. These are the price structure or price swings that allow the swing trader to get in a better price with a good risk:reward ratio.
Then benefit of swing trading also is that you are not glued to your computer screen all day long. Swing trading will also fit those people that have day jobs. Especially with the Forex market, you can come back in the evening and can trade as a swing trader during the different sessions.
In here I will go through the different trading techniques and how they all compare with each other. These are:
- day trading
- swing trading
- trend trading (position trading)
1: Day Trading/Intra-day Trading
Also known as ‘Intra-day’, positions are usually entered & exited within the same trading day.
Obviously forex scalping fits into this category.
Forex Traders in general are interested in quicker, smaller amounts of profits/loss and making multiple trades per day.
If you are a day trader, you will be trading a lot frequently than the swing trading or trend trading.
– Smaller take profit target = Smaller risk per trade.
– Because of the amount of trades being placed, compounding has a greater effect on your overall profits.
– You can make money faster.
– Makes you ‘Feel Good’. Can be a rush! (Is this really a pro?)
– Allows you to always be actively participating in the market (Is this a pro?)
– Because of the last two, traders can exhibit addictive behavior (gambling).
– Because most positions are closed out at the end of the day, able to take advantage of interest earned in their account.
– Risk control – positions are closed out overnight so unexpected market changes will not affect your bottom line.
– Spread has a larger effect on your overall profits.
– You can lose money faster.
– Very difficult to learn – by some estimates less than 1% of traders become successful.
– Time consuming – very difficult to trade properly if you have a full-time job.
– Fast pace & necessary concentration can make day trading very stressful.
– Extremely Risky! Traders can lose a substantial amount of money in a very short period of time.
– Discipline, proper money management, risk/reward and a profitable system are a lot more important when day trading. Even a small mistake can result in a huge loss.
– Can be harder to predict the market.
2: Swing Trading
Swing trading is typically a short to intermediate term trend following system lasting anywhere from 1 to 30 days.
Traders who swing trade typically look for trend reversals & retracements for their entry/exit points. In other words, forex traders are looking to buy low and sell high.
Swing trading strategies and systems are designed in such as way as to capture these buy low and sell high situations.
– Manageable take profit and stop losses.
– Easier to learn than day trading – higher success rate than day trading.
– Spread has less of an impact into overall profits than day trading.
– Less time involved in actively trading – it is not necessary to ‘babysit’ your trades.
– Can be worked around a regular job – a couple of hours per day should suffice.
– Less stressful than intraday trading.
– Can be difficult to learn and become profitable.
– While it requires less time than day-trading, preparation and analyzing the markets is still necessary and can be time consuming. Tending your positions daily is a must!
– Some traders have a tendency to develop emotional attachments to a trade.
– Discipline and keeping emotions in check are very important. It is not uncommon to exit on a retrace or trend change only to have the market immediately change back and head in the original direction.
3: Trend Trading(Position Trading)
Trend trading, also known as ‘position trading’, can best be described as a ‘buy and hold’ method.
Positions can be open for a few days, a few weeks, a few months or longer.
They are also held during periods of minor retracement with the expectation that they will eventually continue trending in the desired direction.
Counter Trend Trading – Is still part of trend trading but it is basically trading against the current market direction or trend. Medium term trades that are entered with the expectation that the current trend is soon going to reverse.
Counter trend trades can last anywhere from one day to several weeks, or longer if a new trend develops, with profit targets of several tens or hundreds of ticks.
Counter Trend trading is performed using a graphical chart, with or without indicators, trading against the current market direction, but with the expectation that the direction will soon reverse.
With that out of the way, let’s look at some of the pros & cons of each of these types of trading.
I know I won’t get them all, so please feel free to add your own ideas of pros/cons, or your own opinions if you disagree. We can update this list as we go…
– The most forgiving type of trading – small mistakes are more easily absorbed in market movement and the size of your eventual profit.
– The easiest to learn. It is estimated that up to 25% of position traders learn to become profitable.
– Less stressful than intraday or swing trading.
– Easier to become successful with smaller startup capital.
– Much easier to predict the market as in general you will be following the overall trend.
– In general position trading is the most profitable.
– Less time consuming than day trading.
– Compounding has a lot less effect on profit than both intraday and swing trading.
– Because positions can be highly leveraged and trades remain open for extended periods of time, traders are unable to reap the benefits of medium term market movements.
– There is inherent risk in keeping positions open over night. It is quite possible for drastic changes to occur in the market while you sleep.
– Money can be tied up for an extended period of time. This can prevent entry into new positions as they arise.
– Because of the length of time involved in position trading, traders can experience significant drawdown with the expectation that it will turn around and start trending back in the desired direction. Psychologically this can have a very negative effect.
- While position trading is more profitable, day trading is less risky.
- The emotional element (discipline and self control) is also of more significance while day trading.
- The higher the time-frame, the better the chance to succeed and become profitable overall.
Which trading style appeals to you?
What Kind Of Traders Use Swing Trading?
