What is swing trading?
Swing trading is a trading style which fits between day trading and trend trading. Day traders are in and out of a position within the day, whilst at the other end of the scale, trend traders tend to hold positions for several months. Swing trading is a medium-term trading style, with typical positions lasting anything from around 2 days to a week.
Swing trading looks to identify the overall trend and then capture gains from swings or oscillations within that trend. Trends rarely move in a straight line, but usually in a step like pattern, which lends itself nicely to swing trading. As such, one of the main advantages of swing trading is that there are plenty of opportunities. A market will typically increase for a few days, decrease for a few day etc through the month, and perhaps even finish the flat or just slightly up or down. This is because small fluctuations are more common than standout trends. As a swing trader you are looking to capture profits from these smaller oscillations. Another advantage of swing trading is that the risk of the trade tends to be lower than on a trend trade because of a closer stop loss. This means swing trading can be a good starting point for beginners.
However, the disadvantage to swing trading is that it requires more work than trend trading, with a constant need to manage your trades and frequent trading in comparison, means potentially higher trading costs. However, if compared to day trading the reverse is true.
The most common methodology for swing trading is to enter the trade after a change in trend has been confirmed and then to trade the developing momentum.
How to do it?
Find a currency chart where there is a general uptrend and the selloffs tend to be short and sharp. Look closely at the behaviour of the price action and identify whether the price has returned to its moving average at least three times. Has the drop been around 1.5% of the price? If you can answer yes to both these question, place an order 1% below the moving average. Once you have entered the trade, be sure to put a stop loss close to the point of entry, in order to protect your position. Remember than managing trades once they are open can make the difference between a winning and losing account. Look to take profits close to the upper channel.
This is just one method for swing trading. There are other methods to swing trade the market and perhaps the most important point is that you find a swing trading method that suits you. Once you have identified the method, be consistent and also pay attention to managing the risk of the trade.
It is important to choose a good broker when trading. A broker with excellent execution can make a big difference when you re trading several times a month, as with swing trading. Vantage FX is an Australian based broker which has won awards nationally and internationally for its offering, including its execution. It is reputed to have some of the quickest execution in the industry and also offers its clients the chance to trade through MT4.