Cryptocurrency Trading – The Future of Forex

Cryptocurrency Trading

A few years ago, back in 2013, I wrote about the possibilities of trading cryptocurrency. At that point in time, bitcoin was the main word on everyone’s lips… and still is the most recognised cryptocurrency today… but there are others that have and are making a big noise today too.

 

So what is cryptocurrency? Well obviously it is a currency, but just not as we know it.

 

I love this explanation.

 

“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us.” – Thomas Carper, US-Senator

 

The reason I like that quote is that it is just so accurate. It really is, cutting edge, fearful and confusing. Much like the first man to wear a top hat in public. OK, maybe not quite as outrageous. But it is certainly making headlines.

 

It’s All New and Confusing

 

Now even though I mentioned bitcoin way back, I’m certainly not going to claim I know the ins and outs of bitcoin or any other cryptocurrency for that matter. In fact, I’m probably as clueless as the rest of the masses.

 

If you want to know more, you can read more here about cryptocurrency and what it is and what it’s all about.

 

Cryptocurrency Trading

 

The reason I’m mentioning it today is that an insider email I got from Vince Stanzione highlighted a massive opportunity that is about to come us trader’s way… what’s more is that it is something that everyone has the chance to get in on.

 

Now you’re not going to need to know all the technical details about cryptocurrency to be able to cash in on this.

 

All you’re going to need to know is how to spread bet the forex markets or place a trade on binary [once they add it].

 

Now, I can’t say much about the opportunity at the moment, but as soon as I have all the details from Vince I’ll drop you a link.

 

In the meantime, have a read about cryptocurrencies and try and get your head round it. It’s not that difficult if you keep it simple.

 

The Next Big Thing

 

If you can remember the dot.com bubble then it may just pay to be ahead of the pack on this one too.

 

I have told you before, that Vince is the undisputed king of finding emerging markets… and this one might be a financial game changer for many.

 

Let’s hope so.

 

Beginners guide to Moving Averages

Moving averages

Quick guide for Using Moving Averages

 

Moving averages [MA’s] are among the most important financial and stock trading indicators a trader can have in their arsenal. Moving averages can help identify trends and reversals and this alone can be enough to help you profit from the markets.  What’s more is that they, [Moving averages] can also offer clarification to support and resistance levels.

 

The fact that much of my trading success has revolved around using moving averages at some stage, is enough to tell you that they work and that they are very simple to use.

But… stating the fact does not give them the true credit that they deserve.

 

Moving Averages 

Most traders know the importance of trends, and the moving average are the key indicator that can be used to identify trends.

MA’s are what are classed as lagging indicators. This means that they are formed from historic data, meaning that they can help you speculate where the price is likely to go not where the price is going to go.

Moving Averages work by smoothing out the past data to create lines that make the price of a chart easier to identify with.

Investors can hold a trading position when they can see that the price is above or below their moving average/s.

 

Different Kinds of Moving Averages

The two most common types of moving averages include the SMA and EMA. SMA stands for the simple moving average, while the EMA stands for the exponential moving average. There are differences and similarities between the two.

 

Simple Moving Average SMA

The Simple Moving Average or SMA, is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. This is [unsurprisingly] the most basic of the moving averages.

 

Exponential Moving Average EMA

The Exponential moving average [EMA] is very similar to that off the simple moving average. However, the difference is in their sensitivity to market movement. The EMA will track and hug the price of the security, far closer than that of the SMA.

 

The EMA is more suited for shorter term trading [10 minute- 1 hour charts] and you will often see Day Traders using them in their set ups.

The SMA is slower to react to market price, therefore it can keep you in the trade longer with less false price movements, but can also get you into a trade later too. The SMA is preferred by medium to longer term trend traders that use end of day charts.

 

Weighted Moving Average WMA

The weighted moving average is calculated in the same way as the simple moving average is calculated. However, there are differences in the value. The values/price can be linearly weighted. This ensures that recent prices of the given security impact more on the average.

Some traders prefer the WMA moving average as it is that bit faster again at identifying price movements than the EMA. It can be more useful in a faster moving market where you are using 1 or 5 minute candles for example.

 

VIDYA Moving Average

The most recent addition to the moving average family is the VIDYA, which stands for Variable Index Dynamic Average. This moving average is commonly credited to Tushar Chande.

