Swing trading is basically about capitalizing on brief and sudden, high or low price spikes in the forex market. This is done by spotting that speculative or emotional trading is rapidly pushing the price of a currency pair in a certain direction to a point that it may temporarily break past the previously tested resistance or support point. The goal of swing trading is to gain from the price movement of a pair within 2 to 7 days. Swing traders often employ technical analysis (which involves using indicators and lines to predict price movement) and also a little bit of market sentiment analysis in order to spot currency pairs that show short-term price momentum. People who take positions using this type of analysis aim to make profits on short-term patterns and trends rather than the usual long-term trends.
Swing trading in forex is a strategy for making a U-turn on a trade at a certain point. It is usually confused with reversal trading, but unlike that technique, the swing is an action that is only employed for the short term. Reversal trading is about taking a position on a long-term change in trend.
In order to be profitable and reduce the risk of loss by using swing trading, you need to comprehend support and resistance. Support is a price level, whereby in the past, the currency pair has had difficulty falling under. Resistance, on the other hand, is a price level where the pair in the past has had trouble breaking through in an upward trend.
More often than not, a break through the support or resistance level implies a change in trend. These occurrences are known as breakouts and usually mean that new support and resistance levels are going to be set. Usually, the support level in a downward trend becomes the resistance point and vice versa. Now, what swing traders look for isn’t a new trend, but indications that there’s emotional trading occurring in a heavy manner and as a result, raising or lowering the price of a certain currency pair. The trader will, therefore, enter the market and profit in the short term.
As mentioned above, swing traders mostly depend on technical analysis and have little interest in fundamental analysis. The latter involves evaluating a currency pair by examining the related financial, economic, qualitative and quantitative factors. Technical analysis, on the other hand, involves analyzing the historical trends on charts, including recent, short term and long term (usually up to 5 years) research on price movement. If there is an anomaly in price movement, the traders turn to market sentiment analysis. An example is looking at ‘open interest’, which basically refers to the number of open contracts, but not exercised in a particular day. Visit the official Trading Review website to learn more.
If you are planning on getting into swing trading, here are some things you should put into practice:
-Learn and use the Relative Strength Index(RSI) and Stochastic Indices
– Keep your strategies as simple as possible. You should avoid making them more complex than they should be. Also, never utilize strategies that seem too sophisticated for you to understand, just because they worked for someone else. Keep in mind that there are numerous strategies out there that work and you just need to pick one that’s easy for you and perfect it. If you cannot apprehend the basics of a certain swing trading technique even after study, stop wasting your time and move on.
-If you find yourself taking a position at a market high, consider utilizing the stop reverse strategy on the breakout. This is because most trends start when the resistance levels are breached and you can get the opportunity to profit from new trends as well as the stop-loss orders that are being executed.
-You should always be ready to take profits. Avoid being greedy as it is the number one factor in Forex market losses. Once you make the profit that you anticipated, exit the market as soon as you can. Luckily, most of the trading platforms can be accessed online from anywhere in the world, enabling you to constantly check the price movement. You can also set a level where the profits are credited to your account automatically. Remember, small profits always add up to big ones.