Trading may seem a simple thing. One just has to buy assets at the lowest price and then sell them when it is the highest. However, various trading technologies allow for more efficient trading. The main differences between them are approaches to analyzing the market situation, opening a position, and monitoring the asset. One of the most comfortable trading methods is Forex swing trade. It does not involve constant monitoring and provides an opportunity to cover essential movements.
What Is Swing Trading?
Swing trading Forex is a style that is between day and long-term trading. The term does not mean certain strategic plans but the model of actions of a market participant. This term denotes impulsive, powerful movement that can be caught and used.
The history of the style began in the middle of the last century when George Douglas Taylor described it in his book. The technique was created based on 3-5 day cycles of market movements. Later, the idea was developed, and today, it is quite popular.
The Forex swing trading strategy involves using price fluctuations to generate income. Holding the position lasts from several hours to 2-3 days. At the same time, the trader seeks to get a huge profit for the minimum number of transactions. Opening and closing of positions are made according to the technical analysis.
A trader needs to choose entry points responsibly. When applying Forex swing trading strategies, moving averages and searches for turning points are used. A market participant must understand when an uptrend ends. In addition, swing trading Forex strategies involve the use of large leverage. In many cases, some of the best Forex robots can be of great use for a trader.
How Does Swing Trading Work in Forex?
To determine the average price for a specific period, the MA (Moving Averages) indicator is used. When, for example, period 14 is selected for the indicator, the average price will be determined for the last 14 periods.
Next, the formation involves the elimination of the range on a step forward. For this reason, the indicator is called moving. There are subtypes of MA that assign different values to the elements of the average price calculation range:
- SMA (Simple MA) is simply a calculated average.
- Recent movements determine exponential MA. At a given time interval, the indicator is almost unaffected by early bars.
Traders use two movings:
- SMA 10 is a so-called fast indicator since a small period is set. It is subject to schedule changes with minimal delay.
- EMA 30 is a slow indicator. It reacts to graphic movements with a delay since the calculation period is almost three times longer.
These types of Forex swing trading signals are integrated into all specialized platforms.
Advantages of Forex Swing Trading
Compared to other types, this trading requires not so much time. There is no need to monitor the situation throughout the session. This style makes it possible to get a good profit regardless of the general situation in the market. Compared to intraday strategies, it allows for getting significant income.
It is worth noting that it works only when the trader understands how to make money on a particular deal and what the best time frame for swing trading Forex is. It is important to find the same trend and trade competently.
How to use swing trading on Forex: Tips from ForexStore
How to swing trade Forex? Before using movings, it is necessary to highlight the main characteristics of such tools:
- The future cannot be predicted with the indicator;
- The value of the MA may change slightly until closing the current trade;
- If the price has touched the moving line, you should not make hasty conclusions – there may be a rejection of support, resistance, or a continuation of the movement.
When separating MA from other ways of finding an opportunity to open a position, indicators are not particularly useful. Their signals are not the same as the strategy.
When working with MA, the next tips and signals should be taken into account:
The indicator is for support or resistance. Its value can change. So that the MA does not react to insignificant movements, a long period is set.
The intersection of at least two MAs is taken. When the SMA crosses the EMA from the bottom-up and then begins an upward movement, traders receive a bullish signal. In the opposite situation, they can carry out sales agreements. MA with a period of 200 is the boundary between the uptrend and the downtrend.
The active zone is the area between two slides. Most often, it is support or resistance. Typically, trend correction movements end in this industry.
When placing stops, you can also focus on the MA. Protective orders are placed beyond the moving line, expecting that the resistance or support in the form of the indicator will hold and the necessary changes will appear.
The movings are not enough to calculate the levels of profit fixation. Its value is estimated in history. The output can be performed following a return signal from the MA.
Moving averages give delayed signals. There is a direct relationship between the delay and the MA indicator. If the period increases, the number of false signals decreases. A swing trader must determine the balance between latency and the quality of entry-point filtering.
The Bottom Line
Having understood what is swing trading in Forex, we can say that not everyone should use it. It happens that successful market participants cannot cope with the strategy and not extract income from it. Therefore, you need to determine in advance whether this style is suitable for you. To successfully apply it, you need the following qualities:
- Patience, as you have to keep the deal for some time;
- The desire to receive income not on the number of transactions but on good setups from the transactions;
- Keeping calm even when you know that the process is not going in the planned direction.
If a trader can understand what is swing trading Forex, is ready for the market and its dynamics analysis, and has good intuition, then using it can bring significant profit.