There are many different strategies to trade forex depending on a trader’s goals, time frame, and currency of choice. The most famous strategies from short to long time-frames are scalping, swing trading, and day trading. This article will explore swing trading and how to optimize your trades with this strategy best.
Definition
In swing trading, traders ride the wave (swing) in the market and cash out when there seems to be a turn.
Tools for swing traders
Swing traders typically use momentum indicators such as Moving Average Convergence Divergence (MACD) histogram and Relative Strength Index (RSI) to determine whether the asset is being overbought or oversold. They will continue to ride the wave but will be prepared to enter the opposite direction if the market corrects.
Swing trading time frames
Most swing approaches are short to medium-term strategies that aim to follow the market movement. This trading period will be shorter for volatile pairs, and traders will commit higher capital and leverage. However, sometimes traders will hold overnight positions if they believe that the trend will continue for a more extended period of time.
Suitable currency pairs
Swing trading is one of the ways that works for every legal tender. However, it usually works better for more volatile ones. Volatile assets have more apparent moves, and the trends are more sustained. For majors such as EURUSD, as there are so many participants, corrections are frequent.
Traders should diversify and have a mix of safer options amidst their more volatile assets.
Things to avoid as you swing trade
Do not mistake a pullback with a momentum change. This strategy is one of the most vulnerable to emotional trading. Therefore, make sure you develop a good technical approach that will help you identify the difference between a change in momentum and a temporary correction.
Final words
Swing trading is based on the trend or momentum of the market. It is suitable for more volatile currency pairs in a short to medium period of time. Due to the nature of the approach, it leaves traders susceptible to trading based on emotions. Therefore make sure you have good analytical skills in place to make rational decisions.
