Forex trading is not always the main job and the main source of income. Sometimes, traders simply cannot spend the whole day trading as they have more important things to do.
In such cases, traders follow medium-term strategies as they are more time-saving. Swing trading is one of them. In this article, you will get a picture of what swing trading is.
To learn more about other trading strategies as well as ways to develop one for yourself, you can read the article “Forex Strategies for Beginners”
How Forex works
Forex is an international market where currencies are exchanged. Large organizations – corporations, hedge funds, commercial banks, central banks, etc. – are the key players in this market.
Ordinary investors need an intermediary – a brokerage company or a dealing center – to trade on Forex.
Unlike major players, the so-called retail investors do not buy or sell currencies directly.
They make price forecasts for a particular currency pair. This way, they can either earn or lose money.
Various factors, including the actions of major forex players, can affect price movements. That is why traders find it difficult to make accurate predictions.
The forex market operates 24 hours a day and is not regulated by any of the world’s central banks. Instead, it is regulated by the interaction of supply and demand, which makes the price of an asset move in one direction or another.
Forex can be broken down into four major trading sessions. Together they make trading available 24/5.
Forex trading is carried out non-stop because trading activity centers are located in different parts of the globe. So, it can be night in one part of the world but early morning in another one.
Trading sessions borrow their manes from the main financial centers with the highest number of transactions carried out. They are the Asian (Tokyo) session, the European (London) session, the North American (New York) session, and the Pacific (Sydney) session.
Trading activity reaches its peak during the working hours of exchanges in these regions. In addition, the working hours of some marketplaces sometimes overlap, which causes an even greater surge in trading activity.
Asian hours run between 11 pm and 8 am GTM. Pacific hours stretch from 10 pm to 5 am GTM.
European and North American hours typically run between 7 am to 4 pm GMT and 12 pm to 8 pm respectively.
It is also important to remember daylight savings time when clocks are advanced during warmer months and set back during cooler months.
Forex swing trading strategies
Swing trading is a type of trend trading, with trend strategies most widely and frequently used.
Since trend trading is believed to be the easiest approach, beginner traders should definitely use it.
The main thing here is to determine the trend direction and the entry moment.
Swing strategies are based on price swings for time periods when a trend reverses with entry points made at the moment of a pullback, which poses minimal risks.
These are medium-term strategies, which means traders do not have to spend all day in front of a computer as in the case of short-term strategies (for example, scalping).
Trades are held for a period of several hours to several days. At the same time, traders should not enter the market at the opening of a trading session or when important news that can affect the trend comes in.
In case of losses, trades should be closed on the same day and not left open until the next day. Profitable trades can be held for one or several days.
Professional traders say the swing strategy can be applied when trading major currency pairs with small leverage and no more than 2-3 assets at a time.
Risk management is also of utmost importance. All traders treat risks differently. Anyway, it would be unwise to invest all your deposit in one trade.
You should know exactly how much money from your deposit you can afford to lose in case of failure. As a rule, it is 1-2% to 3-4% of the deposit per trade.
Swing trading schemes
Followers of this strategy believe that the market moves cyclically. Therefore, by analyzing its past movements, you can get an idea of its future movements.
This strategy uses various methods and tactics of technical market analysis.
Wave analysis is a popular tool used for determining the current stage of the market and not the entry points.
Resistance and support are other valuable analysis tools. When used together, they help find graphical patterns on the chart.
There are patterns that show the continuation of a trend (triangles, flags, wedges). Other patterns indicate a reversal (head and shoulders, double top, diamond, etc.).
Market analysis can also be made with the help of popular technical indicators (moving averages, oscillators, etc.).
Likewise, Fibonacci levels and candlestick analysis allow traders to analyze the market.
All these analysis tools help traders find the best entry points to the market, which is the essential principle of this strategy. Each trader works better when using one or the other analysis tool.
The perfect entry point can be easily found. Once the price starts to move according to the trend, it means that the entry point has been determined right.
Positions are usually closed when orders Stop Loss and Take Profit trigger. Sometimes, however, it would be wiser to close positions manually.
It should be done when a steep rise in prices takes place after you open a position and as a result, incur losses by the end of the trading day.
Advantages and disadvantages of swing trading
Like any other type of trading, swing trading also has its pros and cons.
Its advantages are the following:
- Reduced trading fees and costs. Since swing trading is a medium-term strategy, traders do not open too many positions. Consequently, they pay smaller trading fees per trade.
- More time for market analysis. It allows traders to make decisions based on rational thinking and avoid impulsive trading, which is usually the case with short-term strategies.
- More free time. Traders will have more free time to do other things. Swing trading can bring additional income when mixed with your main job.
- More profit. A trade can bring more profit when it is closed one or two days after the opening, and not when closed on the same trading day.
- More flexibility. Swing trading is more flexible than any other long-term strategy. Traders can redistribute available resources by closing particular trades and opening new ones.