The VIDYA moving average is unique in the sense that it adjusts itself when there are changes in market volatility. When there is higher volatility the VIDYA reacts by becoming more sensitive. In periods of lower volatility, you’ll see the VIDYA less sensitive to market conditions.

The VIDYA is a combined indicator of the exponential moving average and the Chande momentum oscillator.

The VIDYA moving average is an indicator that I see a huge potential for traders, especially new traders. It [the VIDYA] takes a lot of false movements out off your trading when using the appropriate timeframes.

This means that you will come accustomed to riding the trading waves [price movement] without so much conflicting emotion.

When Vince Stanzione first started using the VIDYA I really wasn’t a fan. Now… I’m going to be basing far more emphasis on trading with it.

Why the shift in opinion? Because it’s awesome, and I’ve been back testing recently and it makes trading even easier.

You won’t find the VIDYA on many chart packages at the moment though. Sharescope have it pre installed however.

Most of the other chart packages are still playing catch up on installing the VIDYA as it is quite a complicated bit of programming to do [apparently].

 

In Conclusion

 

Moving averages smooth out price to make it easier to identify trends

Simple moving averages are the slowest moving averages to react to price movements and are therefore better for trading medium to longer term trends.

Exponential Moving Averages are useful for trading shorter time frames as the EMA will track the price closer than that of the SMA .

Weighted moving averages are better for fast day trading strategies and fast moving markets.

The VIDYA moving average is a combination of the EMA and an Oscillator. This moving average will keep you in trades longer with less chance of stops being hit and false signals

Remember, the faster the time frame of the charts and moving averages that you use, the more you will need to be prepared to deal with false trading signals.

DAX Trading System

trade the dax 30

The German 30 or DAX if you prefer, is one of the most heavily traded markets. This is certainly true for day traders as it can be one of the easiest markets to predict spread betting price movement on from a day to day basis.

 

It also moves more than most currency markets from a daily point perspective. This adds to it as ideal market to spread bet.

 

There are many strategies and systems floating around online that can show you various ways on how you can make money from trading the German 30 DAX… I hope though, that none are going to be as simple and quick as this one.

 

Although this strategy is for financial spread betting [so you will need an account with one of the financial spread betting firms]. You could easily convert it to a binary trading system… I’ll show you how later.

 

Ok, with that said, lets get down to business and look at how we can trade the DAX.

 

DAX Trading System

 

I’m currently working on a day trading system for the DAX. It is looking very promising and I am now testing with real funds.

 

However, it has been whilst testing this new system that I spotted this little niche and I thought that I must share it with you now.

 

There are no technical indicators other than support and resistance lines to use.

 

All you need are some live charts.

 

NOTE: If it [this strategy] or something similar has already been published somewhere, then hey ho… I’m not claiming any rights to it.

 

The Rules of the DAX Trading System

 

Firstly, you need to open up your charting package and select the German 30 index.

 

Once selected you need to set the candles on the chart to 10 minutes.

 

I’m using the IG charts in these examples. They are good charts and are free even if you’re not trading on IG platform.

 

Now that I have selected the correct candles, I now need to look at the range of price movement from 7am – 9am

 

It is the price breakout from this range that we are going to be trading.

 

Whilst developing my new DAX trading strategy, I noticed that the first 2 hours of the DAX from 7.00am gave some major swings back and forth. Although you could try and trade this volatility alone, I thought it safer to trade the price breakouts from this range.

 

What is important to remember here is that we are not trying to get in on the start of any major movement and get out just as it finishes. Although a nice ideal it’s unlikely to happen with any regular occurrence.

 

Look at this chart image of the DAX German 30

 

DAX trading System

 

Dax Trading Zones

This image is of the first 2 hours of price movement. You can see that from 7 am until 9 am that the price has consistently swung back and forth from 12418 to 12382. I have highlighted this with the blue support and resistance lines.

 

This price zone gives us a 36-point range. That is actually quite a small range for the DAX and we can realistically expect a price breakout at some stage over the course of the day.

 

NOTE: Sometimes when trading this system, you can easily [and regularly do] get a price range of 100 + points. When the range is this large it’s better to leave this strategy and trade moving average crossovers.

 

So, from here we are looking for the price [our 10 minute candles] to close over or under one of our blue support or resistance lines. To simplify this we can set a price notification.

