Forex Swing Trading Strategies ‒ The Definitive Guide

So, you’ve chosen the market you want to trade in: Forex. And you’ve decided on the trading style that suits your personality and time availability: swing trading. Now you may be asking what Forex swing trading strategies would be best to apply.

In this definitive guide to Forex swing trading strategies we explain what Swing trading is in Forex. We dive in deeper to the pros and cons of this style of trading, and we walk you through the best Forex swing trading strategies for you to test and tweak according to your trading goals. We also discuss which tools and indicators can help you gain a competitive edge.

Whether you're just starting out or if you’ve been involved in Forex for some time, this Forex Swing Trading Strategies Definitive Guide can act as a great resource and help get your trading journey towards success started today!

Forex Swing Trading Strategies Content:

1. What is Swing Trading in Forex?
2. Pros and Cons of Swing Trading
3. Best Tools for Forex Swing Trading
4. 6 Forex Swing Trading Strategies to Try
5. Testing and Tweaking Your Forex Swing Trading Strategies
6. Forex Swing Trading Strategies FAQs

What is Swing Trading in Forex?

Swing trading is a trading style somewhere between day trading and position trading. It's an appropriate trading style for those working full-time jobs and have some spare time to keep up with market developments.

In order to generate returns over time, swing trading primarily entails reaping smaller profits from short-term trends and promptly eliminating losses. Even though the profits might not seem considerable, when retained for a few days or weeks, they could pile up dramatically over time.

The entry and exit positions for this trading method are chosen before or after the market unexpectedly turns. A potential trend must be identified by traders, who then must hold the position for several days or weeks.

Some excellent indicators can be used to enter or exit the market with accuracy. Using indicators also makes trading considerably simpler for traders while assisting them in recognizing various opportunities.

Like most other Forex trading methods, swing trading also makes predictions about the direction of currency pairs by using technical and fundamental analysis.

Pros and Cons of Swing Trading

We briefly touched on some of the pros and cons of swing trading in a previous article. As we dive deeper into the best forex swing trading strategies we go into more detail on the various advantages and disadvantages to swing trading.

10 Advantages of Swing Trading

1. Great for part-time traders. Swing trading is great if you already have a full-time job and want to trade as a side hustle.
2. Reasonable risk to reward ratio. For swing traders, the risk-reward ratio is very reasonable; since swing trading only requires short holding times of around a few days to a few weeks, you are not exposing yourself to excessive market volatility and risk.
3. Ample amount of trading opportunities. There are a good number of trading opportunities with this trading method. The number of times you can choose entry and exit locations varies greatly amongst trading techniques, and other trading styles may be more confining.
4. You can go long or short. Swing trading is a style of trading that involves going both long and short on securities across a range of industries and sectors. This enables swing traders to profit from either an upward or a downward move in the market.
5. Swing traders can take advantage of long trends. Swing trading enables traders to profit from longer-term trends if they choose a long-term swing trading strategy. Scalping and day trading depend on short-term volatility. Short-term trading is more susceptible to noise and false signals, whereas analyses conducted over longer time scales are more reliable. When following longer price trends, trades have more time to produce a profit.
6. Time efficient trading method. Swing trading is a great option for people who want to invest in Forex without spending too much time on it. This method requires less time investment than day trading and scalping, but more than long-term position trading.
7. Flexibility in money management. Your money won't be tied up for very long when you swing trade. Swing trading gives you more financial freedom compared to long-term trading.
8. Can produce a 2% profit per trade. Swing trading can generate a profit of 2% on each trade. Although 2% may not appear to be significant, it is more than the typical day trader makes.
9. Less stressful than day trading. Swing trading is less stressful than day trading because you are not glued to your computer screen all day and only trade for a short period of time.
10. Pairs well with the use of technical indicators. Swing trading is a method that allows for the use of technical support. This is because it depends on technical indicators, and trades can be made based on the information from these indicators.

Disadvantages of Swing Trading

1. Weekend slippage and overnight risk. Although slippage is not as much of an issue when Forex trading as it can be when trading in other markets, there is a certain level of overnight risk when swing trading. Given the fact that the Forex market is open 24/5, you run the very real risk of missing your ideal exit point while you are away from your open trades.
2. You need to have good technical knowledge. When swing trading you need to be able to interpret analytics and charts with accuracy. Swing trading requires you to be able to recognize the ideal times to place a bid for an entry and exit point. To accomplish this, you must have the technical knowledge to be able to interpret the analytics that your trading platform displays.
3. Swap charges can mount up. The charges made on CFD positions that are held overnight are known as swaps. These charges can build up when trades are held for longer terms. This is why scalpers and day traders are not concerned with such fees, but swing traders need to factor them in.
4. Predicting market swings can be difficult. Market movements are challenging to predict. No trader, no matter how skilled and knowledgeable, can completely foresee with 100% accuracy, how the market will swing.
5. Missing out on opportunities is possible. Swing trading seeks to make money from certain price fluctuations. So a trader would typically enter at the beginning of a fresh swing and get out as soon as a swing starts to pull back. However, by choosing to go short on a swing trade the trader could miss out on a terrific trade that would have generated more profit if it had been held for a long time.
6. Unexpected market reversals. It's important to be aware of the unpredictable nature of the markets. Swing trading is all about riding out highs and lows in order to capture maximum profits, but these same euphoric highs can quickly turn into devastating loss-catchers if there is an unexpected reversal.

