Swing trading is a very common strategy given its effectiveness and, for some aspects, also its ease of understanding. Many traders use this tactic because it combines time requirements and profit goals.
Today we will see what the swing trading strategy is and how it works and on which markets it is most effective.
What is swing trading?
Swing trading is a strategy halfway between intraday trading and multiday trading, or also called buy & hold, or buy and keep in the portfolio.
In fact, swing trading has a short-term time horizon, usually it can last from a few days to a few weeks, it hardly exceeds a month.
It is a strategy that you can adopt both upwards and downwards.
The swing trader, as those who adopt this technique are called, therefore differ from the scalper, but also from the long-term investor.
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How swing trading works
Swing trading is not that complicated and this is perhaps why it is so popular.
First of all it is a technical analysis strategy, so it will be necessary to observe the financial charts with related technical indicators.
The time frame to use will be H4, in some cases it is possible to consider H1, but not lower, in fact, as already mentioned, it is not an intraday strategy.
First of all, we must identify the trend, in this case technical indicators can come to our aid, such as the simple or exponential moving average. Some traders use multiple indicators together to be safer.
More experienced traders probably understand the trend simply by taking a look at the chart, but if you have no experience it is always good to get help from the indicators, which are born for this reason.
Once the trend has been identified, we can adopt two types of swing trading:
- Catch the wave;
- Fade the move.
Catch the wave
Catch the wave is one of the swing strategies. How does it work?
The upward or downward trend often looks like a rising or falling wave. Riding the wave means using its movement to our advantage in trading.
In this particular upward swing trading strategy, you must therefore enter the market at the lowest point and exit at the highest point, before the price makes a pullback or, to follow the example, before the wave falls back.
The same strategy can be adopted downwards, obviously entering the market at the highest point and exiting at the lowest point.
Fade the move
The Fade the move swing trading strategy is basically the opposite of Catch the wave.
In fact, the goal in this case is to go against the trend, for example, in an uptrend we enter the downward market when prices pullback and return towards the minimums of the wave.
The same can be applied in a bearish trend. The trader enters the bull market at the lowest point with the expectation that prices will return slightly higher, before continuing the bearish trend.
Swing trading Forex: why is the currency market the best?
Forex is the best market for swing trading due to its liquidity. For this type of strategy, in fact, a very fluid and not too stagnant market, therefore with many volumes, is needed.
Forex is therefore presented as the best ally of swing trading, especially the more liquid exchange rates such as the euro/dollar.
However, swing trading is suitable for all markets, but probably in less liquid markets it is less effective or simply needs more time to materialize.
Advantages of swing trading
Swing trading has more advantages over intraday trading, scalping and longer term strategies. In fact it is an excellent strategy especially for those who do not have much experience on the markets.
Following the trend is the easiest way, while understanding the reversal is not within everyone’s reach and could result in large losses, even the entire capital.
Swing trading also tries to optimize a price movement of a few days and can guarantee greater satisfaction than intraday trading, which implies the closing of an operation within the day, not fully exploiting the potential of price movement.
Furthermore, swing trading can be considered a good strategy even compared to long-term investment, which involves few operations over a year, therefore not taking advantage of all price movements.
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