There might not be anything such as perfect trading strategies, it’s hard to find that game-changing trading strategy that will turn you into a profitable trader overnight. No trader gets into the forex market to keep losing; everyone has the same objective - make potential profits.
However, to actualize that objective comes with a lot of obstacles that might involve losing money rapidly because you don't understand technical analysis or using the wrong trading style. Whatever the situation may be, this article will explore one important forex trading style.
There are thousands of trading strategies globally, and streamlining your options can be one fierce tug war. Well, have you heard about swing trading? Swing trading is not a new concept as it has been in existence for a while.
You will see another dimension of swing trading strategy that even most experienced traders find hard to implement. Here all the essential aspect of swing trading strategies is going to be covered.
Swing Trading - What is so special about it?
Swing trading is a medium-term trading style or strategy that several forex traders use to swing trades. To swing trade means you allow your position to stay open for several days. Swing trading requires a lot of patience as you may have to hold your trades for several days.
Swing traders (someone who leaves trades open for days) are like the middlemen between position traders and day traders. The goal is to identify possible trends in the market and take a position based on their analysis. Swing trading for those who don't have the time to monitor their charts throughout the day can take advantage of longer trading opportunities.
Peradventure you have decided to tread the path of a swing trader, then this write-up is designed explicitly that. Even if you are not interested in any swing trading strategies, you will indeed find something to add to your trading experience. Remember, your trading style is different from your trading strategy. Let’s look at the key difference.
Trading Styles vs. Trading Strategies
Most newbies have the assumption that both terms mean the same thing. However, they are opposite from each other. While there are a few trading styles, we have several strategies you may implement in your trading. The following are a few popular trading styles, including scalping, day trading, swing trading, and position trading.
Choosing a trading style depends on your personality and availability. For example, a scalper can sit in front of their computer to take advantage of little price movement. Someone else might not have that luxury of time to do that.
Nevertheless, trading strategies require you to use certain indicators or tools to develop something that can give you an edge over the market. For instance, a trader can use a 5 and 10 exponential moving average combined with a relative strength index indicator or stochastic to form a trading strategy.
However, another trader might use 20 and 25 exponential moving averages with the Fibonacci Retracement tool to take traders. These two traders use different strategies to enter the market. The key difference is that trading styles define a set of traders, whereas trading strategies are unique to each trader in the forex market.
Types of Swing Trading
Swing traders use several strategies to swing trade. However, the most common swing trading strategy include reversal, pullback (retracement), breakouts, and breakdowns. Let's look at how a swing trader can possibly use it. Remember, most swing trading requires a bit of technical analysis.
1. Reversal Swing Trading
This type of swing trading depends on trend reversals in price movement. Reversal refers to change in the current trend of the market. For instance, when a downward trend loses momentum and the price starts moving upward. The trend reversal can be bearish or bullish. These types of traders enter a position towards the swing lows or highs as the price moves upward or downward.
2. Retracement Trading
Also known as pullback trading, retracement trading requires taking little price reverses within a larger trend. It involves price retracing temporarily to the previous price area before moving towards the current trend direction. At times, it is hard to predict reversal from short-term pullbacks. Although a reversal can indicate a trend change, a retracement is a short-term mini reversal in an existing trend.
3. Breakout Trading
Breakout swing trading involves taking a position immediately the price breakouts of a key resistance level. The breakout usually occurs when the market is in an uptrend. Traders use the breakout strategy to trade currency pairs in the market.
4. Breakdown strategy
The breakdown strategy is the opposite of the breakout that happens when you take a position early during a downtrend. It involves looking for a price to break down or break through a support level.
Criteria to be a Swing Trader
Everyone cannot be a swing trader. If you want to know if you fit swing trading, here are some checklists for you.
Can you hold trading for several days?
Are you patient?
Can you accommodate large stop losses?
Are you willing to take fewer trades for a period of time?
Can you remain calm when the market goes against you?
If you have 5 out of 5, then you are ready to start swing trading. However, you may avoid swing trading if:
You are impatient
Don't spend hours using technical analysis or other tools to analyze the market.
You are anxious when you see big loses
Do you like action-packed trading?
Process of Swing Trading
It's never enough to swing trade by simply entering trades based on the swing highs and lows. You need to understand the swing trading process if you want to take trading as a full-time job.
