What is Swing Trading? Top Swing Trading Indicators
Swing trading is all about profiting from market swings. It is a popular speculative strategy where traders tend to buy and hold their assets hoping to profit from expected market movement. While swing trading exposes you to gap risk, it also helps you effectively use technical analysis to determine entry and exit points. Ideally, swing trading falls somewhere between day trading and trend trading. Let's take a look at what swing trading is and the top swing trading indicators:
What Is Swing Trading?
In swing trading, you hold your position for more than one day or even weeks to profit from price swings in the Forex market. This trading style is best suited for traders who do not wish to monitor the currency pair price charts every day and have the patience to hold onto them for at least 2 days to a few weeks.
- When there is an uptrend in the Forex market, the traders buy more of the currency pair at swing lows (which is a steep decline in the price before a sharp rise)
- When there is a downtrend in the Forex market, the traders sell more of the currency pair at swing highs (which is a sharp increase in the price before a steep decline)
For example, you wish to trade USD/EUR during a weekly uptrend. You will start by analysing and monitoring the price swings in the USD/EUR currency pair since the start of the week and identify for how long the price trend has existed in the market. If the currency USD/EUR prices are closer to the moving average prices and have been so in the past, you can go ahead to buy more of the currency pair a little below its moving average price. Let us assume the current USD/EUR price is 2, and the average price is 2.2. You can place a buy order at 1.98. By placing an order some points below its moving average price, your order will be executed as soon as there is a swing low during the uptrend, and you will buy at this level, expanding your profit potential. Once you buy at 1.98, you can hold onto the currency pair for as long as you wish till the currency pair prices start increasing. This can take a few weeks, and monitoring the prices for a few hours every night will help you make informed decisions in the market. Let us again assume that the market significantly rose in two weeks, and now USD/EUR is trading at 3. You can place a sell order at this level to take home a profit of 1.02 on each unit of the currency pair bought.
Top Benefits of Swing Trading
Minimal time commitment
Swing traders do not need to commit much when it comes to spending hours in front of the trading system. Since they hold onto the currency pairs for quite a few days, their daily dose of trading minimises. The technical analysis for the currency pairs can be performed in a few hours every few days, and only a few minutes are needed at the end of each day to analyse daily market movements. Hence, it is very easy for people who have regular jobs, businesses, schools and even part-time jobs to trade the Forex market through swing trading. The cash flow in swing trading is decent enough to keep you going and thriving in the market. It lets you trade with a stress-free and calm mind!
Capital doesn’t get locked for long
Even though swing trading requires you to invest the amount in the Forex market for more than 2 days at least, to reap significant benefits, it does not lock in your capital in the long term. Since swing trading is a medium-term trading style, it is easy for you to get out of the trade whenever you wish. With swing trading, you are provided with much larger flexibility to manage your funds the way you want to without tying them down in the future.
A proper strategy and risk management plan can ensure that your trades are profitable and you can earn in a matter of a few days itself. On average, swing traders are able to make at least 10% every week and as much as 50% of their capital investment if and when they apply their strategies the correctly. All it requires for a trader is to be patient and consistent.
Small position sizes for significant returns
You can take small position sizes in the Forex market in order to earn significantly well from large price moves over multiple days. Since the percentage gain is higher, the capital required from the trader’s side is much less. It also puts less capital of yours at risk but still makes your trades meaningful through large swings in the market.
Top Swing Trading Indicators you should know
1. Ease of movement
With the ease of movement indicator, you can understand how a currency pair’s volume reacts to its price. There is a baseline in this indicator called zero, and whenever the currency pair prices move above this line, it is a sign that market prices are increasing, sending a buy signal to the swing traders. However, whenever the currency pair prices drop below the baseline, it signals that the market prices are dropping, and the swing traders should sell their currency pair holdings.
2. Moving averages
With the moving averages, you can calculate the average or mean price prevailing in the market for the particular currency pair over a given period of time. This helps in smoothing out any unnecessary or irrelevant price swings. Swing traders use the moving averages to confirm price trends in the foreign exchange market. It helps them place profitable buy and sell trades.
