The straightforward definition of swing trading for beginners is that users seek to capture gains by holding an instrument anywhere from overnight to several weeks. The objective is to capitalize on a greater price shift than is possible in an intraday time frame. But because you follow a larger price range and shift, you need calculated position sizing so you can decrease downside risk. To do this, individuals call on technical analysis to identify instruments with short-term price momentum. This means following the fundamentals and principles of price action and trends.
Swing trading is very popular with retail forex traders for two main reasons. Firstly, forex swing trading strategies usually contain an entry and exit techniques that require checking the chart perhaps only once or twice each day, or at most every few hours. This relatively relaxed schedule is very suitable for people with busy lives and full-time jobs. It could be said that position trading also has a relaxed schedule, so is equally suitable for busy traders. This is true, but as forex position trading is really always trend trading, profitable position trading usually requires a low win rate and a great deal of patience in waiting until the correct time to harvest winners.
Some swing traders, taking trades that last weeks or months, may only need to look for trades and update orders once a week, bringing the time commitment down to about an hour per week instead of per night, or updating orders may not even be required on a nightly basis. Swing traders are less affected by the second-to-second changes in the price of an asset. They focus on the bigger picture, typically looking at daily charts, so placing trades after the market closes on a particular day works just fine. Day traders make money off second-by-second movements, so they need to be involved while the action is happening.
Although many swing traders focus on anticipating the breakout after a period of consolidation, channel trading is arguably one of the simplest swing strategies to implement. When a currency pair trades within a defined price channel, whether bullish, bearish or trendless, the consistent oscillation of price between support and resistance levels offer multiple opportunities within a relatively short period. To take advantage of this swing trading strategy in the forex market, first look for currency pairs trading within a channel. A price channel is defined by drawing trend lines between two or more swing highs and swing lows.
Always look for confirmation before jumping into a trade. Let the price action tell you that it is changing direction or breaking a key level such as long-term support or resistance. Carefully consider the placement of your stop losses relative to recent price action. After all, you won't want to be prematurely stopped out. But neither do you want to expose yourself and your capital to undue risk. Remember you can raise or lower your stop loss behind a trade, as it moves in your favor you can move the stop loss ahead of the entry point, potentially locking in profits.