How to benefit from swing trading

Dear Traders,

Forex market trading can be adapted to virtually any condition.

Traders usually choose different styles of trading for different time-based conditions, based on preference.

The time-based styles included in an effective trading plan can include:

1. scalping
2. scalp swings
3. intra-day
4. swing (or momentum) trading
5. higher time frame swings.

But what do they all mean?

Well, let's work our way through them.

Scalpers are short term momentum traders, who prefer to try and scalp between 5 and 10 pips from each trade they make - repeatedly throughout the day.

Scalping strategies are good for building-up smaller accounts.

Scalp swings™ are my personal term for any trading that sits between scalping and intra-day.

Scalp swings:

1. are usually good for 12 to 30 pips of profit
2. require momentum
3. are generally decided at the top of the hour (known on the trading floor as TOTH).

TOTH trades can be very profitable during trending periods, using scalp swing strategies.

Intra-day trading refers to day trading where intra-day traders:

1. hold positions throughout a day, sometimes as long as two days
2. aim for 15 to 60 pips depending on the pair traded
3. often go with two positions per day, usually in two major sessions.

Swing trading involves holding positions - usually during a working week (up to 5 days).

Swing trading takes patience, so it's not for everyone:

...but the profits are comparatively larger than for other styles.

Intra-week swing trading is usually done on a 4h time frame and is much more suitable for part time traders e.g. traders with a day job.

Higher time frame swing trading involves daily and higher time frame charts.

Unfortunately, the longer you hold trades - the greater the risk becomes.

So in higher time frame swing trading, unexpected fundamental news can turn the market against you and take your account with it.

For example, the Swiss Black Swan event destroyed the accounts of many longer term EUR/CHF traders within hours.

All-in-all, I prefer intra-week swing trading because:

1. it is the perfect middle ground between active and less active trading, which
2. enables you to diversify your capital into several trades a week and take advantage of current market opportunities, without
3. capturing all of your capital or chaining you to a computer.

But rather than limit your time frame choice, let's look at all the potential benefits the general swing trading has to offer.

Less noise

Signals on higher time frames are more noise-free than for other time frames and the price on H4 is more meaningful within the swing trading concept.

Stop-loss is also bigger and that allows for more movement within the trade.

Swing positions are not that susceptible to intra-day news and whipsaws either, so you can handle them fairly simply with proper trade management.

More time for analysis

Working in an inra-week timeframe, clearly gives you more time to:

1. analyse the market you are trading, and
2. make trading decisions in a relaxed way, without the time pressure of day trading.

Correlated to day trading

Did you know that traders can benefit from simultaneously trading intra-day and swing styles?

That's right.

During major market hours, you can focus on day trading:

...and pretty much ignore your swing trading positions.

To properly do that, try placing your swing trades the night before the major market opens.

Ideal for part timers

As mentioned earlier, swing trading is an ideal trading timeframe for people:

1. with day jobs, or
2. who can't / won't sit in front of their computer monitor all day.

Part-time trading swings can also be a great way to learn about Forex price action flow.

Free money flow

Holding long term swings may be preferable for investors who are inactive in the market on a daily or weekly basis.

However, always remember that it ties up your money and can trap you in a bad situation, if the market starts to reverse.

With intra-week swing trading, your money is never fixed.

Easy to learn

Swing trading is one of the easiest styles to learn and apply; much easier than day trading for example.

You don't have to possess a huge amount of knowledge to start swing trading, but you do need to:

1. understand how Forex and market psychology works
2. spend some time observing the markets to seize the best swing trading opportunities.

That's the end of this swing trading overview.

But if you want to know more about it, then don't despair - my next post will detail a strategy that's perfect for this trading style.

Cheers and safe trading,

Nenad