- The closer the current price of the currency pair is to its average price, the stronger the market trend is
- The farther the current price of the currency pair is to its average price, the weaker the market trend is
Swing traders also identify if the market is bullish or bearish through moving average crossovers. When the short-term moving average, also known as the faster moving averages, crosses a long-term moving average, also known as a slower moving average from below – the market is bullish, sending a buy signal to the swing trader. However, when the faster-moving average crosses the slower moving average from above, it is a bearish market that sends a sell signal to the swing trader.
The volume provides swing traders with the market trend’s strength. Whenever a currency pair is trading with a high volume, the trend is known to be stronger. It is advisable for swing traders to trade along with the direction of the market in this case.
- When the market is in an upward direction, the swing traders should enter the market and buy more of the currency pair
- When the market is in a downward direction, the swing traders should exit the market and sell the currency pair
However, when the currency pair is trading with low volumes, it sends a weak trend signal to the swing traders. In this case, it is advisable to trade against the market direction. That is, sell more if the market is in an upward direction and buy more if the market is in a downward direction.
4. Relative strength index
Relative strength index is a momentum indicator that shows if the market is oversold or overbought, sending entry and exit signals to the swing traders. Whenever the RSI is over 70, it shows the market to be overbought and sends a sell signal to the traders. Any RSI level below 30 shows an oversold market, sending a buy signal to the swing traders.
Top Swing Trading Strategies for Forex traders
1. Fibonacci Retracement trading strategy
Swing traders use the Fibonacci Retracement trading strategy to identify the resistance and support levels in the foreign exchange market. This also helps them identify the market trend reversals. The most accurate Fibonacci retracement levels that show market reversals are 23.6 percent, 38.2 percent and 61.8 percent.
- Identifying the support level sends a buy signal to the swing traders to maximize their profits
- Identifying the resistance level sends a sell signal to the swing traders to minimize their losses
2. MACD crossovers trading strategy
The Moving Average Convergence Divergence crossovers trading strategy helps swing traders identify bullish and bearish market trends. Two moving averages are plotted on the chart, a fast-moving average and a slow-moving average. Whenever these two lines cross each other, the swing traders receive entry and exit signals in the forex market.
- When the MACD line crosses the signal line (9-day exponential moving average) from below, it sends a bullish market signal to the swing traders, and they buy more of the currency pair to expand their profits
- When the MACD line crosses the signal line from above, it sends a bearish market signal to the swing traders, and they sell more of the currency pair to limit their losses
3. Support and Resistance trading strategy
The Support and Resistance trading strategy helps swing traders make accurate buy and sell decisions in the Forex market. The support level is a point at which the falling prices stop falling, change their direction and start to increase. Whereas the resistance level is a point at which the rising prices in the Forex market stop rising, change their direction and start to fall.
- As soon as one identifies the support level in the Forex market for a currency pair, it is advised for the swing traders to buy near this price during an uptrend
- As soon as one identifies the resistance level in the Forex market for a currency pair, it is advised for the swing traders to sell near this price during a downtrend
4. T-line trading strategy
The T-line trading strategy helps swing traders identify the most profitable entry and exit levels in the Forex market. The T-line is basically the 8-day exponential moving average and helps you make long and short trades with significant returns. During a long trade, the swing traders look for the currency pair price to close over and above the t-line, whereas during a short trade, the swing traders look for the currency pair prices closing below the t-line.
- When the currency pair price goes beyond the t-line, it shows an upward market direction, sending swing traders a buy signal
- When the currency pair prices go below the t-line, it shows a downward market direction, sending swing traders a send signal
5. Japanese Candlesticks trading strategy
The swing traders use the Japanese candlestick trading strategy to enhance their technical analysis by understanding the currency pair’s opening, closing, low and high prices in the market. It sends market reversal signals to the swing traders, enabling them to place buy and sell trades that reap them profits.
- Whenever the Japanese candlesticks are in green colour, they show an upward market direction, confirming a buy signal for the swing traders
- Whenever the Japanese candlesticks are in red colour, they show a downward market direction, confirming a sell signal for the swing traders
Start swing trading today for increased profits and decreased time commitment
Swing trading allows you to trade the Forex market with less stress and helps you increase your profit potential.
You can apply the technical analysis towards the end of every day to identify strong market trends and place your trade orders accordingly.
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Each trader in the forex market defines their position size before moving forward with a trade.
