Swing trading is one of the best trading strategies that you can ever master.
Learning to swing trade can give a trader the upper hand in the markets and the edge that you need to tip the balance in your favour… literally.
In fact, I could honestly say that it is one of my favourite trading strategies overall.
It is also some of the most successful of traders’ favourite choice of trading arsenal.
So what is swing trading? How do you do it? And what can you swing trade?
What is Swing Trading?
Swing trading is the process of trading the price movement of any given security that is repeated in a given price range.
Look at the chart beneath…
You can see that I have drawn support and resistance lines where the price has reached high and low points over the space of the given time that you can see at the bottom of the chart.
Drawing these lines creates a channel where the price moves back and forth [swings].
It is this price movement back and forth, that creates opportunity for us to trade by giving us an indication of where the price is likely to go next over a space of time.
Once we have drawn in support and resistance levels, we can speculate that the price is likely to ping around within these zones.
Obviously the price can also break out from these levels, but these breakouts can also present trading opportunities… although we will not be covering that here today.
How do You Swing Trade?
Quite simply, you create a price zone and look to open positions when the price reaches the support or resistance levels and looks like it [the price] is about to retract.
Although that may sound incredibly simple [and it is once you know how] it is not so simple that everyone uses the strategy to regular effect.
The difficulty lies in the fact the ‘you’ the trader has to decide if and when to hit the button and open the trade.
Unlike relying on one of the myriad of indicators that you can add to a chart that supposedly tell you when to buy and sell [yeah right] You actually have to decide yourself.
It is this decision making that puts many traders off from swing trading.
However, as said, if you take the time to learn swing trading you can and will have a reliable trading strategy for life.
How do you know if the price is going to retract from a support or resistance line?
Well, you don’t! But there is a way to put the odds of successfully speculating a winning trade.
There are many candle patterns that you can look for but some do perform better than others and also occur more frequently.
If you decide to use moving averages to identify the swing trade then keep them short.
You will want to use a fast moving average that is less than 10 and something medium term that is less than 50. Anything longer will likely get you into the trade way to late.
What can You Swing Trade?
Swing trading is not limited to any particular security type. It does however lend itself to currency trading very well indeed.
Currencies often trade in ranges for periods of time.
They then strengthen or weaken out of these ranges [breakouts]. Unlike stocks that tend to move in one direction or the other up or down [although some stocks do obviously trade in range at times too]
The good thing about swing trading currencies is that you can rinse and repeat.
According to statistics, currencies only return on average 7% a year.
But if you are swing trading then you can actually increase those percentages on occasions if you choose the right pairs. This percentage can be increased further by using 4 hour charts.
So for example, lets say that USD/CAD moves 7% higher over a year; it is all the swing trading back and forth within the year that can increase profits instead of just holding the one long position over a year.
There is clearly going to be more work in swing trading, but the rewards and profitability can be increased.
If currency trading isn’t your thing, then there is no reason why you can’t start to look for shares that are trading in a range. You could even try commodities.
If you open a demo account at one of the financial bookmakers like IG or CMC markets, you can test the strategy out in real time and not even risk a penny.
I have found that the best charts to use with this strategy are the daily candle charts. These are the most accurate and stress free charts to trade.
You can also use the 4 hour charts very effectively although you will find them slightly more volatile.
In summary… swing trading is well worth taking the time to learn. Learning how to do it may not all fall into place overnight and doesn’t rely on mechanical trading indicators.
Overtime though, it can give you a reliable trading strategy that helps maximise returns in what are considered slower moving markets like currencies.
Swing Trading Video
Here is a video my partner has done for you that outlines swing trading using the daily chart of the USD/CAD.