 

So the next thing you need to do is set the price alerts. Doing this saves having to be at your pc all day or checking your phone every 10 minutes.

 

Here’s how you create the alerts.

 

  • On the right hand side of the ig screen you’ll see the alert tab. Click that and then click the price level tab.

 

  • Enter the price levels of where you have drawn your support and resistance lines.

 

  • Click the set alert button.

 

German 30 trading system

 

Now when the price reaches one of these levels you can check to see if the candle will then close over or below the level, and if so we can then consider opening a trade on the following candle.

 

Opening a trade

 

To open a trade, we need to be clear and sure that the price has truly broken out of its trading range. It is important the price hasn’t just tested the levels and is going to reverse.

 

To do this and be confident that the price is breaking out from range, we are looking for a big bull or bear candle to break the S&R lines.

 

As you can see from our chart… the price continues to move sideways until we get a good bull candle that clearly breaks the resistance line.

 

Once you are ready to enter the trade, you just hit the buy or sell buttons in the top right hand corner of the IG screen.

 

Trade the DAX

 

With our breakout candle you can see that there is a small wick that formed at the top of the candle. Ideally you should enter the trade once the next candle has broken this level.

 

This can help ensure that the price will continue to move in our direction with minimal drawdown.

dax trading

 

Using Binary.com to Trade

 

If you don’t fancy trading on IG by spread betting this DAX trading system, then you can still trade it on binary.com

 

To do so just trade the German 30 will be higher or lower in 2 hours’ time.

This 2 hour time frame seems to suit this strategy really well.

You can’t start the trade now on binary.com so you will need to set the time of the trade to start a minimum of 5 minutes into the future.

 

Using Resistance Levels Versus Moving Averages

 

Resistance levels are one of the key indicators for day traders, but as you know, moving averages are probably the most used indicator in any form of financial trading.

 

Moving averages are awesome… but if you look at our chart with one of the most popular short term moving averages set ups added, you can see the issues with this type of indicator in sideways markets.

 

Using moving averages that are this small has cut us to smithereens. In and out of the markets all day and paying the spread each time as well as having our banks battered.

 

As you can see we have had a 7 crossover signals [blue dotted vertical lines] in the morning session alone. Most of which didn’t materialise into anything noticeable.

DAX System

 

 

A better moving average for the DAX Trading System.

 

However, if you use a longer moving average you can manage to stay out of most the noise and still get a clear entry point that can help clarify a breakout.

 

I have been looking at how effective the 10/50 EMA is on the DAX and currencies for a few months now and I can say that I have been impressed with the results.

 

The combination keeps you out of much of the sideways movement and noise but give a good buy or sell signal to boot.

 

DAX day trading system

 

Only 1 false signal out of 2 using the 10/50 EMA crossover and the 2nd signal [crossover] signified the start of the breakout.

 

Using a good reliable moving average can help anticipate the price movement as well as keeping you out of choppy unpredictable movements.

 

So the 10/50 EMA can be very useful, but you really do not need it for signalling an entry point when trading this strategy.

You can use it however [or another moving average] to exit the trade as I’ll explain shortly.

 

Closing the position.

 

How long will the trend last? I have absolutely no idea… but I do know that once you are in on it then long may it continue. But that doesn’t help you get out of the trade.

 

The best way to exit a trade using this strategy is following the moving average crossovers. So basically you are in the trade until the moving averages crossover. This is the easiest solution.

 

You can easily use a 10/50 Exponential moving average as an exit signal. This will keep you in the trend longer but can cost you more as the trend finishes.

 

If you want to keep your profits a little tighter then a 5/10 Exponential Moving average may work better for you.

 

You can also close the trade if the price moves back under/over S&R levels or if you are using trailing stops [I don’t use them very often] when and if your stop is hit.

 

You can also just manually close your trade when the London session closes at 16.30pm or even when the DAX closes, although much of the price movement is often over by then.

 

Using stop losses

Stop losses can be great… but also a great pain in the rear.

 

I occasionally use them and have done when testing day trading strategies.

 

The question always is and always has been, where do you put a stop loss? Stating how much you want to risk on any trade is not a great idea even though popular. If you say you are happy to risk 2% of your bank on any 1 trade then why let the stop get hit in the first place? If the price seems to be bolting in the opposite direction, why let the stop get triggered?

 

In my opinion every trade is different… even if you are trading the same market. So therefore stop losses and where you are placing them are too.

