Swing trading is commonly referred to as the ‘fundamental trading strategy‘. It is a trading strategy where trades are held for longer than a single day, as opposed to a day trading or scalping strategy.
Basic fundamentals of Swing Trading?
~ Looking to trade a balance between liquid currency pairs and sufficient volatility.
~ Looking to hold trades for longer than a day trader but shorter than a trend trader.
~ Looking to hold trades generally over a period of a few days to a few weeks.
~ Generally following the trend as they look for bigger price moves or swings.
~ Trying to pay less in commissions as the volume of trades is lower than that of a day trader.
Who may choose Swing Trading?
With a swing trading strategy you are trying to make a return on your investment from reasonably short-term moves. As with all strategies it is important to study chart patterns and identify important price levels.
For swing trading to work a trader may look at anything from a 30 minute to daily chart. Sometimes a swing trader may want to watch the weekly chart to get an indication of longer term trends
Swing trading is perfect strategy for the following groups of people:
~ People who work a 9-5 job and do not have time to watch the market all the time.
~ People who have time to study charts at weekends to place a trade then leave it for a few days up to weeks.
~ People who do not become emotionally attached to trades.
~ People who do not need to be involved in the daily action and is happy with executing 1-2 trades per week.
Benefits of Swing Trading
A swing trader can literally trade any currency pair as they are not restricted to relying on news, spreads, volatility or anything market related that traders may consider. Swing trading is looking at how much time one has to study and trade the market.
Other benefits of swing trading include:
~ A trader does not need to be emotionally attached to trades as usually they do not have time to watch the market.
~ As a swing trader is less likely to be in and out of the market often, the cost of trading is significantly reduced.
Risk involved in Swing Trading
Just as in any strategy there are certain risks that need to be considered. Here are some of the biggest risks to look out for when swing trading:
~ Market risk – you can potentially lose a lot of money via swing trading, therefore it is important to have a well thought out trading plan. ~ Risk management – it is advisable for a swing trader to set stops and limits attached to their trades as they may not be constantly watching the market as in day trading. ~ Time – by not watching the market a swing trader may miss moves or chart setups that change the complexion of the market. Although being different to day trading, reviews and results suggest swing trading may be a more comfortable and successful strategy for beginners to start with. This is because beginners tend to become more emotionally attached to trades, swing trading becomes more effective.
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