A Look at the FX Swing Trading Strategy

FX Swing Trade

When entering the FX market you will be required to develop a forex trading plan and strategy.  There are various strategies available to use ranging from long-term to short-term trading options.  One of the most well-known fundamental trading strategy options is that of swing trading.  Unlike day trading, swing trading requires one to hold a position for more than one day.  It has been said to be a mid-way FX strategy sitting between day trading and trend trading.

What is the best currency pair for swing FX trading?

In order to be successful on the foreign exchange market it is advised you choose the correct currency pairs for your strategy.  Specific currencies are suited to short-term FX trading strategies, while others work well with long-term techniques.  The most effective options for swing FX trading are those currencies with high volatility. This means that when the forex market is active the currency pairs should move between specified highs and lows.  The swing trading strategy involves riding ‘waves’ in one direction for several days, then closing the position once the currency pair trend swings in the opposite direction.

What FX market direction is best for swing trading?

The foreign exchange market has different conditions that suit different strategies.  These conditions include a trending market and a ranging market.  In order to be successful you must be able to identify which market movement is most suited to your trading strategy.  Short-term strategies like day trading are most effective during trending times, whereas long-term strategies would be most profitable in steadier ranging markets.

As the swing trading strategy holds trades for days, it is more suited to ranging than trending.  Trends do not last longer than a day thus making it an ineffective time for the swing trader.  The indicators this type of trader would use will identify the ranging period, a period that covers approximately 80% of the forex market operating hours.

What tools are used for this type of trading?

All traders use different trading tools to support their execution of trades.  The swing trader utilises both fundamental and technical analysis to find indicators.  The fundamental analysis assists in identifying a swing in the market.  This generally involves forex news releases.  The technical analysis involves the use of hourly, daily and weekly forex charts.  This allows the trader to identify the most effective entry and exit points of a trade.  The technical analysis methods used are Bollinger Bands, moving averages and MACD charts.

What profits are earned through swing trading?

The swing trading strategy works closely with the channels created by technical analysis.  The majority of these traders take profits when the trend is close to the upper or lower channel lines.  The exact point can be determined using technical analysis.  There are many swing traders who use a vague area for their exit points instead of a precise number.  However, these traders do have solid stop loss points as a form of risk management so as to reduce any chance of detrimental losses.

 

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