The Swing Trading Strategy is a medium-term trading method chosen by many traders. The holding period for positions lasts from a few days to a few weeks. The transaction frequency is not too high, helping to create comfortable conditions for trading work. So, what is Swing trading? What are the pros and cons of this method and which traders is it suitable for? Let’s explore Forex Trading in this article.
Overview of Swing Trading Strategy
Every market goes through two main states: trending movement. That is, a clear movement in the upward or downward direction (called a trend movement), and a sideways price movement. Counter-trend strategies involve opening positions before there are clear signs of a price reversal.
However, the theory asserts that “the trend is the trader’s friend”, and using counter-trend strategies often leads to rapid capital loss. And by definition, the Swing Trading Strategy is a trend-following strategy. Let’s learn about the concept of this strategy through the content below:
What is Swing Trading?
Swing Trading Strategy is a term that refers to a medium-term trading style. Where positions are held from a few days to a few weeks. The goal is to achieve larger profits through holding positions for longer periods of time.
Unlike day trading and scalping which rely solely on technical analysis, the Swing Trading Strategy combines both technical analysis and fundamental analysis. Aims to evaluate market trends. Swing traders often use charts on the time frame H4 or D1. Only open a position when there is a minimum 70% chance of winning or 100% certainty.
See more: Learn Dow theory for trading beginners
Popular Swing Trading patterns
Here are the most popular Swing Trading Strategy patterns that you should know:
- Hammer and Inverted Hammer pattern with a pin bar: This pattern indicates that the correction will end soon. When a descending wave ends with a pin bar – the candle has a short body and long tail. This implies that the “Bear side” was not strong enough to push the price down. If the pin bar has a green body in a bear wave or a red body in a bull wave, it is a positive signal.
Although it is not always necessary to have long candlestick tails. If each subsequent candlestick is smaller, this implies that the correction is weakening. During the next reversal, you can consider opening an order in the direction of the trend.
- Swing Failure pattern: This is considered one of the most important Swing Trading Strategy patterns. Because its effectiveness is almost absolute. However, it is quite difficult to detect this pattern. It rarely appears in the traditional way. This pattern was discovered by Tom Dante. Described as a false breakout of the High or Low of the previous swing.
Some principles in Swing Trading Strategy
Here are the basic rules of the Swing Trading Strategy:
- The goal of a Swing Trading Strategy is to open and hold a small number of positions in the market for as long as possible. Usually, exiting a trade at the first sign of a reversal (red dots) is a reasonable choice. Using stop loss can hold the order until the trend changes. Then open a new order during the correction and make sure the order is at the breakeven point.
- Trading is often done on large time frames. Some suggestions are to use a daily chart with about 2-4 candlesticks. However, swap fees need to be considered when choosing trading times. Timeframes such as H1 and H4 can also be used. Positions can be held for several hours during the day.
- Avoid trading during volatile times and when the trend is unclear. To do this, you need to know whether volatility is increasing or not. Use the volatility calculator on the Invest website. Aims to compare daily fluctuations with average values.
- Do not use averaging or similar methods to support losing positions.
- Close losing positions overnight to aim for maximum profits with minimum costs.
Effective Swing Trading Strategies
The diverse Swing Trading Strategy approach is widely applied in the foreign exchange market. Investors can choose a strategy that suits their expected profit goals. Below are some indicators combined with Swing Trading to help increase efficiency. Helps increase the successful transaction rate to over 80%. Details are as follows:
Fibonacci Retracement
Fibonacci is a technical tool that helps investors identify support and resistance levels on price charts. After a down or upcycle, market prices often tend to recover. Continue from the 61.8%, 50%, and 38.2% levels to form a Swing Low before continuing with the original trend.
Investors applying the Swing Trading method can open a Short-term Sell position when the price drops to 61.8% and profit at 23.6%.
MACD crossover
MACD (Moving Average Convergence Divergence) is an effective tool to help identify trends. Therefore, it is favored by many swing traders. To use MACD to identify trading signals, we often use two lines:
- Signal line: Set at 0.
- Moving average.
When the moving average crosses the signal line, it signals a trading opportunity:
- When MACD crosses the signal line from bottom to top, this is a bullish sign. At this point, the trader may consider opening a Buy position.
- When MACD crosses the signal line from top to bottom, this is a bearish sign. Traders can proceed to consider opening a Sell position.
However, a major drawback of this strategy is that the signals often have a time delay. When a crossover occurs, there has usually been a significant period of trend in progress.
MA 10 and MA 20
When the MA(10) line crosses the MA(20) from below, investors can open a Buy order. However, if MA(10) crosses MA(20) from top to bottom, investors should open a Sell order.
Support and resistance
Support and resistance are important tools in technical analysis that every trader needs to use. Therefore, there is no reason why the Swing Trading Strategy cannot take advantage of these two price zones.
Based on important support and resistance zones, traders can apply the following two trading strategies:
- Pullback Trading: When the price touches the support or resistance zone. Place a Sell order when the price touches resistance and trends down. Or place a Buy order when the price touches support and the trend goes up.
- Breakout Trading: When the price breaks out of a key support or resistance area, there is often a tendency to move strongly in the direction of the break. Therefore, swing traders can take advantage of it to trade. This way, it is possible to open a Buy order when the price breaks the resistance and goes up. Or you can open a Sell order when the price breaks support and goes down.
Swing trading strategy according to price patterns
In this strategy, the trader needs to monitor the chart and recognize price patterns. Depending on each price model, traders will receive different signals about opening orders, placing stop loss orders, and taking profits. Price models are often divided into two basic types:
- Price reversal models: Includes models such as 2 tops, 2 bottoms, head and shoulders, 3 tops, 3 bottoms, diamond…
- Continuation price models: Includes models such as wedge, rectangle, flag, pennant, cup, and handle…
See more: Exness – Trade With The World’s Leading Broker Exness
Revealing some Swing Trading experiences
Now you understand how to swing trade and some effective Forex strategies. Here are the top tips from experts that traders can refer to:
- Follow the long-term trend: Look at both short- and long-term charts. The purpose is to adjust the trade to the major trend.
- Using Moving Averages (MA): This is a useful tool to identify trends. It does so by smoothing price fluctuations.
- Use leverage carefully: Leverage wisely to increase your profit opportunities. In addition, traders can learn about what is short selling. This is a trading strategy in which investors sell an asset they do not own in the hope that the price will fall so that they can buy it back at a lower price for a profit.
- Trade multiple Forex pairs: Monitor multiple currency pairs to find the best opportunities.
- Pay attention to swaps: Take this cost into account for effective financial management.
- Maintain a positive profit/loss ratio: Take advantage of high market volatility to ensure higher profit ratios.
- Control your emotions: Trade based on plans and strategies. Absolutely do not let your personal emotions dominate your trading.
In addition, it is also important to learn what is atr indicator. This can help traders navigate market volatility and make appropriate trading decisions.
Conclude
Hopefully, through the article from Forex Trading, you have had an overview of the Swing Trading Strategy, as well as a better understanding of the advantages and disadvantages of this method. This will help you build a trading strategy that suits you.
Frequently asked questions
What is Swing Trading Strategy and how does it work?
Swing trading is a medium-term trading method. In which traders open positions and hold them for anywhere from a few days to a few weeks. Aim to take advantage of large price movements, known as “swings”, in the main market trend.
What trading methods are used in Swing trading?
Popular methods in Swing trading include using technical and fundamental bases. With the aim to determine entry and exit points into the market, as well as manage risk.
How to manage risk when trading Swing?
Manage risk by setting clear stop losses and profit targets for each trade. Do not put too much personal capital into each trade.
