Swing trading is one of the many ways the Forex market has to make money; however, not all techniques are suitable for you. If you are looking for the right strategy or trading style, you should understand that what works for somebody may not work for you.
So, keep reading and discover what is swing trading, and what it can offer you and then, decide if it is suitable for you because the secret for success in Forex is to find a style or strategy that fits with your personality and way of life, not vice-versa.
What is swing trading
Swing trading is a short to middle-term investment style where traders try to catch profits from extended movements or trends in Forex. Usually, this method uses positions that last from two days until two weeks; however, in certain times, swing traders can hold their trades for months.
As the old saying in Forex says that the trend is your friend, it is also the base of swing traders as the goal of this style of trading is to identify overall trends and then capture swings that happen from time to time.
Swing trading opportunities can appear either in bullish or bearish markets, and it uses technical indicators to help traders to identify pullback movements, resistance and supports levels, and overbought and oversold conditions that could signal swings in trends.
The fundamental approach is used in day trading too, but it comes as informative support to analyzing price trends, patterns, and possible breaking catalysts.
Swing traders usually look daily charts for opportunities, but they also use 4 and 1 hours and 15-minute charts to discover precise entry and stop-loss prices.
Risk exposure can be significant as this technique exposes traders to overnight and weekend situations where the trader doesn’t control the movements at all. Price gaps and atypical catalysts are samples of that.
Long story short, swing trading is the ability to identify where a pair is likely to move next, then entering a position in the same direction and holding it until that move is exhausted.
Day trading vs. swing trading
The essential differences between day trading and swing trading don’t depend on the technique but on your investment habits and your way to trade.
It is time
While day trading is the art of opening and closing positions within the same day, swing trading requires at least an overnight hold. So, day trading limits position to a single day but swing trading can happen from two days to several weeks.
As time fluctuates in both techniques, your commitment also varies. Day trading requires more involvement, and it is more time consuming as you need to monitor trading conditions often.
On the other side, swing traders can monitor market conditions quicker and fewer times. So you can hold positions with not as much time consumption as day trading.
Day trading is way more active than swing trading. A day trader buys and sells volatile pairs to make small amounts of pips every time. Their success comes with the volume of trading.
The method for swing trading is different as they may hold positions for days to take advantage of larger price swings. Swing traders let their win run, but unforeseen losses can also catch them.
According to the theoretical day trading point of view, the longer you hold a position, the less control you have over your results. Think about a day trader as a fisherman who does their daily catch, while a swing trader is a king of a farmer who needs the product to grow and then he needs to cut it.
The swing trader faces more volatility and possible catalysts that affect the price. So, they have more risks. However, as they have more extended price development, they are less exposed to potential burnout than day traders. That being said, both day and swing traders face high risks associated.
To summarize, Swing trading is not a full-time job as it doesn’t need constant monitoring. It could become that, but it is not necessary. It has the potential for significant profits with less stress and risks of burnout.
Finally, swing traders miss longer-term trends as they favor short-term market moves such as pullbacks and rebounds.
The right market for swing trading
When trying to identify which is the best market for swing trading, it comes to the evidence that in both bear and bullish conditions opportunities for swing trades can show up.
However, extreme market conditions are not well suitable for swing trading as it comes to a choppy market that has erratic movements. Not the identified trends that allow investors to catch swings patterns.
Swing traders prefer steady markets that either go up or down for some periods; then after reaching a price level, it turns to the other way for another number of periods.
Otherwise, swing traders will have a hard time reading technical indicators such as oscillator, momentum, and moving averages.
Technical indicators are essential tools to identify the swings. We have another dedicated article here in Forex Traders Guide titled “Best indicators for swing trading,” stay tuned.
Now, talking about pairs, EUR/USD, USD/CHF, and USD/JPY are the best positioned for swing trading as those units are among the most liquid so movements will be more harmonic. On the commodities block, try AUD/USD and NZD/USD as well ranged crossed.
Is swing trading good for you?
So, is swing trading for you? It all depends on you. Are you a person who loves to maintain positions and let them mature? So, yes, it is for you.
Besides, swing trading will fit exceptionally well with you if you are a busy person who can not be in front of charts the whole day but only a few minutes or hours. Then, you monitor your positions from time to time.