Swing Trading Strategy

What is Swing Trading Strategy?

Swing trading is the absolute best business as well as the most popular method of capitalizing on the short-term price variations of the stock market. Being successful at swing trading involves choosing the right stock and the right market. It has earned a reputation for being the most powerful way of maximizing profits at lower risks. Swing traders normally choose the stocks that alter at extreme ends. This strategy is applied in a stable market. This is because, at a stable market, the prices tend to have insignificant variations which a swing trader can capitalize on. In a crashing or a rapidly rising market on the other hand, this strategy cannot be used.

Swing trading in forex is typically seen to take advantage of support and resistance levels, which is are found within a major trend. These areas are crucial to swing trading effectively. Knowing how to spot them is essential to gaining a trading advantage. These levels are watched closely by swing traders and after some time, the forex trader will open a position at these levels in the direction of the major trend. Trades are usually opened and closed within one week.

Tools used when trading:

The Relative Strength Indicator (RSI)

Traders should initially do several tests before giving placing a trade. These tests are necessary to ensure the levels are valid and reliable. One tool a swing trader can use is the relative strength indicator or RSI. It is used to measure momentum through observing the middle 50 line. If the RSI is found above the line, it means the trend is up, and when below the middle 50 line, it is considered down. This indicator does not always present a distinct pattern. While this can aid you in identifying a trend in the market, it is advisable to use other tools. Using this tool on the 4-hour and higher timeframe will yield better results. Much stronger trends are present in these time-frames, which can decrease the number of false signals

Price Action

Price action is another method to pinpoint the current trend in a market. This technique is regarded by many as the most credible way of spotting the movement in any market. There is the presence of the uptrend, and downtrend. However, there are still some issues with this method. There are instances where price does not move in a clear direction.

The trends may be jagged, going up and down, up and down. The use of this technique might be a bit difficult but after observing the trend for a certain period of time, it can prove to be very reliable. Learning swing trading in Forex is very simple. With keen observation, sharply analyzing the movements between support, resistance and good judgment, this style of trading will aid any professional wanting to embark on a trading career.

Patience is needed in order to study the market successfully, and perfect timing is required in order to profit. Traders need to make sure they take the profits while everything is still in their favor which makes good timing vital for any swing trader. If you can implement the use of support and resistance levels into your style of trading, this is one way to gain an accurate trading edge in forex swing trading.



How to develop a Swing Trading Strategy?

Any of this strategies should include two major components which are:

  1. An entry strategy.
  2. An exit strategy.

Do not attempt swing trading or for that matter any other style of trading if you don’t know what is going to cause you to enter a trade or what is going to get you out of a trade once you have entered.

There is a plethora of investment tip sheets and newsletters on the internet. Unfortunately, several of them if not most are paid to advertise the stocks they recommend. Instead of following the recommendations of others blindly, you need to develop swing trading rules that will cause you to enter a trade. This might be the stock moving across a moving average; it might be a divergence between the stock price and an indicator that you are following, or it may be as simple as looking for support and resistance levels on the chart.

Most decisions that comprise an entry strategy or an exit strategy are reliant on the technical analysis. There should be certain triggers that initiate a trade. You can use fundamental analysis to narrow down the field of stocks under consideration, but you should enter the trade on technical analysis basis.

Likewise, you need an exit strategy as a part of your overall swing trading strategy. This is essential. An exit strategy does two things: it protects profits and protects you from significant losses. If you engage in trading, you will have losses. It is just the nature of the beast. However, you can’t allow those losses to eat up all of your profits.


In a nutshell, you need to set very defined set of swing trading rules. What is the maximum that you will allow yourself to lose on any one trade? What will cause you to turn sour on this particular trade? Will you close a particular portion of your trade when you make a specific return on your investment? If you used a moving average to enter a trade will you exit if it crosses to the other side once again? These questions plus many others like them are questions you ought to ask yourself when developing a trading strategy. Spend time coming up with such a system. You will be happy you did. It just might save you a lot of cash.

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