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PR05 - Basics of Swing Trading in the forex markets

"Swing trading is the art of trading in the long term. As the name suggests, this style of trading focuses on the swing movements in the price. Long term trends are formed as price tends to retrace and bounce back and forth. Most of the swing trading strategies are based on capturing the underlying trends. But you can also find swing trading strategies that a bit shorter in nature and focus on the corrections or the retracements in the price. Swing trading is not suited for everyone because it is somewhat slower compared to the fast paced scalping or day trading. At the same time, swing trading can help you to become more focused and a disciplined trader and keeps you out from taking on risks that you can avoid. The potential to make a healthy profit is also quite high with swing trading. Learn about what swing trading is and how you can be successful with swing trading the forex markets."

Swing trading is a trading style that is used by traders who either do not have the time to day trade the markets, or for those who prefer to make long term profits. This unique style of trading comes with larger risks and profits potential. On the other hand, trading is not so frequent.

The term swing trading comes from the fact that the trader will be trading the swings in price within a trend. Many styles of swing trading usually follow trend based trading. In this style, traders position themselves either in the direction of the trend or trade a counter trend based trading strategy.

Swing trading requires traders to set larger stops and take profit levels. This way, the wider stops allows for price swings to go back and forth, while at the same time, returns can be quite high as well.

But swing trading is not for all personalities. Traders who prefer the more market action are better off scalping or day trading the markets. Swing trading is somewhere in between long term investing and short term day trading.

Decisions in swing trading are of course driven by technical analysis. Therefore, traders need to have a good trading strategy for swing trading. Due to the fact that the positions are left open overnight, traders will also have to pay the overnight swap rates.

Depending on the direction of the trade (long or short), the swap rates can be positive or negative. This means that you will be either credited or debited with the swap rates with swing trading.

Another aspect about swing trading is that traders also need to constantly monitor their trades. Traders tend to move their stops constantly to a point that it is break even and then trail the stops in order to make a profit as well.

Because swing trading can span from a few days to a week, trading is mostly done on the 4-hour chart time frame and at times even the daily charts. The main purpose of swing trading is to capitalize on the long term trends in the markets.

But as you can guess, this can also be a bit risky. Because of changing market conditions, a profitable trade can turn out into a loss if you don’t monitor your positions constantly. At the same time, your bias can also shift from long to short and vice versa.

Thus, while short term trading focuses on volatility, long term swing trading focuses on capturing the trends. This can be a normal trend or also trading the retracements or the reversal in the trends.

The markets tend to remain in a sideways mode much longer than staying in a trend. Therefore, swing traders need to have a lot of patience when it comes to this style of trading.

Swing trading is ideally suited for those who do not have the time to stay glued to their computer screens and trading terminals. Swing trading can give you big rewards. You can expect to make huge profits on just one trade.

But as we mentioned earlier, swing trading is slow. Thus, not many traders find this to be suited to their personalities.

On the other hand, the costs involved with swing trading is lower. This is because you will not be trading too much. Therefore, this avoid the risk of overtrading in the markets, which is constant with many day traders.

And when the markets are not trending you would be ending up with a position that is going nowhere while at the same time the overnight swap rates keep racking up and eating into your profits.

As with all trading styles, swing trading requires a certain personality trait. You need to be patient in your trading and also be able to keep an eye on the long term view of the markets, while avoiding or ignoring the short term volatile movements in the price.

This comes with its own risk of course. Thus, a trading plan is essential when you are swing trading. You also need to find a balance between risk in order to make the profits more meaningful.

Many professional traders use swing trading because this style of trading allows traders the chance to capture the larger profits. It also limits traders from taking on undue risk and thus preserves their capital.

On the flipside, swing traders also need to be constantly monitored in order to adjust the positions depending on how the markets are shaping out to be.

Having an overall developed trading strategy that encompasses risk management, and other aspects of trading including the psychological aspect is also important.

Read 885 times Last modified on Saturday, 13 July 2019 17:13