 

This means that they need to be adapted as such. Plus, if you’re day trading, you need to be around to trade anyway. So you can hit the stop [close position] button as and when.

Longer term Trading

Long term trend trading is a far slower moving game. Price rarely go boom or bust in a day. So stop losses are not needed as much.

 

Long term trading is easier if your stop loss is whatever you are risking on that trade. Let me explain briefly.

 

So [an example of this] I may buy SOSO stock at £2 a point but I may be willing to risk £500 on that trade… however, instead of using a stop that keeps getting triggered every minor retracement and costing me £100 each time it does, I have a set risk in my mind. And I use moving averages to exit positions so I rarely if ever lose my amount risked.

 

The times I have seen my trade get stopped out, only to then see the price continue in the right direction was so irritating. And maybe even more annoying is paying extra spread for the privilege to see it happen.

 

Personally, with this strategy I’d be using moving averages to signal my moves, all I need to do is admit I’m wrong if need be and go the other way if I choose.

 

Anyway I digress, if you want to use a stop with this strategy then you are probably best putting it just beneath or above the breakout S&R lines… since you are expecting the price to move from there anyhow it is obviously far better to cut your losses sooner rather than later.

 

How Profitable Can Trading the DAX Breakouts be?

 

These breakouts on this DAX trading system can be very profitable. In fact, I’d say that even if this was your only trading system that you ever used then you’d be realistically able to grab 300 + points each month as a complete beginner.

 

Let’s look at what happened to our trade.

 

Dax strategy

 

Our breakout resulted in just over 50 points profit if we closed our trade as the market closes at 16.30.

 

Considering that this trade never had any losing periods or drawdown since opening the trade, it is a nice stress free result.

 

The awesome thing with this type of trading is that your downside is limited but the upside is unrestricted.

 

Another Example

german 30 day trading system

If you look at this next example of a breakout you can see that many more points can be made.

 

This trade resulted in 75 points profit if we had traded out when the 5/10 moving averages crossed over just before market close.

 

Often the breakouts can last a day and longer, and if the breakouts occur earlier in the day the you can ride the trend for longer if it is profitable.

 

In this next example you can see that the entry crossover candle was quite small but not once did the price move back over the morning support level.

 

This trade gave a very generous and easy 106 points profit if you had closed out at 16.30 or just over 110 points profit if you had waited and traded out at at the crossover.

 

how to trade the dax

 

Leaving Trades Overnight

 

If you are thinking about leaving a trade over night because you have been in a good winning move and you think that it is likely to continue, this is a one of the times it can actually be a good idea to add a stop loss.

 

You could add a 20 point trailing stop so that you can stay in the move should it continue over night, but you also get the safety and peace of mind that if it goes against you that you can lock in most of your profits from earlier in the day.

 

In conclusion

 

  • Open 10 Minute chart of the German 30
  • Draw support and resistance lines of highs and lows from 7am – 9am
  • Wait for a strong 10-minute bull or bear candle to close past the S&R levels.
  • Open trade on the start of the next candle if price movement continues.
  • Exit trade when moving averages have crossed over or at close of day.
  • Let profits run.
  • If using a stop, place it just beneath or above the S&R levels.

 

This really is a great stand alone DAX trading system that can be used on a regular daily basis if the morning support and resistance levels are broken.

 

You might not get to trade every day, but when you do, the minor risk compared to the rewards will easily see you in profit over the months.

 

Price Action Trading Strategy

One of the simplest ways that you can trade the markets is by using a strategy known as trading the price action.

 

This basically means that you are deciding on what direction you anticipate the price of the market moving without using any technical indicators at all.

 

My version of this trading strategy uses a single moving average and the price. That’s it.

 

You can remove the use of the moving average if you have set profit target levels.

 

Price Action Trading Strategy

 

Lets take a look at this Mastercard chart.

 

You can see that on here we have a multitude of indicators and drawings that are serving the same purpose… that is to help give us an idea of where the price might be heading.

Trading Price Action Strategy

 

The chart above may seem complicated to many of us… but some traders will genuinely use a set up similar to this.

 

If I were to use a chart with that many indicators on I don’t think I’d be any closer to an accurate decision after analysis.

 

So let’s have another look at the chart with all the indicators removed.

Price action system

 

That’s better… a nice calm chart.

