Forex Swing Trading Explained

If you're looking to start trading forex, developing the right strategy is key to success. One of the most popular trading methods is swing trading.

To find out what swing trading is, the best forex swing trading strategies and the best indicators to look out for, read our expert guide below.

Read our guide on how forex trading works

What is swing trading in forex?

The financial markets vast nature provides huge profit-making potential. Those who look to benefit from movements in financial markets will employ different trading strategies. But there are also trading styles. One of which is swing trading.

Different forex trading styles

There are so many different trading styles to choose from. But one of the main adaptations in trading style is the duration over which you trade.

On one end of the scale, you have the long-term traders. Otherwise known as forex position traders, these individuals hold their positions for months or in some cases, years. The theory behind this style is that the potential profits are far higher than shorter-term trading methods.

Taking the opposite position are day traders. Day traders hold positions for several hours but never longer than one trading session. As these traders are only looking for small movements in price, there are plenty of opportunities to get involved with short-term trading.

Somewhere in the middle of day trading and position trading, you get the swing traders. Making trades that last anywhere from a few days to a few weeks, forex swing trading profits from peaks and dips in momentum - rather than the long-term value of the currency itself.

Day trading vs swing trading forex: what's better?

Both day trading and swing trading are popular approaches. But the best one for you will depend on your individual trading preferences. Day trading allows traders to make short-term profits. This is because you can execute multiple trades in one day. Swing traders keep their positions open for much longer, meaning the profits per trade can be higher.

Day trading is a high-paced, adrenaline-filled trading environment and suits those that like a fast and furious trading approach. Swing trading is much more laid back. So, swing trading forex is better suited to traders who work in a slower, more methodical fashion or perhaps can't commit the time typically required to day trade.

When deciding whether to go down the swing trading or day trading route or make sure to ask yourself a few questions:

• Am I willing to do this full-time? If you want to constantly watch the markets, stick with day trading. But if you want to earn supplementary income, swing trading might be better.
• What's my appetite for risk? Swing traders often open themselves up to systemic risks as positions are left open overnight – or longer. During these times, social, economic and geopolitical developments can affect investments.
• What's your trading psychology? Day trading is stressful, so you need to be able to cope with a fast-paced, intense day of trading. With swing trading, you need to have a thick skin that helps you ride out short-term fluctuations.
• Whether swing trading or day trading, you should consider the risks involved which could lead to unexpected losses.

What are the best forex swing trading strategies?

Now that you know how you can swing trade forex, you might be wondering what the best strategies are. Here are just a few of the most popular forex swing trading strategies.

Trend trading

Normally utilised by beginners, trend trading utilises indicators that let traders know when to enter and exit a market. Trend trading seeks to identify the way the market is going so traders can enter positions to profit on increases or decreases in price.

Retracement swing trading

Otherwise known as a 'pullback', retracement trading looks for a price to temporarily reverse within a larger trend.

Although hard to predict, a pullback is best seen as a minor countertrend within a major trend.

Reversal trading

Reversal swing traders rely on a change in the direction and momentum of an asset price. For example, if an asset trending upwards loses momentum and drops in value, this would open opportunities for reversal trading.

Reversals don't always mean a price decrease though; reversals can be both bullish or bearish (positive or negative) and used where an asset suddenly starts going upwards after a period of downward movement.

Breakout forex trading

During the early stages of a trend, swing traders can utilise breakout trading. A breakout occurs when a currency shows below a line of support or above a line of resistance. Coined a less risky strategy by many, breakout forex trading can be used during times of volatility - but also during major price movements.

Breakout swing trading is normally used if a market has tight peaks and valleys. When there's a strong pattern and you can predict the breakout, you can make significant profits using this method.

Breakdown strategy

On the opposite side of the spectrum to a breakout, swing traders utilising a breakdown strategy will enter a position at the start of a downtrend, looking for the price to break down.

Versatile strategy

A beginner-friendly strategy, a trader using a versatile strategy uses other trading strategies to determine price movements.

In short, a versatile strategy combines other skills and tactics to allow those with less experience to triumph.

What are the best forex indicators for swing trading?

Forex swing trading indicators or trading signals are technical tools and mathematical calculations used by swing traders to identify momentum and trends. Some of the most popular ones include:

• Exponential moving average
• Relative strength index (RSI)
• Bollinger bands
• Moving averages
• MACD
• Volume
• Stochastic

Is swing trading forex right for me?

Why you might want to be a forex swing trader

As with everything, swing trading forex comes with pros and cons. Some of the reasons why people choose to become swing traders include:

• It's flexible and can fit into your schedule - Unlike day trading where you must spend hours each day studying the markets, swing traders only study the charts for short amounts of time each day.
• You can make a profit on fewer trades - Although you may only get five to ten setups per month, the return on each trade is likely to be far higher than if you were day trading.
• It's not as fast-paced - As they say, slow and steady wins the race. A slower-paced trading style like forex swing trading gives you more time to make decisions. So, you're more likely to make the right choices without undue stress and anxiety.
• It can be a side hustle - As you don't need to sit and watch charts all day, swing trading is a viable option for those with a busy work schedule.

Why not to swing trade forex markets

Although forex swing trading is an extremely popular trading method, it isn't for everyone. Here are some reasons why not to become a swing trader:

• You crave something action-packed - If you love the thrill of fast-paced trading, swing trading might not be for you. Forex swing trading is better suited to the patient, disciplined traders.
• You're happy making a small amount on each trade - Swing traders tend to make fewer, larger profits. If you like to make little and often, you might be better suited to day trading.
• You don't like holding positions overnight - Holding positions overnight can leave you susceptible to risk. If you don't like leaving yourself open, it's probably best to avoid swing trading forex or other longer-term trading methods.
• Though profits maybe substantial in swing trade, there are also risks involved which could lead to substantial losses especially if the market moves against your position.

How to swing trade forex with Tradu

Now you've learned all about the best forex swing trading strategies, why not put it all into practice with TRADU? If you're ready to take the plunge and start swing trading, simply:

1. Open your TRADU trading account: Sign up for an account with us in just a few clicks.

2. Head over to our expert hub: Check out our helpful guides and learn all about forex, markets and trading strategies.

3. Pick a strategy: Create a robust forex trading strategy. And be sure to stick to it so you can carry out well-informed trades.

4. Start trading: Now you've done your research, this is where the fun begins. Take advantage of our enhanced platform features and real-time updates.

5. Diversify: Mastered forex swing trading? Why not diversify your portfolio and trade across different markets including listed stocks and CFDs on crypto, commodities, stocks and indices? Just be sure to read our market guides to expand your knowledge beforehand.

With Tradu you can trade crypto via CFDs.