When searching for forex strategies the term swing trading has probably passed you at least once. Learning how to use swing trading can be helpful for traders, especially if other strategies don’t fit you. This article will help you understand swing trading and all its benefits, along with all the steps you need to take to get the best results possible while using the Allpips trading platform.
Introduction To Swing Trading
In forex, many different strategies have been developed. Each strategy has its strengths and weaknesses. This variety of strategies allows traders to pick what suits them. Traders over time also divided different strategies based on the length it takes to open and close a trade.
The strategies that last for long periods are well-known in many financial markets. Long-term strategies mean the trader is following long trends in the market. The positions opened by the trader can last for months or even years. Having a position open for a long period can be beneficial in some aspects. Some of these benefits are the potential for large profits and the small screen time needed to monitor and analyze the market. This can be a double-bladed sword as there is a chance for a big loss and the trader has to be patient.
Now on the opposite end, there are very short-term trading strategies like scalping. In scalp trading, the trader makes many small trades in a session, with trades lasting minutes or even seconds.
Day trading is a slightly more involved approach. Traders who initiate and close positions on the same day, without any overnight trades, are considered to be day traders. The trader must devote a significant amount of time to these short-term trading tactics. Long-term market observation and analysis are also necessary for the trader. This trading strategy has the advantage of minimal risk because the trader makes a lot of little earnings over time.
The strategy that is longer than day trading and shorter than other long-term strategies is swing trading. Swing trading sits right in between as the trader keeps the trades open for only a few days or weeks. Traders usually use multi-day chart patterns to analyze. Many traders prefer swing trading as it gives them a chance to make high profits compared to the fewer amounts of trades in scalping or day trading.
Swing Trading Strategies
Swing trading in forex is often defined as the period it requires for a trade to open and close. This period is at a medium base. There are different strategies traders use in swing trading along with technical indicators to help traders. Most of these strategies make use of support and resistance lines to identify position openings.
When the price follows a trend without surpassing a certain point or going under another, the support and resistance lines can be defined. The line where the price doesn’t go past is the resistance line. The lower line that the price doesn’t go under is the support line. Next are some of the most used strategies in swing trading.
Reversal Trading
Reversal trading is a strategy that relies on which direction the price moves. Trends in forex usually go in one direction, but not in a straight line. The price might retract sometimes and then continue on its initial path. While most traders trade in the direction the trend is moving reversal trading is the opposite. Reversal focuses on the moment when the price goes in a direction opposite to the trend.
Retracements are different from reversals, as a retracement is only temporary and a reversal is more permanent. So when an upward trend loses momentum and the price starts to move downward this is a reversal. It can be either positive or negative (Bullish or Bearish). The trader then trades against the trend in the direction of the reversal.
Breakout Trading
A breakout strategy makes use of resistance lines. When the price is about to move past the resistance line the trader then opens the position. This allows the trader to hop early on a new trend. To be able to identify a breakout different patterns may form on the chart. Some of these patterns are the wedge and rectangle patterns.
Breakdown Strategy
The breakdown is the opposite of a breakout strategy. The difference is you are now focusing on the support line and not the resistance line. The trader is trading on the downtrend that may occur.
Swing Trading Indicators
Technical indicators are important in any forex strategy. Swing trading in forex is no exception from this. Indicators help the trader to have a clearer view of where the market might head. Some of the most used indicators in swing trading are:
- Moving averages
- Parabolic SAR
- Relative strength indicator (RSI)
- Moving Average Convergence Divergence (MACD)
Advantages and Disadvantages of Swing Trading in Forex
With every strategy comes pros and cons that will either make you use the strategy or not. Down below we have listed some of the different advantages and disadvantages that you may come across while swing trading.
Advantages
- Time: Swing trading does not need a lot of time compared to other short-term trading strategies. This extra time is what attracts more traders to use this strategy.
- Higher profit: Swing trading allows you to profit from long-term trends with less time and more trades. Strategies such as scalping only profit from short-term trends that occur in the market
- More freedom: When swing trading in forex your capital is not tied down to one position. If for any reason the trade is going bad you can close it with minimal loss.
Disadvantages
- Patience is required: A trader must be patient in swing trading as the results won’t appear fast. Short-term trading strategies such as scalping and day trading give traders these fast results.
- Price gaps: Since positions are left open over the night and even on weekends, a price gap may happen. This price can cause the trader to suffer some loss.
Conclusion
Swing trading in forex is a useful strategy as it provides the right amount of time to open and close a trade. It allows the trader to profit from long-term trends with more than one trade. Many traders using the Allpips platform use this approach. Swing trading is better than other short-term strategies when it comes to time efficiency since it doesn’t require a lot of chart monitoring. In all this strategy offers an alternative option to traders that may suit their lifestyle better.