 

Now we have to decide on where we think the price will go next?

 

From my perception, I think that the price will continue to rise, although I also think that there may be some price correction soon, before the upward trend continues.

 

So that being said, where do I enter the trade? I don’t want to just enter the trade with a random guess. So I need to analyse the entry point visually.

 

I can do this by reading and analysing the candle patterns, waiting for a price correction to finish and by drawing imaginary trend, support and resistance lines.

 

A Closer Look at Trading Price Action

 

So let’s take a closer look at my mental price action trading strategy.

 

You can see from this chart that I can mentally draw a picture of what is happening. Obviously I’m drawing on the chart to highlight my thinking.

Price action

 

 

This is a nice steady and well behaved chart. You can clearly see that support and resistance levels have formed and prices have broken out. It is at these price breakouts that I can enter the trades.

 

So as you see, we can make profitable trades using a simple price action trading strategy without the need for using any on screen indicators. You can do this quite easily with a bit of practice.

 

Now if we take an even closer look, we can use candle formations to give us even better entry points and conformation of where the price may be heading.

 

Price Action Trading Strategy Using Candle Formation

 

There are many candle formations that can signify a change in direction of the price on a chart.

 

I have actually read a lot about Japanese candle stick patterns.

 

Initially and with what I learnt from reading online, I could see the logic, but there was no real deep information that I could use to gain a better understanding.

 

I deciding on buying a book, or shall I say tome from Amazon… at £60 I did find it a little overrated after I had read the reviews, but maybe I missed something???  Anyhow, it is still a good book and I gained much useful and fascinating information about candle patterns, even if not trading strategies.

 

The Best Candle Stick Patterns

 

What I did take from the book was the reasoning behind the formation of certain patterns and why some formations are considered more accurate than others.

 

One can then use this information to gain better entry and exit points.

 

My 3 Favourite Candle Patterns for price action trading.

 

So when using a price action trading strategy here are the 3 most effective patterns [in my opinion] that can accommodate the theory.

 

The Hammer and Hanging Man

 

Looking at our chart of Mastercard we can see that we have had a price correction from the 16th May until the 18th May using our 4-hour chart. At 16.00 on 18th a hammer candle forms and from there the price continues its upward trend.

 

The reason that the hammer has formed at this level is because the bears have managed to push the price down further but then the bulls have resisted and fought back pushing the price back up.

 

This is why hammers often signal support levels and reversals. In saying that, the bears are still around… and further price action needs to be confirmed before entering the market.

 

NOTE: The longer the time frame of your candles on your chart the more accurate you can consider these candle pattern signals.

 

After the hammer has formed, a small doji candle forms and then we have a big gap and a nice bull candle that can confirm the upward price may continue. You can then enter on the next candle.

Price action candles

 

Engulfing Pattern

 

The engulfing pattern signifies that the bears have lost momentum and that the bulls have taken control. It also signifies downward price movement capitulation and that the price is likely to retreat.

 

A bullish engulfing pattern should be formed with a small down bear candle and a large up bull candle that has very little shadow.

Engulfing pattern

 

This is one of the most commonly used candle stick patterns to identify price reversal. It is also one of the easiest to identify and understand.

 

The best place to see a bullish engulfing pattern is at the bottom of a sustained downward trend with a minimum of four consecutive down bear candles that are not increasing in size.

 

Price Action Bullish engulfing

 

A Bearish engulfing pattern is the opposite of a bullish engulfing pattern.

 

A bearish engulfing pattern signifies that a sustained bull period may be about to reverse.

 

The engulfing bear candle must completely consume the previous bull candle.

Bearish engulfing

The Morning Star Pattern

The final pattern that I commonly use or shall I say look for, is the morning star pattern.

 

This is another reversal pattern that consists of a 3 candle set up.

 

The morning star was called such as Japanese rice traders call Mercury [the planet] the morning star and this good omen was considered a sign of brighter things to come. Hence why this pattern is named and formed after a bear market. The down trend has finished and better times are ahead.

 

The 3 candles that form the pattern are one bear candle, one doji [the star] and one bull candle.

 

Morning star pattern

 

Reading the formation is as easy as spotting it. The longer the bear and bull candles the more thrust behind the reversal.

 

The bigger the gap from the candles either side of the star, the greater the chance of reversal as this indicates market indecision.

