Most traders prefer to use a low time frame strategy because they believe that they will make more money with this strategy. These types of strategies encourage bad and toxic habits for your trading mindset. Today, let’s talk about the extremely powerful nature of Medium-term Trading(Swing Trading), which can be a simple but effective solution. In order to succeed, one should always have a professional skepticism like what is Swing trading and where will it take me this year and onwards?
Defining Swing Trading
Swing trading is a type of trading strategy that targets medium-term transactions. As a trader, you will hold a position for a few days or weeks. Therefore, it requires patience and proper planning. Wise traders can earn huge profits from Swing trading by using leverage advantage!
To make a huge profit, one must act quickly to find the time when a pair of high probability will move up or down within a certain time frame. To do this, traders must use technical analysis and sometimes market sentiment analysis.
Statistics show that swing traders do not have a very high win rate, but once they win, they can compensate for 5-10 previous loss positions.
Thinking holds long-term positions and challenges related to Swing trading
If you possess the qualities to implement Day trading effectively, you also have a chance to succeed in Swing trading. For example, be patient, do not bother with large losses, be willing to trade less and be careful with the setup options. However, do not start jumping right into Swing trading, because you will also face and overcome some of the mental challenges related to Swing trading!
In Forex, 80% of the time the price will move sideways and only 20% of the time the price will go into a real up/down trend. This means that, compared to other financial instruments, Forex traders need to have more patience and mental strength to hold long-term investments if they want to be a Swing Trader.
And yet, Swing traders also have to go through the extremely tired mental state when witnessing the profits have not become practically chewed up by the market. In general, there are many reasons for traders to close their positions halfway through, but those who are loyal and confident enough with the initial goal set out can have a huge reward.
Professional traders never open a position and forget it
The medium and long-term traders are often advised to open positions and then forget the opened positions. However, this is not a good idea. You can do that with stock trading, but with Forex, you will see a lot of risks, especially if you are a pro trader!
Effective Swing trading strategies are strategies that can manage a position for many days and it requires traders to be proficient in speculative art. Successful Swing traders usually hold positions for 2-6 days, even for weeks. Besides, they will seek to open a position that allows them to make a profit in a short period.
The basic analysis does not bring much power to Swing traders. Instead, they rely on technical analysis to analyze trends in price movements of a certain currency pair. The analysis includes recent, short-term and long-term studies (up to 3 years). More importantly, they also need to be fully aware of the changing market conditions.
Should new traders trade under Swing Trade?
If you are a new trader, you will have the main job besides this trading, so what you do not have much is time.
If you want to be a swing trader, you are primarily concerned with daily and weekly charts, and less time is spent than scalpers and day traders.
It would be smart to use both technical indicators and fundamental analysis to determine whether a currency pair is likely to experience a significant price swing or be motivated enough to change the trend.
The principles of Swing Trading for new traders to the forex market:
- Your first task is to identify the main trend of the market.
- The next step is to look for overbought areas when the main trend is Down and oversold areas when the main trend is Up.
- And finally, find a reasonable entry point, which has a low rate of return on risk.
Once you’ve determined the steps you need to take as a swing trader, you need the tools, some of the technical analysis tools you need to use for your Swing Trading strategy: direction. The most commonly used indicators are moving averages, the MACD indicator. These indicators help us visualize the main trend of the index on a large graph frame.
The second type of instrument is the indicators that determine the amplitude of oscillation such as RSI, Stochastic. These indicators help us identify overbought/oversold areas on smaller graphs.
Swing trading should only be done when it is an opportunity with a high probability of winning. Stop loss should also be set at a distance to avoid short-term price volatility. And a Swing trader must also adjust his capital management plan accordingly.
It requires traders to have a strict risk management plan, determine the right time to enter the order by analyzing price action and setting take profit levels to reduce greed when trading.
One of the legendary swing traders is Ed Seykota, who has turned $ 5000 into $ 15 million in 12 years. If you make good use of swing trading tactics, see how can trading change your life?
This content is brought to you by Christa McDermott.