Swing trading is a popular trading style with professional traders, and is used by individuals and commercial traders alike.
Pure day traders often view swing trading as having greater risk, because trades are held overnight, but when traded correctly, swing trading has no greater risk, and can be very profitable.
A swing trading position generally can be held longer than a day which makes it different from trend following and buy and hold investment strategies.
Swing Traders are different from day traders in that they let their trades run for days to weeks. Swing Traders do not look to trade and make money daily like the day traders do.
Swing Trading involves letting trades run for days which gives it the potential to gain much more profits. In essence, this is best described as “letting the market do its job”.
Swing trading is different from the following trading techniques:
- In a buy and hold investment strategy, a trading position can be held for months or years.
- In a day trading strategy, trades are opened and closed within that day of trading.
In Swing Trading, profits can be made by engaging in either Long or Short trading.
What Are The Best Forex Swing Trading Strategies?
Swing traders use different types of swing trading strategies. But there’s one major similarity with whatever systems they use:
all of these swing trading strategies are designed to capture the up swings and down swings at the earliest possible opportunity.
Let me say that again differently: swing trading strategies aim to buy at the lowest possible point and sell at the highest possible point: buy low and sell high. This is what summaries swing trading.
Why is this?
Well, its pretty simple…swing traders want to get into a buy (or long trade )at the lowest possible point so that when the market moves up:
- that upswing makes it easy for them to be profitable as the price moves up.
Similarly, for a sell trade, swing traders want to get in at the highest point just before the market starts to go down so that:
- that downswing makes it easy to be profitable quickly as the price moves down.
Swing Trading Strategies, like any other trading strategies, are a set of objective trading rules for buying and selling which swing traders use because the trading rules eliminate the subjectivity and emotional aspects of trading.
The trading rules are simply a set of instructions defining the rules of entry and exit of a trade. The trading rules can be either based on technical analysis or fundamental analysis.
Swing Trading And Technical Analysis
If you want to be a swing trader, you should spend time studying technical analysis. Learn about:
- Price Action which involves candlesticks and different types of patterns. This includes bullish and bearish reversal candlestick pattern. Its a must to know these!
- You should be familiar with the use of moving averages like exponential moving averages and simple moving averages, moving average convergence and divergence (MACD), stochastics, RSI, and SAR forex indicators.
- You should also study how trends form and change. Learn about the “Dow Theory”. This knowledge will allow you to be miles ahead of the rest.
- As a swing trader you should also know how to use trendlines in your technical analysis.
- In addition, you should know what support and resistance levels are.
- As a swing trader, you should be familiar with the use of fibonacci tool also.
Swing Trading And Fundamental Analysis
It is in my opinion that if you are swing trading, you should also have some knowledge of fundamental analysis. It does not mean you have to be a fundamental trader…but what I mean is use that fundamental analysis and knowledge to your advantage to buy or sell at the right time based on your swing trading strategies you may have.
What is fundamental analysis? Well, simply put, its things like:
- unemployment rate (high unemployment, bad for a countries currency so it goes down)
- interest rate (high interest rate means a country’s currency value increases, low interest is the opposite)
- CPI (consumer price index)
And there are some fundamentals that move the forex market but it is not the scope of this post to discuss them all.
Swing Trading Tips For New Traders
Then start off by learning simpler trading rules like the cross-over of 2 moving averages signalling a downtrend and entry is made on a temporary retracement after that cross-over or more advanced trading rules like the Moving-Average-Convergence-Divergence(MACD) where in this case, the price is moving up(or down) but the MACD indicator is doing the opposite.
When do you know when to enter or exit a trade? Honestly, this is one of the greatest challenges in swing trading as well as any trading techniques of systems you may be using.
However, having said that, as a swing trader, you do not need perfect timing-buying at the very bottom or selling at the very top of price swings-to make a profit. Why?
Because if you practice strict money management rules with even small consistent trading profits, you can compound returns significantly.
Advantages Of Swing Trading
- swing trading position can be opened and held for days, therefore it allows you to avoid the “noise” that is so predominant in the lower timeframes like the 1minute up to even 1hour timeframes.
- Profits are large when a trade is held for days and is going in the right direction.
- Swing Trading Allows a Trader to trade less and this eliminates of of the greatest of all trading blunders-over-trading.
- Good Risk:Reward Ratios-You risks for each trade a generally very small with a huge profit potential.
- Less Stressful Trading because you are not sitting behind a computer screen monitoring every single uptick and down-tick of price charts. you can come 6hrs or even 1 day later to check the progress of you trade and manage it as it goes in your favor.
- You actually trade with the main trend when you swing trade
- Part time traders and people who have day jobs can get involved.
Risks Of Swing Trading
Swing trading in any financial market like forex involves risk. The main risk with using swing trading is that when a market is in a sideways price movement or a trading range, risk of loss in swing trading typically increases compared to compared to market that that is clearly moving in a steady up (bull market) or down (bear market) direction.