 

The higher up the close of the 3rd candle is [the bull candle] the greater significance this has to the price reversal.

 

The morning star formation is the least common of the candles I mention but many will argue that it is the most accurate in terms of signalling a valid reversal in price.

 

Other Candle Formations

 

You can read more about candle formations and patterns here. You may find other formations more suited to your style of trading.

 

The book I bought that I mentioned earlier, explains the history of these candles and formations and explains in detail how they were developed when the Japanese initially used them when trading rice hundreds of years ago.

 

I found all of this fascinating and what’s even more bizarre is that traders in the western world didn’t even know about them [candles] until the 80’s.

 

Price action Trading Strategy and moving averages.

 

When using a price action trading strategy, adding a single moving average to your chart can really add some weight to making more of an informed decision as to where the price may move to.

 

If you look at our Mastercard chart again you see that I have added a single EMA, Exponential Moving Average.

Price action EMA

You can conform your earlier findings with the EMA and then enter the market confidently. Before I show you how, let’s take stock quickly…. no pun intended.

 

So to recap… Identify trend, determine support and resistance levels, look for candle formations that may signal a change in market sentiment and then add a 6 period EMA to verify your findings.

 

Bare Bones Price Action Trading Strategy

 

If all the above sounds like too much effort, then the easiest way possible to trade price action is just by trading above or below your EMA.

 

So in our Mastercard example, we can go long as the candles cross up and over the EMA and go short when they cross over and under.

You will get more false signals trading like this, but your win gains will out number your losses.

Price action trading strategy

 

 

In Conclusion

 

A simple trade the price action strategy can give great returns, without the headache of 20 different indicators on a single chart all opposing each other. It’s a simple as you want to make it in all honesty.

Beginner traders can practice this easy enough without spending any money on charting packages or systems.

You can use the free charts on google or yahoo finance

Beginners Swing Trading Strategy

Swing trading can be a profitable way to trade the markets on a shorter time frame, when compared to [my] normal style of trend trading that is longer term. Swing trading can keep you busier in the markets if that is your style. A swing trading strategy can last minutes a few days and occasionally weeks but not much more

What is a swing trading strategy?

Swing trading can be explained by when you are trading the price retracements of various levels of support and/or resistance. The support and resistance are commonly lines that you will draw or rebounds off of moving averages that you are using.

The swings can be happening over minutes hours and days. Swing traders rarely look further ahead than these periods.

If you look at this chart you can see that the German DAX has given us many opportunities to be in and out the market swing trading.

Beginners Swing Trading Strategy

 

How do I Swing Trade

Swing trading is relatively easy to get started and can be made more profitable by have predefined entry and exit points that you adhere to religiously. In fact, it is these predefined points that swing trading relies on.

Swing trade example

In this simple swing trade example we can see that I have drawn support and resistance lines in blue.

I have drawn these lines at the lowest lows and highest highs on this 10 minute chart of the DAX

I am speculating that from these lines that the price will rebound and the price will revert. These lines are therefore called support lines. They are supporting the price from moving further down.

I am therefore speculating that the price is likely to retract from this line once reached.

If the price was to breakthrough either of these support or resistance lines this signifies a price breakout.

If we have a price breakout in either direction then what was the support line will become our new resistance line. So what was our resistance line will become our new support line.

When do I enter a Swing Trade

It’s hard with any trading system or strategy to enter the trade at the optimum moment so it is my advice to you that you shouldn’t sweat this too much.

Using our charts from above, a good entry point will be the second candle in the appropriate direction after the retracement from the support or resistance lines.

Swing trade DAX entry points

 

This second candle is a good sign that the price has indeed rebounded.

Also, using this approach of the second candle also gives you the exit point of your previous trade.

This analysis will never be 100% right but it will provide you with more winning than losing trades.

 

An interesting point to note is that on the above chart, many of the entry points come after a candle that looks like this. This is what is called a doji candle. It is used by many traders to signal a trend reversal.

doji candle

Another Swing Trade Variation

Support and resistance line do not just have to be horizontal. Many support and resistance lines can be drawn diagonally when there is a smoother trend.

Swing trading is adapting to the current conditions of your chosen market.   

Any market at any given time has the ability to change. As they are driven by human emotion this is understandable.

Drawing support and resistance lines

When you are going to try swing trading you can easily add support and resistance lines to charts using then draw line feature.

