One of the interesting things about swing trading is how it hits the sweet spot between day and position trading, two methods based on the short and long term, respectively.
This approach focuses mostly on the medium-term future price movements by taking advantage of ‘swings’ in the markets by holding trades for several days up to a few weeks. Granted, it’s still a challenging skill to master, hence why this article aims to provide all the main must-haves of becoming a swing trader in forex.
Proficiency in technical analysis for any trading style is essential as it forms the foundation of trading ideas.
Fortunately, there are no select-few strategies for swing traders because they can take advantage of reversals, pullbacks with the dominant trend, breakouts, carry trading, etc. Regardless of the strategy, the crucial thing is higher time-frame analysis, namely the 4HR, daily, weekly, and even monthly charts.
From a technical perspective, this is the main factor separating swing traders from other investors. Fundamental analysis can also play a role with this approach, but it’s not necessarily compulsory.
Nonetheless, analysts could look at long-term economic indicators such as interest rates, Gross Domestic Products, and other significant monetary policies against their observed currencies. Consulting an economic calendar becomes necessary as it will alert the trader of the release high-impact news.
Although swing trading shares some similarities with position trading, the advantage is this approach is financially less demanding. Over the long run, a swing trader capitalizes on a decent number of opportunities capable of steadily growing a small trading account.
They can start trading a cent or micro account if they are presently cash-strapped. While capital matters for anyone, it does not correlate with the likelihood of the trading profit potential and long-term consistency.
For newer swing traders, it is a safer option to start as small as possible and grow from there. More experienced traders looking to switch to swing trading will need a solid profitable track record of at least one year before considering a more sizable investment.
After one has established where they stand financially, it’s time to choose a trading account from a broker, paying close attention to the costs of spreads/commissions and swaps.
- Spreads. For spreads, the playing field is quite competitive in major and minor pairs where little variance exists. On a regular trading account, there should be no commissions.
However, there can be a notable difference when talking about exotics since they naturally have unusually high spreads due to being thinly traded. Therefore, if a swing trader is considering these particular markets, a zero spread account becomes necessary.
The spreads here are considerably lower than on a standard account. For this privilege, brokers will apply a commission for every round turn, i.e., for opening and closing a position. The average fee is usually $3.5 per lot. Therefore, a trader should naturally aim around this mark and perhaps not prioritize any broker charging more.
- Swaps. One of the downsides of swing trading is holding positions overnight often incurs negative swaps. Again, on major and minor pairs, these costs are quite minimal. Unfortunately, for exotics, swaps can be pretty significant.
The only solution is negotiating for a swap-free account. We must remember that this option is only meant for Islamic customers. Therefore, it is at the broker’s discretion, and there is no guarantee they can offer it to non-Islamic clients.
The psychological traits of a swing trader are probably the hardest to acquire, especially if one has little experience with forex. From a mental perspective, someone might be ready to be a swing trader after accepting the following:
- Taking far fewer positions. Naturally, regardless of the strategy, swing trading opportunities are far less frequent than a typical day trader or scalper. Some of the successful swing traders may only open one or two positions a week.
The rationale behind this approach is taking carefully selected opportunities and favoring quality over quantity. Acquiring this mentality is a substantial psychological shift and is not something everyone can do consistently.
- Being patient. Patience links with the whole premise of trading less frequently through taking the most ideal trades that could yield the maximum gains. The only consistent way of analyzing higher time-frames appreciates market action will be a lot slower than desired.
A swing trader must always envision where price could go in the next few days or few weeks without being too bogged down over the present fluctuations.
One of the benefits of being a swing trader is one needs far less screen time than most. Thus, using this approach makes it possible to have a nine-to-five job or run a business and still have the time to capitalize on trading opportunities.
The average swing trader should not really spend more than an hour in total per day. Importantly, this time is rarely ever in one go, but rather in 20 or 30-minute increments.
One must develop a schedule to observe the markets around the London, New York sessions and also at the end of the trading day.
Depending on the time zones, some of these times could clash with sleep or other commitments, but a swing trader should at least cover 30 minutes daily of analysis, mapping out key levels, etc.
Some might consider using pending orders when they expect to be away from their computers or use market execution if they are fortunate enough to be near them. The use of a mobile trading platform can aid in sending price alerts, or they can utilize this service to check the markets periodically.
Becoming a swing trader takes a combination of brilliant technical proficiency, being well-capitalized, developing the right long-term mentality, and time management. In reality, this trading approach is not for the faint-hearted as it tests someone’s patience to the extreme.
However, for those struggling with more higher-frequency methodologies or who have busier lifestyles, this article should provide all the actionable tips for becoming a swing trader.