What is swing trading?

Swing trading is an investment strategy that focuses primarily on short-term price movements. In most cases – when it comes to indices and currencies – it waits for a situation when the market reaches a turning point and takes positions there, in order to then, in the event of a favorable result, close the session after a significant price movement.

Some traders choose to alternate long and short positions – usually holding them for a short time. Then the open position swings between a lower and higher price – or vice versa.

 

What is the most important thing in swing trading?

First of all, observe the price movements of various assets and react appropriately when it is worthwhile to open a position at the right time, even if the movement is starting or already underway, but favorable prospects for continuation are visible ahead.

If we observe a reversal of the market then we should think about closing the position and opening an opposite position.

This is the inverse of the strategy, familiar from mutual funds – buy and hold.

Swing trading, and the forex market

With the rise and constant fluctuations in prices, some traders choose to build their own swing trading strategies. These are based primarily on price movements that allow you to open long positions at lower prices, and then close them and open a short position at higher prices.

What is worth paying attention to?

First of all, it is necessary to deal with in-depth analysis of prices and charts, which allow you to assess the price movements of an instrument and allow you to determine potential local peaks and lows to then take advantage of the price swing.

After trading, in most cases they close the position and wait for the next opportunity or open a reverse position.

Optimization of short-term activities

A properly prepared and applied swing trading strategy allows you to effectively take advantage of short-term price movements.

The most important difference between swing trading and day trading is that there is no need to keep a close and continuous eye on price changes in the market during the day.

This is one of the reasons why swing trading is also used by beginners. However, you can’t do without knowing how to identify turning points and a lot of investment awareness.

Two swing trading strategies

It can be said that swing trading is used in two ways:

• Trend-following strategy
• A counter-narrative strategy

The first type of CFD trading involves following the main trend of rising or falling stock prices.

The second type of swing trading forex is based on finding resistance or support and estimating the probability of defending it.

In both cases, we should familiarize ourselves with Price Action. This is because it is important to remember that the market never moves in a straight line.

Look for a correction – a trend following strategy

In many cases, swing trading strategy is based on catching the correction at the very end. Therefore, it only makes sense to open a long position when we are sure of its continuation. Before we get to that, however, it is worth looking for confirmation that the market has already returned to the main trend.

The most important elements on the road to profit

They rely primarily on three in their operations:

• Looking for a trend
• Awaiting correction
• Entering a position if the formation with Pa shows the end of the correction

The contrarian approach – characteristics

The contrarian approach is based primarily on looking for the moment when a break wave comes in an uptrend.

Key aspects to keep in mind are:

• Higher peaks and higher lows suggest an uptrend
• Lower peaks and lower lows suggest downward trend

The contrarian approach is a strategy that during an uptrend allows us to analyze the market and find resistance where the price can turn back. When we have a downtrend then we usually look for a strong support that can be defended.

This strategy is risky – because it requires the ability to recognize candlestick formations that herald the reversal of a trend or the arrival of a market correction.

This requires learning about Price Action and becoming familiar with all the formations that herald a trend reversal. In addition, it is important to learn the psychology of trading and master it. This is because it is important to remember that if you decide to enter a trade and the market continues its trend then you must humbly accept it.

How do you increase your chances of success in swing trading?

First of all, we should try to align our strategy with the long-term trend. We should look wide-angle, using data such as the daily interval. It is also advisable to use the daily interval, or to use technical analysis indicators that will confirm the direction.

To optimize your decision-making process, you can also use moving averages, which are used precisely in swing trading. They allow you to read the trend and smooth out the time series – in our case it is the price. This allows you to visualize the trend in a clear way and easily compare the historical price with the current one.