What is swing trading? The most effective swing trading strategy

What is swing trading? The most effective swing trading strategy

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Swing trading is one of the effective forex trading styles, helping investors earn high profits and reduce risks even if they predict the market wrong.

What is swing trading?

Swing means waves, so Swing Trading is a trading method to make profits based on each wave of the price. Specifically, investors will enter orders when the market fluctuates up and down in search of profitable opportunities. Swing orders usually hold for a few days (about 1-4 days) to several weeks depending on the goals and idle time of each trader.

What is swing trading?
What is swing trading?

Because only holding orders for a short time, swing trading is mostly used in price action strategies at small time frames such as 4H, 1D or maybe 1M frames, etc.

On the other hand, swing trading is a trading strategy that has a “handshake” between technical analysis and fundamental analysis to determine the trend of market movements. From there, it helps traders avoid entering orders at periods of time when the market pauses and doesn’t fluctuate much.

To better understand the above meaning, you need to imagine the difference between technical analysis and fundamental analysis. In a nutshell, technical analysis is a method that relies on indicators and price patterns to find a reasonable entry point. While fundamental analysis needs to study all available events related to economy, politics, market supply and demand, etc. to evaluate future data.

Swing traders are called swing traders . Swing traders can be professional traders or novice investors with little experience. Any trader can still turn swing trading into a powerful weapon, as long as you have good risk control because swing orders often give us large profits but with it comes a high risk.

Features of Swing trading method

The frequency of swing trading will be less than Scalping and day trading because investors often choose a long time frame to trade.

In terms of stability: Most investors prefer to choose trading orders in medium-term frames, usually 1 day, to 1 week. Therefore, their number of transactions in a month is quite small. Basically, if you want to trade this style, you have to research the profit percentage over a minimum period of 1 year and look for opportunities in short-term price action.

The ideal return of a swing trader is usually considered to be around 12% while the acceptable risk ratio is less than 3%.

Trading costs are usually a lot lower than trading costs of other short-term strategies. Since swing trading has very little entry frequency, spreads and commissions are not a big deal for investors, which is the exact opposite of scalping . However, traders need to charge an additional cost, which is a swap fee (swap fee). This fee will eat up your pocket quite a bit, but can help increase profits too.

Swing trading stress level will be lower than scalping and day trading. Because instead of having to constantly be glued to the screen to monitor the price movement, Swing trading only takes 15 minutes to observe the market’s movements.

Pros and cons of swing trading

Any investment method will bring you profits with risks because within them exist both advantages and disadvantages, swing trading is no exception. The following content will provide you with some of the common benefits and drawbacks of this style:

Advantages of swing trading:

Transaction costs spread and commission (commission) is much lower than day trading and scalping methods.

Save trading time because you don’t have to sit and watch the computer screen all day and watch every small change of the chart every second to every minute to look for the opportunity to enter an order. This is considered a very important advantage to help investors minimize pressure and stress. Besides, traders can spend time for themselves and other useful jobs in life.

Profits from swing trading can range from 20, 30 to several hundred pips per entry. It is very easy to maximize profits in the short term if swing traders are aware of the big swings in the market.

Is it possible to rely solely on technical analysis for profit?

Pros and cons of swing trading
Pros and cons of swing trading

Disadvantages of swing trading:

Trading positions are subject to very high risk as orders are held overnight or over the weekend. The reason is that when you hold an order overnight, there is a very high possibility that the next morning, the price will fluctuate in the direction of analysis due to a big news explosion; At this time, the market will appear gaps: gap up or gap down causing you to lose a lot, the account will return to 0.

Overnight costs will be higher than scalping and day trading because traders will have to hold orders overnight or over the weekend.

Requires investors to have many good skills in analyzing and reading market psychology.

It can cause traders to miss out on long-term entry opportunities as this method is only geared towards medium- and short-term trades.

Compare swing trading with other types of trading

Compare swing trading with other types of trading
Compare swing trading with other types of trading

Who is swing trader suitable for?

