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Forex Swing Trading Strategy
If you have money to invest it can be difficult to make a decision about the best market to enter, but forex has enough flexibility to offer something for everyone. Unlike many other types of asset, it provides the opportunity to continue to make a profit even in an economic downturn. However, once you have decided to trade in currency, there are many more decisions to make. These include which pairs to trade, whether to go long or short and what time frame to adopt.
Forex has a reputation for being a swift and volatile market but despite this, there are many traders who opt to hold long-term positions. At the opposite end of the spectrum are scalpers who like to execute very fast deals, switching positions in just seconds. Somewhere in between the two extremes are swing traders, who take a slightly more balanced approach.
Swing trading involves taking up a position where the price is expected to roll between two defined points, `swinging` from one to the other. Trades can be held open longer than a day in some circumstances but not much longer. You would not expect a swing trader to have to execute a series of very rapid deals, either.
However, identifying when market conditions are ripe for entry can take some practice and it is therefore a good idea to use all the data available. Both technical and fundamental analysis can combine to provide a comprehensive forecasting system, but don`t cloud the picture by using too many charts.
Swing trading can move through a range of more than 100 points and it can be testing psychologically as it may well dip the other way before it swings back. Knowing when to cut your losses and close out and when to ride the storm is an art that comes with experience. As a general rule of thumb, if the risk to reward ratio is greater than 3:1 you should seriously considering exiting. This is unless, of course, you have a particularly robust attitude to risk!
The other factor to consider is where you set your stop loss. Stop losses can be the tool that makes the difference between total bankruptcy and a bad day, but setting them too close can prevent the natural curve of the swing from developing before you are shut down. Setting a stop loss within 50 pips is risky for swing trading and may be too close for comfort, even though you might be used to operating with this kind of control in other time frames.
Swing trading is the way to trade forex with the most measured approach. Neither excessively fast nor slow, swing traders have enough time to consider their next move but don`t have to sit around for months before they close their positions. A good market for both novices and experienced traders alike, it offers the chance to properly analyze the charts and keep up to date with events that could be relevant without putting undue pressure on the individual.
