Written by: PaxForex analytics dept - Friday, 11 December 2015 0 comments
Markets move in waves known as swings in the price of the instrument. No market will trend up without having some sort of retrace in price. The best swing trading techniques will attempt to ride either the swing up in price or the swing down in price. If you are trading against the main direction of the price trend, this is known as counter-trend trading. Some swing trading strategies will have both a trend and counter-trend trading component.
Many of the best swing trade techniques will have you holding a position from a day to several weeks. You are not looking for a small price increase/decrease but are looking to take advantage of the bigger price moves that most instruments make. Many times, swing trading strategies take place on the higher time frames which will reduce the amount of “price noise” that usually accompanies the faster time frames. The higher time frame charts will generally have support and resistance areas further apart which many people use to base their trading decisions on.
Financial markets never go in one direction forever, and by being able to take advantage of that, you can increase your returns as you in theory are going to be making money when the market rises over the next few days, and then make some when the market pulls back, as it will certainly do sooner or later. By being in and out of the market in a matter of a few days, (typically) you can collect
profits, and identify other markets that are setting up for other trades. This allows you to spread the risk around, and ties up a lot less capital instead of constantly having to come up with margin for new positions as you find new trades.
Getting caught in a congested market with violent swings in each direction can stop you out repeatedly causing you many losses. This is where proper risk measures come into play. Your protective stop orders are generally bigger in size which, if you do not adhere to proper risk profiles, can have you lose a great portion of your trading account when the losses come. The ease of swing trading can have traders involved in too many markets at the same time. This can be a disadvantage and put too much capital at risk in the markets if/when your swing trading strategy delivers a losing streak.
Needless to say, the main requisite for successful swing trading, as with trend following in general, is the correct identification of the range or trend. In doing so, the employment of both fundamental and technical analysis perhaps offers the greatest rewards, but the trader will usually choose the method that he favors the most. One of the best swing trade techniques to use on the forex pairs is simple support and resistance types of strategies. Whatever swing trading strategy you apply to your trading business, keep in mind that money management is key to your overall success.