A Simple Forex Swing Strategy
Trading Forex has been something that is perceived by many as an art form more than a science. That, luckily, cannot be further away from the truth. Forex trading, at its core, is about analyzing trends to create a thoroughly sound, successful, and long-lasting strategy. Now, building this strategy starts by having as much knowledge as possible about all the different tips, tricks, and proven strategies known to traders. One of these strategies is swing trading.
At first look, swing trading is akin to being long on pair. However, the duration of these trades will be much shorter in comparison. How much? Think about weeks instead of months. But it does not stop there. Swing strategy if done correctly, allows any trader to spot trends faster and more efficiently than an average forex trader. That is thanks to its ability to encourage traders to use multi-day charts in order to scan for possible rises and falls.
To first time traders, all of this may sound like a tall order. Multicharts, patterns, swings, market moves, it all seems very exhausting. But that is not the case. Once all the fancy words are eliminated, swing trading is about having a bird’s eye view of the forex market while doing day trading. To do that, traders must rely on technical and financial analysis as the driving force of their decisions. Additionally, volatility is the best friend of any swing traders. The higher the chances for a pair to present volatility, the easier it is to stop all the potential profit-making opportunities.
There are different ways to be a successful swing trader. Traders can choose to use the hull moving average index, tops and bottoms, CCI indicator, the middle Bollinger band, the super trend indicator, etc., etc., etc.
Fortunately, this article was not written to give traders a headache by explaining every single complicated method to swing trade. The goal is to demonstrate the utility of this strategy by outlining a simple forex swing strategy. This strategy will not require traders to over-commit to constant oversight, nor would require an iron-will to guarantee that the long-term success is not compromised. Beginners and professionals alike can benefit from this method. So let’s get into it!
Swing for the fences
It is paramount to remember that swing trading revolves around making the most substantial return possible in a short timespan. To accomplish this goal, traders must look for any given pair’s highs and lows. Again, it does not matter is the long projection is that a forex pair will not increase beyond its support. What matters is what happens in the short-run. For that, historical performance from any given pair must be researched. The high and lows need to be analysed in search of a pattern.
- At what times of the day does the pair present a high level of volatility?
- How many times a week does the currency repeats this cycle?
- What conditions caused instability?
- How stable is the pair historically?
All these questions help traders identify when the market will make a swing. Further, it is also essential to check the prices at moves’ end. The end price helps to determine the overall pair’s performance. That, in turn, allows any trader to see the chances of the market slowly turning bearish or bullish, which would enable them to open their positions accordingly.
Ergo, if a pair is somewhat stable (with the occasional volatile periods) and a short-term downward trend, with a long-term projection to break its support. Then, it is safe to say any short term swing will be quickly followed by a downturn. Thus, it is best to open a position at the start of a bullish run while having a close stop loss in anticipation of a quick drop.
For this example, we will use hypothetical movements on real pairs. The first one will be the GBP/USD pair, analysed on an hourly chart, to explain how swing trade is a highly beneficial strategy.
The first that must be done is going to the MetaTrader 4 platform and select two different moving averages (MA).
The first MA will show the historical trade over the previous 25 hours, and the secondary MA will show the historical trade over the last 100 hours.
It is important to remember that the trading chart is set hourly.
The first thing that could be appreciated in this hypothetical chart is that the red line (which in this case, it represents the short-term MA) has an upward trend.
The green one, by a simple process of elimination, is the long-term MA, and it also shows an upward trend.
What those two curves tell any trader is that the market has already swung from a bear (down) pair to a bull (up) pair.
Even if the only information available was the first half of the graph, it is easy to appreciate that the 25 MA is swinging upward, while the 100 MA remains unchanged.
In this case, the full swing happened on June 16 at 1.41932. The reason why that specific point in time matters is because it showed when the 25 MA intersected the 100 MA.
Not all curves will have these clean-cut moments, but it is easy to appreciate how important it is to beware of two different moving averages when looking at pairs. After all, moving averages are lagging indicators. So they show how things are moving overall.
Since the trend is upward, the simple forex swing strategy determined that it is time to go long on the GBP/USD pair.
That means opening a position at 1.41932 and place a stop-loss only a couple of hundred pips apart, with a limit 700 pips further down the line.
Obviously, it does not take much to notice that the market kept trending upward. So, it is wise to trail the 200 pip stop with the swing.
Again, the swing kept happening until the GBP/USD pair peaks at around 1.47450, long after the original conditions set were satisfied. If a trader decided to leave once their 600 pip condition was met, they would have easily reached their target in under a week.
This was a one chart example. Anyone interested in trying a simple forex swing strategy like this one without any previous training in forex trading should do so at their own peril. The best advice is to open a demo account and try this strategy against hundreds of pairs and moments. Understanding what would happen if there is a market shock or if the trade was held longer.
4 Tips on a Simple Forex Swing Strategy
Swing trading is a simple, effective, and quick way to trade forex and be successful at it. Moreover, it is effective regardless of a trader’s previous experience or success. But, it does come with some warning that must be taken into consideration before engaging in any trade.
Trades should consider following these tips if they wish to avoid falling in traps trading.
1) Never bet against the trend: Swing trading is all about seeing the over market trend and following it as closely as possible to maximise profits. Straying away from that idea will create unnecessary risk and substantial losses.
2) The more indicators, the better: In the above example, MA was used. However, it was not one MA but two. This is at the heard of any swing strategy, having multiple indicators running at the same time. The purpose of this idea is to have a clear notion of where the market is going and when is the best time to get in and out. Anything less than two creates unwanted risk and a bad strategy.
3) Stay below profit: This one a bit weird, but also highly recommendable. Always set the exit lower than the targeted profit. It is impossible to know future performance based on past performance. But by making an educated guess, the chances of being successful increase. And setting the exit below a targeted profit follows the same logit. By doing this, a trader is taking a sensible precaution in case the market turns below the ideal target. It is a wise practice done by all professional traders.
4) Try it first on a dummy account: Most novice traders are inclined to read new strategies and implement them in their own forex accounts as soon as possible. This is a bad idea. Having a simple forex swing strategy means having the chance to test it as many times as possible under a safe environment.
Following these tips will make trying swing trading easy, painless, and a fantastic way to maximise profits when trading forex. It does not matter which pairs a trader may choose, what matters is what the market dictates is the best course of action to follow. So to all new and veteran traders who may read this, give it a try. The chances of making a loss are low. But the possibilities of making a profit are limitless.