The Swing Trading Forex Strategy

By: Richard Cox

Since market conditions are always changing, traders will not only be able to implement a single trading strategy on each daily occasion. There will be many instances where no breakouts are visible and markets are caught in familiar ranges without any major impulsive moves. So, what should traders do in these instances? Stay on the sidelines and wait for market conditions to change?

Unfortunately, one of the main facts of forex market trading is that the market will never come to you. That is to say, the market will never alter its behavior to meet your trading requirements or investment criteria. The forex market is an active and dynamic place, so you will need to be pro-active at all times and look for new opportunities as they develop. So, the next strategy we will look at will give traders some tools that are not available to breakout traders. This next strategy is called the Swing Trading strategy, and this will enable you to see trading opportunities when breakouts are just not occurring.

Swing Trading Defined

To start the process, we will begin with a working definition of what it means to Swing Trade in the Forex markets. “Most traders would agree that Swing Trading involves employing a stylistic trading method that looks to accumulate gains in a currency using shorter term time frames, generally one to four days,” said Haris Constantinou, currency analyst at TeleTrade. “Swing traders employ technical analysis methods to look for currencies that are beginning to reverse in their short term price momentum.” Generally, these trades will ignore fundamental information (such as economic releases or relevant news headlines) and instead look for short term reversal points that are visible in charts.

Ways of Spotting the Next Market Move

Essentially, what swing traders are looking for is to identify situations where a currency has an increased potential to make a significant move in a short period of time, and this requires a nimble trading style that is able to react quickly to changing market conditions. For these reasons, swing trading styles tends to be used by home-based, day traders as larger institutions tend to have position sizes that are too large for these shorter term trades.

Because of this, individual traders are in a better position to capitalize on these short-term swing trading strategies. Experienced traders often describe swing trading as an approach that rests somewhere between day trading and trend trading, as a day trader will hold a currency for a few minutes or multiple hours – but usually not than a full trading day. At the same time, a trend trader might choose to analyze much longer term trends and can hold positions from a few days to multiple months. Swing trading rests somewhere in the middle of these two approaches and will always rely on choosing the correct currency for this trading style.

Richard Cox is a university teacher in international trade and finance, and his lessons include macroeconomics and price behavior in equity markets. He also writes for various financial publications across the web, and his investing strategies are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities).