In this article, we will take a look at Forex swing trading for beginners and the basics you need to know about how and why it works, the advantages and pitfalls, to beware of when using this method.
In my view, a Forex swing trading is one of the best methods for novice traders and it's a method, anyone can make money with. Let's look at the basics of Forex swing trading in more detail.
Let's start with how and why swing trading works and then move on to look at the trading techniques which can be used to make profits with a simple FX Swing trading strategy.
What is Swing Trading?
Swing trading is simply identifying a range on a chart between support and resistance and selling into the top of the range and buying into the bottom. The time the trading signal in the market is normally a few days to a couple of weeks. In terms of the swing strategy we use here, the average is around 4 days.
Why Swing Trading Works
The reason this method of trading works is simple – a currency trading pair will only be strongly trending (up or down) for around 20 – 30% of the time, the other 20 – 80%, the currency pair will be held by a channel which is also known as a trading range.
If you look at Forex price charts you will see these ranges or channels last for various periods of time and resistance and support holds prices within the range. If you therefore, can spot channels, then you can devise a trading strategy which will sell when prices reach the top of the range and buy into the bottom and if you do this correctly, you can make some great currency trading profits.
Trading Forex Channels
If you are using this method of trading then you need to know about support and resistance and spot channels on a Forex trading chart. Simply look for areas of support and resistance which are holding prices in a range and your trend lines for doing this can be horizontal or can be sloping.
Once you have established a range to trade, it's a good idea to check how overbought or oversold the currency is when it tests support or resistance.
The reason for this is of course – ranges will eventually break and a great way to decide whether to take a trading signal or not is - to look how overbought or oversold momentum is when the range boundaries are tested.
Overbought and Oversold and the Channel
The concept of overbought and oversold, should be considered in terms of any currency which reaches support and resistance. The more overbought a currency is coming into resistance, the more likely the level wil hold and the reverse is true, on a test of support.
The Number of Tests and Time Periods Between Them
The support and resistance levels in a range, can be tested several times to establish the range. The more times, support and resistance have been tested, the more valid the range is in terms of - the odds of executing trading signals into the top and bottom of the channel.
The time period between the best of support and resistance is also a consideration you need to keep in mind when deciding how valid the range is. For example if you have 6 tests in a 2 week period, this is not as valid as 6 tests in a four week period.
Of course the range will eventually break but by looking at the number of tests and the time period between them, will focus you on how strong and valid the channel is and you can keep trading it long or short with your trading signals until it eventually breaks.
Swing Trading Indicators
If you you want to find the best swing trading indicators, you want some momentum indicators and also in my view, a volatility indicator. T
he best indicators in terms of momentum are:
The Relative Strength Index (RSI) Moving Average Convergence Divergence (MACD) and finally the stochastic indicator. There are many others but these 3 I have found to be the most effective over my 25 years of trading experience. Simply check a few out and you will find the best indicators for you.
In terms of a volatility indicator, I like Bollinger Bands.
Price Action Swing Trading Systems
Can you trade successfully without using indicators? Some traders do and are successful but my own view is a few indicators, will help you filter your trading signals better but other traders like just price action and many like to use candlestick reversal chart patterns to time their trades.
There are many different swing trading techniques which work. You should therefore do your own research and decide which are the best ones to incorporate in your trading plan.
Swing Trading Resources and Info
The good news is that all the information you need to put a swing trading strategy for profit together is available free online.
Simply look up support and resistance, the swing trading indicators we have discussed and basics on volatility, money management and trader psychology and you will be able to put together, a FX swing trading method which can lead you to long term currency trading success.
Why You Should Consider Swing Trading
Its a very simple method to learn and also, have confidence in and this is because the logic is so easy to understand. As will all Forex trading strategies the best way to make money swing trading is to keep your trading system simple. Simple trading systems work best in swing trading and always have.
The other reason to consider swing trading is - it requires very little discipline. Most new Forex traders don't have the discipline, to hold trends long term and swing trading solves this problem – both profits and losses come very quickly.
Another reason to swing trade is – most currency pairs spend more time in periods of consolidation, than they do trend following so you will get plenty of opportunities for profit.
In terms of learning swing trading, it will take you very little time and its a fun and exciting method to apply so its ideal for traders who are not patient and don't have the discipline to follow long term trends.
In terms of the best swing trading strategy to make profits, we have discussed what we think is the best strategy elsewhere on this site but we would say its the best strategy - as it's our own.
On a serious note, if you do your research on swing trading and learn the basics which you can learn for free online, you will be able to put together a simple swing trading strategy which can lead you, to long term Forex trading success.