What is swing trading?
Swing trading is a form of active trading where the trader only keeps an open position for a few days.
It’s mainly used for intraday gains with relatively small places, and it’s possible to make money both ways – by going long and by going short.
However, you don’t need to day trade or hold on to your long/short positions overnight as margin requirements are usually higher than that during the day.
When is it ideal for swing trading?
Most currencies (at least in the majors) tend to move faster around 3:30 pm EST (when the US markets close). They also spike at 5:00 am EST (when they begin opening up again in Asia). If you’re able to catch these moves, it’s straightforward to make money swing trading.
Swing trading is also suitable for days when major news releases (i.e. FOMC) tend to be highly volatile and unpredictable. It can be very profitable during such days since nobody knows how the market will react – either euphorically or pessimistically – to any news release.
To summarize, in a nutshell:
- The US markets close at 3:30 pm EST and open at 9:30 am EST
- Major news releases happen in Asia around 5 am EST
- The perfect days for swing trades are Mondays and Fridays, when volatility is usually high.
What are the advantages of swing trading?
The most significant advantage is a high probability of a high reward. Since you aren’t holding any positions for very long, your risk will be lower than holding on to a place overnight or even during the day.
Another thing about swing trading is that it’s perfect for beginners since you don’t need the experience to read the lines and predict where the price might go. It might not be easy at first, but it can become second nature with some practice!
Here’s an example:
We have just bought gold from our broker for 1,300 USD per ounce. We will set a stop-loss at 1310 USD (below this level, we will lose our initial deposit). We then put a take-profit at 1400 USD.
For this trade to be profitable, gold has to go above 1350 USD – it’s trading at 1339.5 USD currently. In simple terms, you’re waiting for the price to move up by 50 points, around 2%.
Remember: swing trading is all about setting small targets and letting the price work its magic! As long as prices keep moving up, we can continue closing positions after every 100/200/300/400 etc., until we reach the take-profit level and close everything there.
If the price goes below our stop loss (1310 USD), we immediately exit the market since it might be in a downtrend, and we don’t want to be caught in it.
The other advantage of swing trading is that you can use any trading strategy you’re comfortable with. Swing trading will let you do so without too much risk exposure, whether you like to trade breakouts, pullbacks or range-bound markets. How do I get started?
All you need is a Forex broker account and some practice to start swing trading! Most brokers offer free demo accounts, in which you can trade fake money and get a feel for the market. Once you’re comfortable with how everything works, switch to a live account and start selling for real!
Some final tips:
- Always use a stop loss! As we all know, anything can happen in the financial markets. Even if you pick the best trading strategy and place your stop loss wisely, there’s always a chance that price will move beyond what you’re comfortable with.
- Set a profit! As crucial as stopping losses, keep an eye on your take profits, too, since it will help close positions at their peak and prevent unnecessary losses.
- Start small! Don’t risk more than 2% of your account balance per trade unless you know what you’re doing.