Best Tools for Forex Swing Trading Strategies

There are several indicators that are useful when swing trading. Here we talk about five types of indicators that swing traders like to use. Depending on the strategy you decide to try out, you may come across other indicators that support the activities and goals of your chosen strategy.

Now, these indicators can be used for other types of trading as they are not exclusive to swing trading, nor are they exclusive to Forex trading. So, knowing about these indicators can be helpful if later on you decide to diversify your portfolio by trying out other markets and other styles of trading.

Best Indicators for Swing Trading

• Head shoulders pattern
• Flag pattern
• Cup and handles pattern
• Moving average crossover (MAC)
• Triangle trading pattern
• Stochastic oscillator
• Relative strength index (RSI)
• Bollinger Bands

6 Forex Swing Trading Strategies to Try

Let’s talk about Forex swing trading strategies now. Again, these strategies are not exclusive to Forex trading or swing trading. They can be used for trading in many other markets such as the stock market, commodities, indices and more. They may also be useful for trading in other styles such as position trading or day trading.

Forex Swing Trading Strategy #1: Trend Trading Strategy

Trend trading is one of the simplest Forex swing trading strategies to learn, hence why it is usually preferred by beginners. When trying to spot trends, it’s important to understand that markets don’t usually move in a straight line but rather they move up and down in step-like motions even when they are following a trend.

This strategy aims to benefit from bullish trend lines. This entails searching for those ideal moments when the market emerges from a low and starts to climb generally upward. The most obvious indication that this trend has started is when the lowest lows of each candlestick are starting to fall in value at an increasing rate.

With this swing trading strategy, risk to reward ratios could be favourable and trend trading lends itself quite well in forex compared to other markets.

If a trader chooses a long-term trend trading strategy then they may try to run the trend as long as possible. This variation of the strategy, contrary to short-term swing trading, does not include a cap or a limit. The reason for that is that both the length of the trend and the market’s potential upside are unknown.

The trader needs to be patient, keep an eye on the market, and accept that there will be small negative market movements. When the trend starts to break the trader will have to forfeit some of their gains while in the process of closing. However, since the trade ran long, the profits far exceeded the losses.

Trend traders employ longer timeframe charts, (daily and weekly)

Forex Swing Trading Strategy #2: Counter Trend Trading

Counter trend trading is the exact opposite of trend trading. When using this Forex swing trading strategy, you strive to identify trends that are breaking down or becoming bearish rather than bullish.

This technique is more challenging as it is easier to miss the right signal that lets you know when to enter and exit in order to make a profit, hence more discipline and focus are required when applying this strategy.

Traders that buy in a downtrend are classified as counter trend traders.

Forex Swing Trading Strategy #3: Moving Average Strategy

A Forex swing trading strategy known as the "moving average strategy" includes looking at average prices over different time periods. Since the forex market is open 24/5, this technique does require a little more ability to execute.

Moving Average Crossovers are useful for swing traders. They can help indicate what the average closing price was over a period of 20, 50, 200 days, etc. These are denoted by lines on the chart and are known as Simple Moving Averages (SMA).

You may be asking which moving average is best for swing trading? For short-term swing trading strategies The Exponential Moving Average (EMA) is considered one of the best indicators. It provides traders with no clear trend signals as well as entry and exit points. Swing traders can utilize the EMA crossover to time entry and exit locations. By concentrating on the nine-, thirteen-, and fifty-period EMAs, a simple EMA crossover strategy can be implemented.

Moving averages cross-overs are popular trend reversal signals but they have their limitations.

Forex Swing Trading Strategy #4: Bollinger Band Strategy

The Bollinger band strategy involves employing three different indicators to determine whether to place a trade based on an overall turning point. Similar to moving averages, these three pivot points produce averages. This can be viewed as a standard deviation measurement for people who have a strong background in analytics.

The upper, middle, and lower lines or bands make up the Bollinger Bands indicator. The upper and lower bands represent the two standard deviations, which essentially reflect how distant you are from the average, while the middle band represents a moving average, typically a 20-period moving average.

Bollinger Bands can be used by traders to spot probable overbought or oversold situations and gauge market volatility. Price movement that is "expensive" and close to the top band denotes an overbought position. On the other hand, if the price swings close to the lower band, it is seen as "cheap" and denotes an oversold situation. Simply observing the band widths will allow you to gauge the market's volatility. The volatility is considerable if the bands are expanding. The bands should be getting narrower if there is no volatility.