To draw support or resistance line you simply draw a straight line from the last high to the next highest high or from the last low to the next lowest low. I prefer to use at least 2 points [red lines] where the price has retracted to draw lines as this will signify stronger support or resistance.

Drawing support Resistance lines

 

Trading sideways

You can’t really swing trade when the price is going sideways on a 1 minute chart, or 10, 15 minutes. The price range is often far to narrow. Therefore trying to cut a profit is far more difficult.

Although if you look at this 4 hour chart you can see that trading a sideways market can offer many a profitable opportunity over the course of a few days.

Swing Trading reversal sideways market.

The next factor to making swing trading profitable is to manage risk. This is done by cutting your losses.

Cutting your losses

If you have been reading my blog for any time you’ll know that it is cutting your losses quick that contributes to winning more than you lose on any given trading time frame.

When cutting your losses day trading you need to be a lot quicker than when trading the longer term trend. Long term trend trading is far more forgiving to price fluctuations than day swing trading.

If you are trading the swing longer than a day then there is a little more give when cutting any losses.

Using our chart again, you might trade out and take a loss should the price go past and close beyond either the support or resistance lines after opening a trade on the second candle.

So if you opened a trade on the second candle after retracement but the price reversed and break out past your support or resistance line you close out for a small loss.

Swing trade DAX exit points

You can see from the above image that sometimes you’ll find you trade out only to see the price come back under/over your lines.

It’s annoying but that is just how it goes. It happens to everyone and does not mean the markets are out to get you personally, or that the strategy you are using for the first time is crap.

The point is that you do not want to be holding on to a trade should the price move to a full blown breakout… Ouch.

You can see from the chart beneath that the trend was up and reaches resistance. It then retracts slightly before breaking the resistance line only to retract again and start a swing reversal.

Other swing trading indicators

There are many other indicators that you can use to identify price movements. Some are very basic and easy to implement. Others can be ridiculously confusing and to me they seem unnecessarily so.

For me personally you can’t beat a good old Simple Moving Average or SMA. I’m probably leaning towards these as I have been using them since I started trading, but you cannot deny their accuracy.

Others that I have found that can lend some confirmation to entry points and/or trend direction are the Stochastic Oscillator and the MACD.

I find all these other indicators secondary to SMA’s but as said they can help a bit and have a place.

Swing Trading other indicators

Chart styles to use

The best charts to use swing trading are candles. They can give you a clear view of the market in the blink of an eye. You can see that all the charts on this page use candles.

swing trading candles

Using candles will help you understand how the market moves in a simple and accurate way.

You can take the candle chart one step further and use Heikin-Ashi bars instead of the standard candles. These candles are used to smooth out the trend and make trends more visible.

This is a 1 minute chart of the EURGBP using the Heikin-Ashi Candles.

Heikin-ashi swing chart

You can see how the trends are more consistent and regular. These Heikin-Ashi charts are very useful for trading short time frames. You can read more about Heikin-Ashi charts here 

This is the same chart using standard candles.

Candle chart swing

Maximising profits and Cutting your losses

Swing trading off of support and resistance lines or moving averages has the added benefit of giving clear entry and exit points. This process is often referred to as being mechanical.

Having mechanical entry and more importantly exit points can help with emotional trading.

In essence the emotion is taken out of having to exit a losing position as you simply do what the signals tell you to do.

This is easy to do on paper, but is one area new traders seem to suffer with the most. However if you start off with this disciplined approach and learn to trust the signals that you are given you will be far more likely to become a successful trader.

How much to trade and trading banks

If you are swing trading any of the forex markets, at many of the spread betting companies you can start trading from 0.10p. [even less at some] This is great for newbie traders.

So realistically you could open an account with £100 and be trading the foreign exchange within a few minutes.

As always, remember bank preservation is a key point in trading and you should not risk any more [margin] than 5% liability of your total bank size. Far better in fact to limit yourself to 2% or even 1% until familiar.

Remember it is compounding your profits over time that will make you money. It is not all about starting with the biggest bank that you can or can’t afford.

So to recap

  • Swing trading is trading the short term price retracements
  • You can swing trade by drawing support and resistance lines
  • It’s easy to draw support and resistance lines
  • You can use moving averages when swing trading
  • Use Heikin-Ashi candle charts when swing trading
  • Cut your losses quickly when swing trading