With a daily volume of $6.6 trillion, Forex trading has become a major instrument that is being embraced by investors and traders globally, and the volume keeps growing.
With the manner in which Forex trading is now gaining momentum, investors are using different strategies and styles to ensure that they are successful in their trading plans and goals. One of these popular strategies is called Swing Trading.
Swing Trading is a style of trading where you can predict possible price movements in the markets with the purpose of recording short- and medium-term profits within a few days or weeks if the price moves in your favour.
The way in which the price of currency pairs moves upward or downward is referred to as a swing. The high point of this trading strategy is when the price falls or rises.
HOW SWING TRADING WORKS
When using swing trading, you study the price trends properly and then hold on to the position for a few days or weeks. Doing this gives you the opportunity to time the market very well, thereby making you buy or sell at a price that would be profitable for you.
As a trader who is swing trading, you have to capture a swing that is most likely to happen. If you are expecting an upward swing, then you can make a profit out of the movement and buy at the support level.
To achieve this favourable forecast, you can make use of technical analysis, where you explore the past performance of the currency you are pairing and the price trends seen on charts, and then use the factors as a basis to determine your next actions.
WHAT SWING TRADING ENTAILS
Before using swing trading as a strategy, you should know some of the things it entails so as to discover if it is in tandem with your trading plans and if you can cope with what it requires.
Firstly, you have to know how to exercise patience while swing trading because it entails holding your trades for many days. It is not like day trading, where your aim is to make profits within a day. If you are the type to want instant actions and to see results quickly, then don't dabble in swing trading.
Also, as you can make chunks of profits from swing trading, you can also record chunks of losses, which is why you should prepare to have large stop losses.
If you are the type that is always filled with tension whenever a trade goes against you, then it is advisable not to use the swing trading style.
Although swing trading is not as demanding as day trading, you should be able to sacrifice at least a couple of hours to analyse the market.
SWING TRADING VS. DAY TRADING
You can engage in swing trading on a part-time basis without spending your whole day on your computer screen like those engaging in day trading do.
If you are a beginner with little experience, you can still trade very successfully because it requires less expertise to engage in swing trading compared to day trading.
In day trading,profits and losses occur daily but are relatively small compared to swing trading, where the gains and losses happen less but are often larger.
While day trading, you need the latest devices and software due to the activities you perform. Your fingers would not rest for several hours a day. In swing trading, sophisticated devices and applications are not necessary.
Advantages OF Swing Trading
High potential profits: If you continue to use swing trading strategies with good risk management techniques, the total profits you would record in the long run would be higher than those of long-term strategies.
Flexibility: Although you need to spend a couple of hours to study the movement of the prices, unlike day trading, you don't need to spend all day in front of your device or laptop to study price charts. You can do swing trading alongside your main job.
Opportunity to Move in And Out of the Market: While swing trading, you have the chance to spot and embrace more opportunities because it makes you move in and out of the market without any hassle or itch.
Natural Flow of The Market: The forex market doesn't have a particular or permanent movement trend; it flows naturally in line with global market activities.
For instance, pairing with AUD/JPY is known to be very sensitive to the activities of the investment environment, so if the investment atmosphere is in good condition, it would gain value, but if the environment is not favourable, the result would be the opposite. If you understand this very well, with the proper combination of knowledge of technical analysis, you can make a capital out of market sensitivity.
You Are Not Locked: Unlike other strategies, swing trading doesn't lock you into a corner of a particular market. During a bull market, it can make you earn returns while prices are rising, and during a bear market, it can make you earn returns while prices are falling.
RISKS OF SWING TRADING
Weekend/Non-Trading Hours: The major risk of swing trading roars its head during weekend hours when there are no trading activities in the forex market. Within that period, there may be a major market event or very significant news that comes out, which may trigger a price gap, opening at a price very different from its closing.
Learning: Whether you are a beginner or a professional, to be successful using swing trading, you need adequate knowledge and skills. Even if you are a professional, spotting successful swings could be challenging.
Risk of Volatility: Although volatility could generally be an advantage for professional traders to make profits, it can also expose you to a large risk because swing trading is naturally associated with short-term price movements.
Risk Management in Swing Trading
While engaging in swing trading, you need to put some risk management mechanisms in place so as to protect your funds, as you would not be exposed to the risks of losing them all, most especially the risk of volatility.
One Percent of Your Funds: This technique advises you not to use more than one percent of your money on a particular position. For example, if you have $20,000 in your trading account, it is advisable that you not channel more than $200 into a trading position.
Stop-Loss Orders: A stop-loss order is a strategy you can use to limit your losses while trading forex. It can be defined as an order you give to your broker to execute a trade when the pairing currency price is at a particular level that is not favourable compared to your entry price.
Stick to Your Trading Plans: Not following your well-designed trading plans and strategies may lead you to take decisions based on psychological temptations, which may hurt your trading position.
How to Begin Forex Swing Trading
-
Open a forex trading account with a registered broker.
-
Choose a currency pair you wish.
-
Select a swing trading strategy you prefer.
-
Be very current with relevant news to know what is going on in the market.
-
Find trading signals by using technical indicators.
You must be logged in to post a comment.