- Traders can use the mobile app or the web version of a trading platform if they need to close a position manually.
Here are the main disadvantages of swing trading:
- Swing trading is not for beginners as it requires certain experience in analyzing the market and forecasting price movements.
- Traders can wait for entry signals for up to several days.
- Entry points are not always profitable. It mainly happens because traders monitor the market situation from time to time. This is how they can miss an important signal.
Who can use Forex swing trading strategies?
Swing trading is not for every trader although it is a universal and relatively simple strategy.
Traders should take into account their personalities and temperaments before using any strategy.
Swing trading is not for active traders who have a choleric or sanguine personality as they are impatient and do not know how to hold a long-term trade.
Short-term strategies, like scalping, are more suitable for them.
Meanwhile, swing trading is for those traders who have a melancholic personality or phlegmatic personality. They are more self-possessed and well-balanced. Therefore, they do not make hasty decisions.
This strategy is perfect for those who have a steady job and trade on Forex for additional income.
Trading should not be taken lightly as it also requires training, self-education, and a continuous improvement of skills.
With time, it will help you succeed and turn a hobby into a main and steady source of income.
In addition, thanks to swing trading, you can try different types of market analysis and find the one for you. Moreover, you can mix several types of analysis if needed.
In order to understand whether a strategy is the right one, you should test it first. You can try it on a demo account or a cent account.
You will hardly lose much. Instead, you will gain valuable trading experience and see if a strategy is the one for you.
Trading strategies for beginners
Given all the features of swing trading, it cannot be called a perfect strategy for novice traders.
First of all, extensive knowledge and experience in market analysis, as well as the ability to predict changes in price movement, are required to apply this algorithm.
However, newcomers without any trading experience can follow this strategy as well.
Thus, they can use expert advisors and programs that help traders analyze the market.
The greatest advantage of trading robots is that they can process large amounts of data for short periods of time. Having conducted an analysis in accordance with the set parameters, the program makes a signal.
Having received a signal, the trader can open a position. Beginners should employ this method when trading manually.
The use of fully automated robots that not only analyze the market but also trade on their own is always riskier, especially for beginners.
Firstly, to create a high-quality robot, an effective trading strategy is required, which is embedded in the program. Secondly, the robot should be customized in the right way and optimized from time to time.
Copytrading, a variety of social trading, is another way for beginners to succeed on Forex.
Experienced and successful traders are ready to share their profitable trades with others. When you subscribe to one or the other trader, all his trades will be automatically duplicated in your account.
It will also be beneficial for signal providers as they will be receiving additional income.
It is also a plus for beginners as they will be able to trade successfully without any experience. By copying the positions of savvy traders, newcomers will also learn more about trading from their strategies.
It is important to remember that anyone can make a mistake, even a professional. So, copytrading does not guarantee that all copied trades will be profitable.
Is it possible to receive stable income on Forex?
There is no definite answer to this question. Moreover, there is no single formula by which you can calculate a possible income from trading.
It depends on many factors such as the initial deposit, leverage, the trading strategy, and so on.
One thing is for sure: you should diversify your portfolio to reduce possible losses and maximize possible profits. The word “diversification” is usually referred to investments. It is about investing the available amount of money into several assets instead of one.
This helps minimize losses in case of failure. Thus, you will only lose part of your deposit in case of an unprofitable trade on one of your assets.
In addition, losses on one instrument can be offset by profits on other assets.
The same applies to forex trading. It would be unwise to trade all your deposit at once.
You need to distribute funds in your account and use only part of the initial deposit for each trade.
This is a more reasonable and reliable approach although you will not be able to earn a lot right away. At the same time, you will not lose much in case of failure.
Above all else, you should see trading as your job and learn all about it before you trade on Forex.
At the beginning of your career as a trader, you are likely to lose more than gain. Still, it will be a valuable experience.
You will also learn how to manage your funds and develop your own trading strategy. With time, you will notice that the number of profitable trades exceeds that of unprofitable ones.
Unfortunately, many beginner traders hardly ever reach this stage as they are usually carried away with loud ads promising fast and fat profits.
When they fail, they usually get disappointed in trading, or even worse, they write negative reviews and comments on various forums and social networks.
Scammers are another big problem for newcomers. As a rule, they are one-day brokerage companies that simply take the deposit and vanish.
Therefore, it is important to pick a reliable and trusted broker that will guarantee the safety of your money.
Final thoughts
This article is about how the market works and what is needed to make a stable profit from trading.
Forex swing trading strategies are strategies you can follow. They have its advantages and disadvantages as well as it does not suit every trader.
Yet, this trading approach is worth trying as it does not require staying in front of a computer screen all day long and can be an additional source of income.
In any case, successful and effective trading on Forex requires continuous self-improvement and practical experience.
At the beginning of your trading career, you can use expert advisors and the copytrading option.
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