While the advantages to swing trading are compelling, there are disadvantages as well. 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 distance 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.
I will tell you that my favorite market to swing trade is Forex. Due to my broker, I can dial in risk to the pip, I have plenty of trading options with all the currency pairs, and when price starts to move, it can move fast and far. Markets range and expand every single day in any market. For this strategy, we are looking to define a price range and look for a certain price pattern that we can trade.
This is a daily chart of a Forex pair.
What is Swing Trading
What should be clear is that lower time frames are going to have smaller swings before a reversal occurs. Just be aware of that.
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Stops are needed and can go under the setup candlestick. One note on this setup is you may get stopped out only to see price regain support. This is simply a higher time frame making the same price move.
Be prepared to take another entry. You can learn more about trading ranges at this post. Trends ebb and flow with corrective and impulse price moves. By looking for a strong trending market, we look to rejoin the main price direction after a brief pause in the action. The bottom line is we are looking to join in to what could be a continuation of price. To do so, we need to add a few conditions. Stops and targets are personal preference. Using the ATR for stops is my preferred placement and scaling out at 1 times my risk.
This swing trading strategy will require a little more attention than the others. With this simple trading method, we are looking to catch the bullish trend we have identified but only when we are confident it is set to continue. How long will a pullback persist? We have no way of knowing. Instead, we look for confirmation that the market has gone back to its original trend. In this case, the tell-tale signal that we are seeking is a resumption in the market setting higher lows. One version of this strategy would try and run the trend for as long as we can. In this version of the strategy, we do not set a limit.
Why not? We don't know how long the trend might persist, and we don't know how high the market can go. So, we will not try to make a prediction by setting a price target. You have to wait, observe and allow the market to move adversely to some degree.
It also means that when the trend breaks down, you will have to give back some of your unrealised profits before closing out. But that could be more than made up by riding a trend for longer. In the long run, with the right risk management , the profits should outweigh the losses incurred from those times when the trend breaks down. This next strategy is the opposite of the first one. We use the same principles in terms of trying to spot relatively short-term trends but now try to profit from the frequency with which these trends tend to break down.
We also saw how an early part of a trend can be followed by a period of retracement before the trend resumes. A counter-trend trader would try to catch the swing in this period of reversion. To do so, we would try to recognise the break in the trend. In an uptrend, this would be when a fresh high was followed by a sequence of failures to break new highs - we would go short in anticipation of such a reversion.
The opposite is true in a downtrend. When counter-trending, it is very important to maintain strong discipline if the price moves against you.
3 Important Forex Swing Trading Strategies that Can Work
If the market resumes its trend against you, you must be ready to admit you are wrong, and draw a line under the trade. If you're ready to try a best swing trading strategy on the live markets, Forex is one of the best markets to try swing trading. It's simple - the market is open 24 hours a day, 5 days a week, which means you can trade when it suits you.
It is also a very volatile market, which means there are plenty of opportunities to utilise the best swing trading strategy. Since swing trading is a style, it is difficult to say what is the best moving average strategy for swing trading. However, I will suggest some of the best periods to be used for swing-trading, using moving averages. Swing traders usually have a different approach.
They often trade with larger timeframes 4H, Daily and usually hold their trades for a longer period of time. Therefore, the best MT4 swing trading strategy may be one with a daily chart. In any case, it can be best for swing-traders to first choose an SMA and use larger period moving averages to avoid premature signals and noise. Below are 4 moving averages that can be especially useful for swing traders:.
The Bollinger band is a well known indicator that traders use in swing trading because it can indicate potential turnaround points for prices. I'll now present a best swing trading strategy using the Bollinger Band indicator. The Bollinger Band is made up of three curves that are formed with the help of standard deviations and a moving average. The middle band is based on a moving average set for a definite period, while the lower and upper bands are both standard deviations of the middle band.
Top 5 swing trading indicators
Generally, the middle line is the day moving average, whereas the lower and upper bands are at 2 standard deviations from the middle line. When the underlying quote moves to the outside of the upper Bollinger band, it is considered to be "overbought", which can signal a time for taking profits and liquidating. This signals prices that could cover losses. When the underlying quote moves up from the bottom band, then the middle band is the first line of resistance as continued trading above the middle line would normally lead the quote towards the upper line.
If a quote moves down from the upper line, the first support would then be the middle line; if it fails to hold at the middle band, then the lower band would be the next level to pay attention to. If you'd like to take an even deeper dive into swing trading, along with learning a versatile strategy that even beginners can use, check out our recent webinar on the topic!
Swing Trading Strategies
There are several things you can try to improve your swing trading strategies. The first is to try to match the trade with the long-term trend.
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Although in the examples above we were looking at an hourly chart, it can help to also look at a longer term chart - to get a feel for the long-term trend. Try and trade only when your direction matches what you see as the long-term trend. Another way to improve your swing trading strategy is to use a secondary technical indicator to confirm your thinking. For example: if you are a counter-trender, and are thinking of selling, check the RSI Relative Strength Index and see if it signals the market as being overbought.
A Moving Average MA is another helpful indicator you could use to help your swing trading. A MA smooths out prices to give a clearer view of the trend. And because a MA incorporates older price data, it's an easy way to compare how the current prices compare to older prices.
Data range: September 3, , to August 27, The method we are using to identify market movement utilises both moving averages. Together with this indicator as our input signal, we will use the basic stop loss and take profit. When the red line crosses the green line, it suggests that we can see a price change in the direction of the crossing. In the graph above, the shorter red MA crosses the longer green MA on three occasions. This is providing a signal to buy.
It is important to bear in mind that, with this method, due to the nature of the MA, the trend will start before we receive our signal. There can always be unexpected price changes. Therefore, we must always adopt good risk management. Let's look at this with an example. Data range: June 14, , to June 29, After observing the crossing of ascending MAs we could have entered a purchase order. If we do not set our objectives correctly, with a take profit and stop loss order, a later fall can occur that causes us to lose a large part of our capital.