Swing trading is a fairly simple method, so it seems that any investor can apply this strategy to forex trading.

Suitable for retail investors

Due to its flexible nature, swing trading shows it to be suitable for retail traders with mid-sized capital or less. The reason is that shark investors have a large amount of capital, so it is not suitable for transactions with extremely large price fluctuations with just one order.

Investors can accept the risk

In addition, if you are an investor with a high degree of composure, don’t care too much about losses and accept fewer trades in exchange for a good setup for your trade, then swing trading is perfectly suitable for you. you . However, these are only necessary factors, not sufficient factors, so do not rush to enter the battlefield with swing trading when you are not ready and experienced enough.

Swing trading strategy in forex

Trading methods with swing trading in forex are extremely diverse and rich, investors are free to choose a strategy that suits their own trading goals. However, within the scope of this article, we will provide you with some indicators that when combined with swing trading are said to be the simplest and most effective that help push the success rate of trades up to 80%.

Fibonacci Retracement (Fibonacci Retracement)

Fibonacci  is a technical tool that helps investors findsupport and resistance levelson price charts. Specifically, after a strong uptrend or downtrend, the price will tend to recover and touch the 38.2%, 50% and 61.8% levels forming a swing low before resuming the original main trend.

Swing traders can enter a short-term sell order when the price falls to 61.8 and take profit at 23.6%.

Support and resistance

Once the market trend has been determined, traders often use trendlines to decide entry points. Specifically, the resistance level is the price area where the buying force is stronger than the selling force. At this point, the market is bullish, traders will buy at the breakout of the resistance level and place a stop loss below this resistance level.

Swing trading strategy in forex
Swing trading strategy in forex

Similarly, support is a price zone that shows that sellers are stronger than buyers, the market is in a downtrend at that time, traders will consider entering a sell order at the break out of the support line and place a stop loss above it. support. To summarize, the simple rule is to buy at the resistance area and sell at the support area.

Price pattern

Swing Trading is a style that requires trend trading. If investors ensure that the price is moving strongly and draw a price pattern on the chart, then determining the trend will now become simple. Traders need to rely on the knowledge and experience learned from that quote pattern to find a reasonable entry point.

MA(10) and MA(20)

When the MA (10) crosses the MA (20) up, you can enter a buy order. When the MA(10) line cuts the MA(20) down, you enter a sell order.

Swing trading strategy in forex
Swing trading strategy in forex

MACD crossover

The MACD line is the most popular and frequently used indicator in determining price trends. The structure of the MACD includes 2 lines, the signal line and the MACD moving average. When these two lines intersect, it is a signal for traders to buy or sell.

If the MACD line turns up and crosses the signal line predicting the uptrend, traders can place buy orders.

On the contrary, when the MACD line goes down and crosses the signal line, this predicts the market will fall, investors should consider opening a sell order.

Notes when trading with swing trading

To limit the possibility of being trapped by false signals and increase the success rate when trading with swing trading, investors need to keep in mind the following characteristics:

In addition to the moving average (Moving Average), the RSI is also an effective weapon for swing traders when fighting in the market.

Always build the habit of following the news no matter what market you trade. Because the financial market is very susceptible to fluctuations and unpredictable changes every time a major traumatic event occurs, then the price will move in the wrong direction from the initial expectation.

It is never allowed to skip placing a stop loss. Setting a stop loss order in time will help you prevent unexpected changes.

Diversifying your transaction size will help you minimize risk; It’s like the “Never put your eggs in one basket” advice.

Swing traders need to train themselves to have a calm and steady trading mentality, to avoid being shaken by flash profits and forget about their strategy.

An important rule that any trader needs to follow is to manage capital well if you don’t want to be “out of pocket”.

Conclude

Thank you for watching until the end of the article. Hope this article has provided you with a lot of useful knowledge about what swing trading is, the pros and cons of swing trading methods and some effective swing trading strategies. Wish you have a very useful forex trading experience!

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