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What is Swing Trading?
Swing trading is officially a strategy of forex trading which involves holding positions for longer than 24 hours. Usually swing trades are in the time-frame of 2-20 days but rarely are held for longer than 3-4 weeks. Swing trading can be done in any financial market but for the purpose of this article we are referring to the currency markets.
How does it differ from normal FX trading?
Generally swing trading is the “middle” option between day (or intra-day) trading and longer term trading which is generally referred to as trend trading.
Unlike trading on a daily chart, swing traders are only interested in the larger price movements. Stop losses and stop profits are taken a lot higher/lower than your average day trader and positions take a lot longer to close as a result. Generally it is not recommended that beginners start with swing trading unless this is your primary goal as a trader. The primary reason for this being – You are likely not going to have the bankroll to be able to make multiple trades and keep other trades open for a long period of time. Obviously bankroll management is incredibly important and we are in the process of creating a bankroll management guide for individual traders in the coming months. There are a number of good guides out there to give you an introduction to this type of trading strategy, one guide at swing trade stocks is one I personally like although it is not in direct relation to forex trading, it does give a good overall account of what swing trading is.
The type of trading you should implement and the timescale of those trades should be very closely related to what is in fact going on in a market. Some markets may clearly be moving in a long term trend, whether that be a bullish or bearish market. Other markets might be in consolidation and very few trade positions or patterns will open up and allow you to even take a position. The decision as to what trading style you want to trade should 100% be related to a.) Your bankroll or capital. b.) The amount of time you have to actually study the markets. c.) Your knowledge – This is a huge one that must people ignore and d.) Your goals & the psychology behind the trading style, again another article on this topic is coming.
Day trading vs Swing Trading
Swing traders are generally looking to take advantage of larger moves in price, smaller moves that may complete positions and patterns for a day trader will actually not raise any signals for a swing trader. Resistance levels and support levels will always come into the decision of any type of trader, the difference generally is swing traders are looking for more profit per trade and will generally make less trades as a result.
The video above is by Zoe Fiddes, as she mentions right at the end (in reference to pattern traders vs swing traders) when a piece of news comes out, patterns are generally ignored and markets can blow right through resistance or support levels, this means that if you are interested in becoming a swing trader you will need to follow the news more closely than if you are a day/daily trader in the markets.
Another good video is by the guides at vantage point, in this video there is a walk through of a swing trade position, one that will give you an idea of what charts they use and what you should be looking for in relation to this type of movement.
Swing trading can be an incredibly profitable trading style, although personally I would not recommend anyone with a low amount of capital to get started in this way. Mainly due to the lack of activity in the majority of markets that leads to a low amount of trades and (not in all cases) hence a trader making too many trades, leading to losing money.