Understanding Forex Risk Management
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What Is PIP in forex trading?
PIPs are essential in forex as they tell the traders about the size of profits or losses that can be made from a particular currency pair.
What Is Gap Trading?
Gaps in the Forex market help traders identify price movement clues, entry and exit signals, and trend reversals.
What are Support and Resistance Levels
Support and resistance levels in the Forex market allow traders to understand the market direction and predict future prices to consider in making trade decisions.
MT4 vs MT5: Which is Better?
MetaTrader is one of the most popular online trading platforms used globally and its two main versions are MetaTrader 4 and MetaTrader 5. But between MT4 and MT5, which is one best for you?
What is Forex?
The Forex market offers high liquidity and margin opportunities for you to trade and potentially profit off of exchange rates of currencies. With a daily volume of more than $6.6 trillion in 2019, it is the largest financial market in the world.
What is Margin trading?
Margin trading is one of the most common derivative strategies used in financial markets. It can also be considered tax-efficient as it allows you to choose the size of your wager and exempts profits earned from stamp duties and taxes.
What is Leverage in Forex
Leverage allows traders to hold large positions in the Forex market with fewer capital. With leverage trading, traders can borrow money from a broker and hold larger positions, which in turn could magnify returns or losses.
How To Set a Stop Loss Order in Forex Trading
A stop loss order is used to prevent extensive losses, especially during severe market dip situations. By placing a stop loss order, you can automatically close your position if the market moves against you.
MetaTrader 5: The Complete Guide
MetaTrader 5, the powerful automated trading platform, offers advanced tools for successful trading analysis and trades in the financial markets. Aside from Forex, the MT5 platform helps you trade Stocks, CFDs, and Futures.
What is MetaTrader 4: The Complete Guide to MT4
An advanced trading platform, MT4 has become a norm for seasoned Forex traders as it helps them execute their trades even when their machine is off. It comes with a user-friendly interface, numerous technical analysis tools for forecasting market patterns, real-time currency price data, and much more.
What are Long and Short Positions in Forex?
In Forex trading, you can take long or short positions based on expectations of the market rising or falling. Long or buy positions are maintained when traders expect currency pair prices to increase in the future.
What is a Spread in Forex?
A spread is a cost built into the buying and the selling price of all the currency pairs. In most cases, Forex spreads depend on your Forex broker.
What is a Currency Pair in Forex?
The foreign exchange (Forex) market is the largest financial market in the world. With a daily average volume of about $6.6 trillion and worth over $2.4 quadrillion as of 2021, Forex is a decentralised global market for trading currencies.
How do you trade forex?
Many people want to get into Forex trading and make quick profits, but only a few even know how to start. While trading Forex online has now become easier than ever because of powerful platforms like Blueberry Markets, it can still feel incredibly overwhelming to get started with it.
When Can You Trade Forex?
In case you are wondering is Forex trading profitable, the short answer is yes. But many opt for Forex traders to make fast profits since Forex markets are operational 24 hours for five days a week.
Who trades forex?
Major players in the Forex market are financial institutions including commercial banks, central banks, money managers along with hedge funds. Many global corporations also trade in Forex to hedge currency risk.
Why trade forex?
As the largest financial market globally, Forex trading is one of the most popular investment avenues for many. The liquidity and huge trading volume make Forex trading an option worth exploring.
Forex Margin & Leverage
Forex trading usually provides much higher leverage compared to other financial instruments like stocks. This is one of the primary reasons why so many people are attracted to Forex, and more and more people have started to enter the Forex trading market.
Key steps to making your first trade in Forex
Making your first trade in Forex successfully requires in-depth knowledge about trading basics and Forex trading strategies. The learning curve to trading currencies can seem overwhelming and complex, but when you have the right information by your side, it can make the entire process all the more easier.
How is Forex regulated?
There are several Forex brokers in the Forex market, and amidst those thousands of Forex brokers, it can become nothing less than challenging for traders to find the best brokers.
When you hold a currency spot position overnight, the interest you either earn or pay is the rollover amount. Each currency has a different overnight interbank interest rate, and because you trade Forex in pairs, you also deal with two different interest rates.
Tips for Forex trading beginners
In terms of trading volume, the Forex market is the largest financial market in the world. It is also the only financial market that operates round the clock every day.
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