Forex Swing Trading

Swing trading is a technique that looks to exploit the cyclical nature of the market and take advantage of turns in the cycle to maximise profits. Given that currencies are constantly traded throughout the day, these cycles more naturally reflect the underlying value of the currency pairing being traded than markets which open and close, and the sheer depths of liquidity mean it can be a fast moving market, if not somewhat lacking in volatility. The swing trade seeks to identify a high price point that’s set for a reversal or vice versa, and aims to jump in at the very start of a price reversal after momentum shifts from one direction to the other. At the point at which market momentum shifts, this is the most profitable time to enter a trade to enable you to maximise the full extent of the trading cycle.

What You’re Looking For

When it comes to swing trading, you need to be looking to identify momentum in the market and pricing data that indicates previous highs and lows. Take a wide view of the market for the currency pairing and note the market high and low points. How is the price sitting compared to these points at the moment? The natural cycle of value tends to centre around actual value as conflicting optimism and pessimism push prices into the territory of being overpriced or underpriced. Prices usually correct in the markets eventually, but in jumping in as quickly as possible at the point of correction, you can maximise the price arc over which you’re trading.

Which Trader Does This Suit?

Swing trading suits the trader who is adept at handling both technical analysis factors and momentum. Having an understanding of both of these skills is of paramount importance for executing the strategy correctly. For this reason, it doesn’t tend to be implemented by complete beginners, but that’s not to say it can’t be learned as a first point of call. For any trader prepared to learn these skills, the financial benefits of catching swings, or reversals, on time make it all worthwhile, but its important to recognise that without recourse to a mixed bag of skills, it can be a difficult strategy to pull off in practice.

Strengths and Weaknesses

The real strength of swing trading lies in catching price reversals at the right moments. In instances where you get it spot on, you can just sit back and watch your PIPs grow as the market adjusts with you on board for the ride, which is fantastic for trading morale and your account balance. At the same time, it’s a strategy not without its risks, and the real danger here is that you leap in too early to a market that is having a minor blip but is otherwise trending away from the position you’ve backed. For that reason, it’s important to make sure you have thoroughly done your homework and researched your positions before you get going on a trade, to avoid the often-significant pitfalls of jumping on the wrong signal.

For the experienced trader, or for the newbie with a hunger to learn, swing trading can deliver a decent return over the medium term. Be that as it may, it nevertheless requires extensive research behind the scenes before you decide exactly how to trade, in order to make sure you’re on the right side of the market before staking your capital.