1. Start with Daily Timeframe
To be a swing trader, you need to spend time with charts. Swing traders rely on a long timeframe to see the bigger picture of the market. Depending on you, you can decide to use the 4-hour charts for trading. Many swing traders prefer relying on the daily timeframe.
2. Identify key support and resistance levels
Besides the first step, identifying relevant levels is an integral part of the puzzle. Support and resistance levels are important building blocks. You need to identify suitable areas to swing trades with other confirmation.
Aside from using support and resistance levels for your trade setups, you can also take advantage of trend lines. It's hard to be a swing trader and avoid using trend lines. Trend lines enable you to identify key reversal levels. You can also use the Fibonacci retracement pattern to see the resistance lines and take trades. Professional swing traders identify relevant market structures before price breaks or go into a bear market.
3. Evaluate Momentum
With you focusing on the daily timeframe and identifying relevant support and resistance levels, the next step is to evaluate momentum. You need to use swing points to assess momentum. Here is where using swing lows and highs come in handy. Market momentum comprises uptrend, downtrend, and range.
4. Watch Price Action Signals
So far, you have set your technical analysis on the daily timeframe and identified relevant support and resistance zones. After evaluating the market momentum, you need to watch price action. You can use engulfing and pin bar candlestick patterns to watch price action signals.
5. Identify Exit Point
When it comes to setting exit points, there are two rules to apply. Firstly, you need to identify profit points and stop-loss levels. Most swing traders hardly identify a target and forget to set stop loss areas. Secondly, you must identify your risk before investing or trading.
Once you have done that, the next challenge is identifying the best place to place your exit points. Your previous resistance and support level is what can give you an edge. With this, you need to implement a good risk management plan, which is the bedrock of protecting your capital. The financial market is highly volatile, therefore, the risk must be considered.
Swing Trading with CFDs
Swing Trading CFDs means you don't require much money to trade as you can control huge funds using a little capital. However, when you hold CFDs and maintain any position, you get charged interest for borrowing, which is for holding the position.
It is important to have a concrete trading plan when trading CFDs because the market can move in an upward trend while you decide to go short. Swing traders and day traders can take advantage of the resistance line to determine where to set opening and closing prices. In the stock market, swing traders look for possible price retracement when trading stocks.
Swing Trading through PrimeFin
PrimeFin is a renowned broker that offers allows traders various strategies to use for trading in the financial market. It provides several trading accounts to traders to open a long and short position on different assets, including forex, platinum, gold, silver, and CFDs. With CFDs, you can trade price movements without owning the asset. You have the advantage of avoiding any cost compared to traditional trading.
Through the PrimeFin website, you have access to several trading tools and materials. As well as the currency converter.
Here are a few reasons to Trade with PrimeFin
Regulated - PrimeFin is an authorized and regulated trading service provider. With dedicated Team and non-stop customer support available.
Multiple deposit options - PrimeFin provides several possibilities for depositing and withdrawing funds. You have several means of transferring your money to your account.
PrimeFin allows you to trade CFDs on stocks. Trading stock CFDs means you speculate on the stock price if it falls or rise. Trading CFDs with PrimeFin means you are engaging in a contract with us. You must understand that traditional trading is different from CFDs trading.
Unlike day trading, swing trade takes advantage of market movements. It is a trading style that allows swing traders to trade in a stressless environment. Nevertheless, it involves setting accurate levels of entry and exit points, which comes with high risks.
Most traders use the daily timeframe in combination with several technical indicators to analyze the market. Swing trading is not an active trading style like those who scalp the market. It is a long-term strategy that suits traders who don't have time to analyze the market consistently.
Frequently Asked Questions
Is there any difference between swing trading and day trading?
Swing trading involves leaving your trade open for few weeks or several weeks to get high-profit potential. However, day trading requires opening a position and closing it within a day or trading session.
What timeframe is suitable to swing trade?
Most traders that swing trade prefer a higher timeframe because of the broader swing and price fluctuations. In this situation, the weekly, daily, and 4-hour timeframe can be used to complement each other.
Risk warning: The products offered by the company are complex instruments and involve high risk. Trading on such products may result in loss of your invested capital. Please ensure that you fully understand the risks involved before entering into any transactions. You should never invest more than what you can afford to lose.
Welcome to PrimeFin
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read full
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