Swing trading is one of the most effective Forex trading methods, helping investors earn high profits and minimize risks even if they predict incorrectly. So what exactly is Swing trading? What are the advantages and disadvantages of this trading method? All will be answered shortly. Let’s follow me in this article.
What is Swing Trading?
Swing Trade is a medium-term form of trading. This type of trading combines fundamental and technical analysis to capture notable price movement trends and avoid trading at pauses, which do not fluctuate much in the market that the trader doesn’t know what to do.
This medium-term trading style requires holding open positions for several days. The main goal is to identify the medium-term trend and only enter the market when seeing an almost 100% probability of winning. Or at least, the confidence level must be more than 70% to dare to enter the order.
Features of Swing trading method
Swing trading frequency will be less than Scalping and Day trading because investors often choose a long time frame to trade.
In terms of stability, most investors prefer to choose trading orders in medium-term frames, usually from 1 day to 1 week. Therefore, their number of transactions in a month is quite small.
The ideal return of a swing trader is generally considered to be around 12% while the acceptable risk ratio is less than 3%.
Trading costs are often a lot lower than other short-term strategies because swing trading’s entry frequency is very low. So spreads and commissions are not a big deal for them. However, traders need to charge an additional cost, which is a swap fee.
Swing trading stress level will be lower than Scalping and Day trading. Instead of constantly glued to the screen to monitor price movements, Swing trading only takes 15 minutes to observe market movements.
Advantages of Swing trading method
Spread and commissions are lower compared to other methods.
Time-saving because there is no need to sit and watch the computer screen all day. This is considered a very important advantage to help investors minimize pressure and stress.
Profits from swing trading can range from 20, 30 to several hundred pips per entry. It is very easy to maximize profits in the short term if swing traders can catch the big swings in the market.
Can rely solely on technical analysis for profit
Disadvantages of Swing trading method
Trading positions are subject to very high risks because orders are held longer than usual. When you hold orders overnight or through the week, there is a very high possibility that the next morning, the price will move away from analysis due to important news being announced.
Swap fees will be higher than scalping and day trading methods because traders will have to hold orders overnight or over the weekend.
Requires traders with many good skills in analyzing and reading market sentiment.
This can cause traders to miss out on long-term entry opportunities as this method is only geared toward medium and short-term trades.
The difference between Swing trading and other trading methods
Completely different from Day trading (i.e. transactions that take place during the day). Swing trading is done over a slightly longer timeframe usually around a week or two. If they prefer short-term trading, it’ll be around a few days.
Swing trading aims to capture bigger profits on longer timeframes than Day trading and Scalping. This makes it an ideal strategy for beginners. However, beginners often get impatient in waiting for the opportunity to enter orders.
And it’s also unlike Scalping in which in one day traders can enter a lot of positions and do not require a tight stop loss.
Who is suitable for the Swing trading method?
Swing trading is a fairly simple method so it seems that any trader can apply this strategy to Forex trading.
– Suitable for retail investors. Due to its flexible nature, Swing trading is suitable for retail traders with mid-sized capital or less.
– Investors who can accept the risk. Also, if you are a highly calm investor who accepts fewer trades in exchange for a good setup for your trade, then swing trading is perfect for you. However, these are only necessary factors, not sufficient factors. So do not rush into the market with Swing trading when you are not ready and experienced enough.
Swing trading strategies in forex
Trading methods with Swing trading in Forex are extremely diverse and rich. Traders are free to choose a strategy that suits their trading goals. However, within the scope of this article, I will give you some indicators that when combined with swing trading are said to be the simplest and most effective that increasing the success rate of trades up to 80%.
Fibonacci
Fibonacci is a technical tool that helps investors find support and resistance levels on price charts. Specifically, after a strong uptrend or downtrend, the price will tend to retrace the 50% and 61.8% levels before resuming the original main trend.
Swing traders can enter a BUY/SELL order when the price returns to 50% – 61.8% before continuing the current trend.
Support and resistance
Once the market trend has been determined, investors often use trendlines to decide entry points. Specifically, the resistance level is the price zone where the selling force is stronger than the buying force. At this point, the market is bearish and traders will sell at the previously identified resistance zone and set a stop loss on the upper side.
Similarly, support is a price zone that shows that buyers are stronger than sellers. The market is in an uptrend at that time and traders will consider entering a buy order when the price enters the support zone and placing a stop loss above that support level.
In summary, the simple rule is to sell at the resistance zone and buy at the support zone.
Chart patterns
Swing Trading is a style that requires trend trading. If investors ensure that the price is moving strongly and draw a candlestick pattern on the chart, then identifying the trend will now become simple. Traders need to rely on the knowledge and experience learned from that pattern to find a reasonable entry point.
MA50 and MA200
When MA50 (purple) crosses MA200 (orange) from below, you can enter a BUY order. When the MA50 cuts the MA200 from above, you can enter a SELL order.
MACD indicator
The MACD is the most common indicator used in determining price trends. When these two lines cross, it is a signal for traders to buy or sell.
If the MACD (blue) goes up and crosses the signal line (orange), the uptrend is predicted. Traders can place BUY orders.
Conversely, when the MACD goes down and crosses the signal line, this predicts that the market will fall. Investors should consider opening a SELL order.
Notes when using the Swing trading method
To limit the possibility of being trapped by false signals and increase the success rate when trading with swing trading, investors need to keep a few things in mind.
- Besides the moving averages, the RSI indicator is also an effective weapon for swing traders when trading in the market.
- Always build the habit of following the news no matter what market you trade because the financial market is very susceptible to fluctuations and unpredictable changes when major events occur.
- Always set a stop loss. Setting stop loss will protect you against unexpected fluctuations.
- Diversifying your trade size will help you minimize risk, just like the advice “Never put your eggs in one basket”.
- Swing traders need to train themselves with a calm and steady trading mentality to avoid being swayed by quick profits and forget about their strategies.
- It is necessary to adhere to the principles of good capital management if you do not want to lose.
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