Bollinger Bands can help traders in spotting price reversals

Forex Swing Trading Strategy #5: Versatile Strategy

Although a versatile strategy goes deeper by combining other trading strategies and indicators, it is still regarded as a beginner strategy and is quite simple to incorporate into your entire toolkit of Forex swing trading strategies.

The swing trading examples and indicators on this list are only a few examples that can be used in this style of trading.

A small example of a versatile forex strategy is combining the Heiken Ashi Smoothed Candlestick indicator with the 144 Period Simple Moving Average. When the Heiken Ashi indicator is red and drops below the 144 SMA it is time to sell. When the Heiken Ashi indicator is green and is above the 144 SMA it is a signal that it’s time to buy.

The advantages of a versatile swing trading strategy are its simplicity, its potential for high profits, and the fact that it offers a clear picture of the current market movements. One drawback is that you have to have a good knowledge base and understanding of many other swing trading strategies and indicators.

Heiken Ashi and an SMA help in detecting the trend direction

Forex Swing Trading Strategy #6: Retracement Strategy

Retracement trading focuses on momentarily turning prices against stronger market trends. When this occurs, prices will briefly retrace to a previous level before continuing to move in the same direction. Since many reversals typically start with pullbacks, it is important to distinguish between real reversals and pullbacks while using this Forex swing trading strategy.

Retracement swing trading strategies have a high success rate since they can result in significant returns and can be used in both bullish and bearish situations. However, one drawback is that it necessitates a greater comprehension of how to use it in trading.

When market is trending higher traders buy the dips.

Forex Swing Trading Strategy #7: Breakout Strategy

This is another effective approach that you can apply to a forex swing trading strategy. It requires finding breakout positions and placing a position as soon as the uptrend starts. You can begin trading as soon as the price breaks.

A breakout trading technique has the advantages of a favorable risk-to-reward ratio, a high potential for more earnings, and a short trading time frame. The method's drawbacks include the difficulty of timing the market and the possibility of false signs.

Testing and Tweaking Your Forex Swing Trading Strategies

Testing out these strategies is key to mastering them and finding the right ones that suit your style. It is important to tweak your strategy to suit you as well as continually practice sound risk management because there may always be unanticipated price adjustments in the market.

Breakout traders wait for the markets to rally above a key resistance level before they buy.

General Tips for Tweaking Your Forex Swing Trading Strategies

Here are our top suggestions to support your success as a swing trader now that you are familiar with the fundamentals of swing trading and the most popular Forex swing trading strategies.

• Take advantage of a little leverage. Leverage can help you maximize your profits when trades are going well, however it must be handled carefully as you could also lose a lot if you are not aware of the risks.
• Keep an eye on the long-term trends even if you’re choosing a short-term swing trading approach to make sure you’re not trading against a larger trend.
• Diversify your Forex portfolio. To locate the best possibilities, keep an eye on as many currency pairs as you can and trade a variety of pairs. Trading a variety of pairs will assist in portfolio diversification and help you reduce the risk that comes with putting all your eggs in one basket.
• Use moving averages to your advantage (MAs). Your Forex swing trading strategies can benefit from the MA indicator by identifying trends and reducing shorter-term price volatility.
• Don’t forget swap fees. You must calculate the interest charges that come with keeping trades open overnight so you are not surprised when your account balance does not reflect what you thought you had.

Forex Swing Trading Strategies FAQs

As always, we try to stay ahead of your questions and offer answers to the most frequently asked questions on our topic. Below you will find answers to the three most frequently asked questions regarding Forex swing trading strategies.

FAQ 1: Which Strategy is best for Forex swing trading?

Given that it works with both upward and downward market trends, trend trading is the most favored Forex swing trading strategy. This approach uses bullish trend lines and Forex traders can use this strategy to determine if prices are rising or falling.

FAQ 2: Is Swing Trading Profitable in Forex?

Swing trading allows for the use of technical support and the use of technical indicators in order to place trades. Forex swing trading strategies can be profitable when used correctly and risk management is exercised. When the right steps are taken, an average trader has the ability to profit by 2% on each trade.

FAQ 3: Which currency pairs are best for swing trading?

The pairs best suited for swing trading are:

1. EUR/USD
2. NZD/USD
3. EUR/JPY
4. USD/CAD
5. AUD/USD
6. EUR/CHF

Are You Ready to Try Forex Swing Trading?

Swing trading works well in volatile markets as this provides many trading opportunities. In Forex, swing trading strategies can be very rewarding when applied correctly and with risk management knowledge.

With a swing trading strategy, you will need to devote some time to market monitoring. However, the demands are not as onerous as with trading methods that use shorter time frames such as intraday or scalping.

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