Forex Swing Trading

By: Mel Joelle

Forex traders work hard to find strategies and techniques to improve their trading. Traders know and accept that not every Forex trade will be a winner, and that winning trades will be interspersed with losing trades. The only truly meaningful measurement of trading success is one that is compiled after completion of a certain period of trading, such as a week, a month, or a year. If the trader is ahead in the end, the trader is a success.

One Forex trading strategy that has been proven over time is swing trading. Swing trading involves holding trades for a period of a few days. Swing trades are generally held for one to four days. In swing trading, trades are shifted from price point to price point, as the market follows a predictable pattern. Swing trading is also called trend trading, as it relies on visible market trends.

Swing trading is best suited to certain types of currency pairs. The best currency pairs for swing trading are those that are actively traded and have a tendency to form and follow trends. Historically, the best currency pair for swing trading has been the Euro-United States Dollar (EUR/USD) pair. This pair is heavily traded and has a tendency to trend. The EUR/USD price oscillates predictably between price points. Swing trades follow trends, with trades being entered at or near the start of a major price move or trend, and exited before reversal of that trend. The entry point is at the completion of a retracement, where price has reversed in the short term and then bounces off of support or resistance before resuming its movement in the direction of the underlying trend. Successful trading in EUR/USD can follow this pattern.

Accurate market analysis is essential to swing trading. The trader must be able to identify a trend as it is occurring, and spot a retracement as it occurs, accurately identifying it as retracement, based on support or resistance points. Market analysis is the process by which these movements are identified and assessed. There are two forms of analysis in use, fundamental and technical. Forex traders may use both. Fundamental analysis is the analysis of a currency based on economic factor's in the currency's country. Where a country's economy is strong, its currency will also be expected to be strong. Technical analysis involves an evaluation of price movement as shown on charts. Technical analysis requires chart reading and analysis. Technical analysis is the more valuable form of analysis for swing trading as charts reveal price trends and allow precise calculation of entry and exit points for trades.

Identification of trends is critical to swing trading success. Chart reading in technical analysis allows for the construction of trend lines that show graphically the pattern and duration of trends. Trend lines show the specific support and resistance points, and these are the points price reaches during the short retracement reversals. After retracement, price resumes its flow in the direction of the trend. With a printed copy of a chart, trend lines can be traced by pencil or pen on the chart. An uptrend line will trace along the upward trend, connecting points of support in a few or several spots. By the same token, a downtrend line will trace along a downward trend, connecting points of resistance.

Three fundamental principles underlie swing trading and must be mastered by anyone engaging in the practice. First, identify the underlying market trend using technical analysis and price points. Then, once the trend is known, wait for a retracement or pullback, being sure to confirm that the reverse move is just a retracement. Finally, after the retracement is identified, enter a trade just as price begins to return to trend. A trader who masters these principles should find success and profit in swing trading. There are various techniques that can be used to maximize the effectiveness and success of swing trading. Books and reports are available, and online, there are websites devoted to the subject where a trader can learn swing trading. The trader is advised to devote time to study before beginning to swing trade. To learn more about forex swing trading visit Lucror FX at today!

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