What are some of the actionable tips that swing traders can apply immediately for better performance? It wouldn’t be wise to believe that swing trading is an effortless trading style to use continually. Here are a few little ‘tricks’ to make it worthwhile.
Swing trading is not for the faint-hearted; it is the ultimate test of patience in the markets, coupled with lots of uncertainty and extended periods of waiting. As with any trading style, there are pros and cons.
While the weaknesses of swing trading are uncomfortable for many, this trading style does bring unique advantages. There are seemingly countless swing trading strategies any person can use in forex, though this may not necessarily make one a better swing trader.
This article will provide actionable tips on becoming a better swing trader beyond the technical aspect. Hopefully, this guide will particularly benefit traders who may have transitioned from day trading or scalping into this trading methodology.
Expand into other forex markets
Most traders all emphasize the major and minor pairs mainly because of their popularity and lower spreads. Although these are commendable reasons for more long-term market participants, it is a limitation.
As swing traders take a few positions in a month, by looking at the 28 pair combinations of the major currencies (AUD, CAD, CHF, EUR, GBP, JPY, NZD, and USD), this may prevent them from broadening their opportunities.
The solution to this challenge is swing traders should also focus on a handful of exotic markets (the keyword is a handful as some aren’t worthwhile). Although many of these pairs have high spreads and some are thinly-traded, traders can shop around for the best costs and consider brokers offering zero-spread accounts.
Take note of the correlations
Many exotics do mirror the usual major and minor pairs. For example, a sell position on USD/JPY may result in the same outcome as on USD/CNH. Swing traders should always note these correlations and ensure they are not unnecessarily increasing their risk.
Conversely, correlations aren’t always relevant; positively correlated markets can, at any time, move in the opposite direction. When such events occur, this is where swing traders can find unique opportunities they wouldn’t have found otherwise.
Some other exotics move differently from their counterparts. For example, the EUR/USD may be trending up (indicating euro strength). However, a swing trader could observe a unique opportunity to short a pair like EUR/ZAR (suggesting euro weakness) that may move both markets in two different directions.
Consider a zero spread account
A zero spread account is essential in relation to the previous point about trading specific exotic pairs. This type of account ensures reduced spreads on the exotic pairs, allowing for a slightly bigger position size and not staying in the red for too long. Swing traders receive these benefits, all for a small commission per order.
Limit your screen time
One of the advantages of swing trading relates to not needing constant monitoring of positions in the market. A true swing trader spends significantly less time looking at charts than a typical day trader.
Still, it may be challenging to resist the urge to look at the markets. It’s important to realize each pair will usually move more during a particular trading session than in other times, with most markets all moving somewhat strongly during the New York session.
A swing trader should structure their screen time to specific periods of the day depending on where they may have identified opportunities. They should have two to three monitoring sessions of no more than 20 minutes each.
Using a mobile trading platform can help send price alerts at areas of interest, or they could check from time to time at short, set intervals. Once they’ve identified an opportunity, they can naturally spend more time planning. Though in most cases, limiting screen time is a habit that needs to be developed and honed.
Keep a timetable for following significant fundamental news releases
The tip above may not apply to swing traders who rely strictly on technical analysis. For those who do use fundamental analysis, it should become a habit to note some of the high-impacting news releases such as interest rates and GDP or any other data one deems significant.
Observing any changes in these results is one advantage of swing trading. One has plenty of time to plan their next trade and forecast potential future movements before everybody else.
Consider ‘scaling into’ the positions
For the most part, ‘scaling in’ is a risky money management technique if done very close to the original order. When swing trading, it is less risky if one performs this using small profits from the current position.
For example, a trader could decide that after a trade has gone 1R in their favor (1 times their risk), they will add another position of the same size while moving their first order to breakeven.
The stop loss of the second order would go to the breakeven point, meaning that even if the market were to retrace back, they would only lose the original risk taken on their initial order. ‘Scaling in’ this way is better because it utilizes far less margin, decreasing the risk of a margin call.
Developing a long-term thinking mindset
The hallmark of a successful swing trader is in how they think about the markets. Swing trading is about holding positions for several days to a few weeks, though achieving this is easier said than done because of the patience required and the uncertainty factor.
What separates those who are successful in this trading style from those who aren’t is primarily the mindset. A swing trader should always think of where the price could go in the future while not being swayed too much over the present.
In many cases, we can observe big moves often take at least a week (sometimes a little longer) to start making strides. A market can stay range-bound for several days, and then at a time such as a Thursday or Friday, it can begin trending substantially.
This is a behavior swing traders should regularly observe and prepare for. They should never be in a rush to close a position that hasn’t moved much, which means a long-term vision is a must.
As a swing trader, your biggest friend is time, arguably the most crucial element of price movements. One has time to analyze, to thoroughly consider decisions, to prepare beforehand, and to execute orders.
This trading style is tough to execute consistently, but it does gel well with the somewhat slow nature of the markets. The tips in the previous sections should form the framework to make swing trading more manageable and straightforward.