Table of Contents
Why do semi-professional traders prefer the swing trading strategy? Whether Forex, commodities or stock trading – with the right swing trading strategy, you can generate lucrative trading profits. This guide is designed to provide the basic knowledge you need to work sensibly with the swing trading strategy.
Check what are the best trading platform to trade Forex, Stock and other assets using swing trading as your main strategy
Reading this guide will also broaden your trading knowledge and open up new opportunities for lucrative financial transactions. We will introduce you to the most common swing trading strategies using suitable practical examples. We also inform you about all the advantages and disadvantages of these strategies, including the existing risks. Of course, we will also discuss why the Swing Trading strategy is so sensibly evaluated for professional traders.
“I don’t have much time!” Do Swing Trading Strategies Suit Me?
If you’ve been doing some market analysis, you know that each trader has their trading tactics. There are certainly hundreds of different successful strategies that traders can utilise, and there is no one strategy that surpasses all others. Or the one that, in contrast to others, produces much worse profits.
Instead, it is the case that not every strategy is suitable for every trader. Investors differ primarily not only in their available trading volume but also in their willingness to take risks. As a rule, every strategy has its risk-to-reward ratio. Before we get into the topic of swing trading, we will briefly differentiate between trading styles. With so-called scalping, traders trade short-term on the minute chart. Positions are usually only held for a few seconds to a maximum of a few minutes.
Swing Trading Strategies: Little effort, little risk – is it worth it?
CFDs, FXs or options are preferred for trading to achieve high returns through appropriate leverage. On the other hand, there is day trading. The focus here is on trading in derivatives. Trades expire daily. As a rule, the 15-minute chart is used. Until the end of the trading day, the positions are closed. We are, therefore talking about short-term trades in these two trading styles.
Swing trading is the opposite of these two. The trades here usually last for several days up to several weeks. First-choice products are derivatives. But even a classic stock purchase that is terminated at the end of a trend movement (sale) would fall into this category.
Based on the information presented so far, it should be clear to you that these three different trading styles require different trading behaviour. Investors can operate successfully with any of these strategies and trading styles. The most significant difference is the time needed. But is swing trading still lucrative for professionals due to the low cost?
Swing Trading for professionals: With patience and perseverance to trading profit?
Now that we have introduced you to these three different trading styles, you should have realised that swing trading, in particular, requires slightly less time than scalping or day trading. Understandably, this is because significantly more trades are placed in scalping or day trading than in swing trading during a comparable period.
The basic idea of swing trading is that you try to exploit the full trend in a particular underlying asset fully. And this is where traders are needed who have a good deal of patience and perseverance. After all, such a trend always consists of correction and movement. A swing trade gives traders a much larger window of several days or weeks to take profit.
Instead of 24/7 chart monitoring, 1-2 daily chart controls are sufficient.
The stop loss can then be set at a greater distance. Intraday fluctuations affect the trader less than would be the case with a day trader. All of these factors mean that swing trading is seen as one of the somewhat loose roads to trading profit.
Especially traders, who practice trading in addition to their profession, will find a strategy here, which achieves convincing profits with little expenditure of time. Swing traders have to manage their open positions just like all other traders and monitor them regularly. In this case, however, only once or twice a day, whether limits need to be adjusted. A time window that anyone can open and something quite different from spending the whole day in front of the chart.
Swing Trading Strategy for Professionals
To help you understand swing trading, our first strategy deals with individual stocks. As a rule, online brokers always offer a relatively broad product portfolio of different CFDs. Essential factors to consider here are the general spread (the difference between buying and selling price) and the commissions per trade charged by the broker.
The following procedure is often referred to as the Dow Theory. You are trying to identify higher-order and lower-order trends. The movement and correction determine the trend. This can be directed downwards or upwards. This means that as an investor, you benefit from both an upward trend and a downward trend (long and short trading). The first step is to check as many individual titles as possible in the 4-hour or daily charts.
Search for recurring patterns!
Experts search for so-called patterns that recur. The so-called 1-2-3 point count is used for this purpose. Point one represents the lowest value. Point two the highest and the movement from two to three the correction. If you see a clear upward trend here, place a buy order over the last point two on your chart. In the case of a downward trend, a short would then be placed at this point.
We are speculating on a continuation of the trend we forecast. Also, increasing volatility is to be expected at point 2. At this point, it would be vital for you to determine the position sizes of your trades based on your risk management and to determine so-called target zones. We recommend the so-called 1 per cent rule as an orientation. This means that a maximum of one per cent of the existing account capital is at risk.
The easy way to start swing trading
“What currency is weakening?”
Having already introduced you to the basics of swing trading in the equity market, this part of the guide is dedicated to swing trading in forex trading. For this, somewhat different rules apply, since in forex trading always currency pairs are traded.
When you trade such currency pairs, you are buying one currency and selling another at the same time. Long in EUR/USD means nothing other than buying euros and selling USD. They assume that the euro will retain its strength and that the US dollar will weaken.
Unfortunately, it is the case that a whole range of different factors influences currency developments, especially in FX trading. This means that you have to observe various market participants. Speculators and investors want to profit from movements. Central banks or international corporations naturally have different goals when buying currencies.
What do the central banks do?
Central banks and their monetary policy have the most significant influence on currencies. When central banks raise interest rates, the value of a currency rises. If the central bank lowers the key interest rate, the value of a currency falls. To make appropriate predictions, you must take into account the geopolitical situation and political stability of the markets.
The first step of such a swing strategy for Forex would, of course, be to find a suitable currency pair. Take a look at the interest rate levels in individual countries. You are looking for currencies with high stability and liquidity. Say USD, EUR, CAD, CHF, and so on. The respective interest rates of these currencies reveal the attractiveness of the investment.
Of course, you are looking for a currency with a very high interest rate, but at the same time, low political risk. In the following, we assume imaginary numbers. This means that although the Central Bank of Brazil is currently offering a 9.25% interest rate, the country’s political situation does not support choosing this currency.
You are looking for a weak currency in a politically secure country!
The basis of modern risk management
It is better to choose a currency with lower interest rates, but with stable conditions than a strong currency. Proceed identically to find a weak currency. Now we have to find a perfect entry for our currency pair using the chart technique. Use the daily chart for this, since you are planning several weeks for your swing trade. The Fibonacci Retracement and the EMA200 can be used as suitable indicators.
A glance at the chart reveals that the pair has dropped significantly since its last high. The pair is currently quoted at a fictitious 80. The EMA200 is at 79, and we enter at 79.5 Long. We set our stop-loss at 78.5. Translated, this means nothing other than that we assume that the stronger currency of the two will turn around at the moving average, but at the latest by the RT, and rise. A value of 84 would be appropriate here.
Is having a job a trading disadvantage? On the contrary!
Many future traders who deal with swing trading strategy issues think that their profession is a disadvantage. But that’s not the case. Just because a professional can’t spend the whole day in front of the charts doesn’t mean he can’t act successfully.
There is no connection between the time they spend in front of their charts and the success they achieve with their trades. In this guide, we have introduced you to the possibilities of how a somewhat longer-term swing trading can be realised with a relatively small amount of time.
Steff has been actively researching the financial services, trading and Forex industries for several years.
While putting numerous brokers and providers to the test, he understood that the markets and offers can be very different, complex and often confusing. This lead him to do exhaustive research and provide the best information for the average Joe trader.