What is swing trading. What you need to know the trader.

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Swing Trading: An Antidote for Frustrated Traders

Updated: January 20, 2020

Forex trading – the most frustrating endeavor you will probably ever face in your lifetime.

Most traders enter the market with the best intentions but dissolve their hard earned money to the market, filling the pocket of successful traders.

At The Forex Guy, we believe the level of success reached depends heavily on the individual trader’s methodology.

Most traders are drawn into the lower time frames where they believe more money is waiting for them.

These types of strategies encourage very bad habits and are toxic to your trading mindset.

I would like to talk with you about the extremely powerful nature of swing trading – possibly the simple solution you’ve be searching for all this time which could change your chart reading skills, today.

What is Swing Trading?

I am going to assume you’ve looked at a price chart before. You would have noticed the market doesn’t move in straight ‘bee lines’ from point A to B on the chart.

Instead price ‘swings’ from high and low points, gradually stepping it’s way higher or lower down the chart. These ‘swing highs’ and ‘swing lows’ are key technical points on a price chart which can help a trader anticipate where the market is heading with high accuracy.

These technical points are more familiarly known as swing points.

‘Swing’ trading is the skill of reading a price chart and tracing the footprints swing points leave on the chart to anticipate future price movement, and building high probability, high ROI trades off them. “Buying the dips and selling the rallies.”

A trader’s ‘style’ can be broken down into four main categories.

  • Scalpers (Short term, quick in-and-out trading)
  • Day Traders (Intra-day trading, no overnight positions)
  • Swing Traders (Medium to long term, trend momentum & range trading)
  • Position Traders (Long term, ‘buy and hold’ trading )

Swing trading sits in a ‘sweet spot’ between the caffeine fueled day trader and the ‘buy and hold’ position trader.

It is the ‘Goldilocks’ approach – not too fast but not too slow.

A nicely paced trading style, centered around momentum trading. You can let your trades run to take advantage of what’s happening on a bigger scale. It’s less taxing on you (mentally & physically) – and most important of all, it’s a very lucrative trading methodology, especially for the little effort you put in.

These strategies don’t normally appeal to many traders on first impression. It appears too boring to most new traders – they want trade signals rolled out at high frequency, because of the dangerous misconception of ‘more trades = more money’.

This mentality pushes the majority of the herd towards lower time frames to where toxic day trading and scalping systems are deployed.

Let me share with you why swing trading is one of the most effective approaches, and my favorite methodology of Forex trading

Checkpoint

Less effort required

Swing traders have the advantage of getting the biggest ‘bang for their buck’.

Swing traders don’t have to invest a lot of time in front of the charts to be able to trade at full potential.

Most swing traders, including myself, use the daily time frame to perform technical market analysis.

More aggressive swing traders will switch to the 4 hour time frame to ‘tweak’ trade entries, and now more recently we’ve been using 12 hour charts in the war room.

Unlike scalpers and day traders who have to sit in front of the trading screen to wait for signals, swing traders can go with a more set, forget and collect approach.

Swing traders who use the end of day trading approach, only have to check the markets at the daily candle close. It’s always recommended to use a broker that serves you a daily candle which closes inline with the New York 5 pm business close.

If a trade signal is found after the close of day, swing traders can setup up their trade order by inputting entry, stop and target prices, and then walk away from the computer to go about their business.

By setting and forgetting your swing trade positions, you only have to check the markets once per day for about 20 mins.

This ‘hands off’ approach helps smooth out the emotional roller coaster that many traders struggle with. The idea is to let the trade run its course, not fret over every minor move the market makes throughout the day.

Swing traders who use intra-day charts like the 4, 8 and 12 hour chart still only have to spend a small amount of time analyzing candlestick closes in contrast to someone who is sitting in front of the screen cycling through 5 and 15 min candles.

Checkpoint

Develop Strong chart reading abilities

Swing traders can become master chart readers by learning how to read the higher time frames.

One of the benefits of the daily time frame is the fact that it filters out a lot of the intra-day noise. By getting rid of the noise and focusing on the bigger picture – you will find true clarity, probably for the first time in your trading.

These time frames above the 1 hour chart allow you to focus on the core market movement and identify trend momentum much more easily.

It only takes a couple of seconds to get your bearings on a time frame that offers you more data. Trade signals and price action patterns are much more easily defined in contrast to the lower time frames, where price can be very ‘messy’.

Human behavior rarely changes. As a collected group, we keep doing the same thing over and over again in the markets.

The market continues responding the same way to certain situations, which is great for those who tap in and exploit the reoccurring behavior.

The collected market psychology is visible in the candlesticks, thus unique situations present themselves as price action patterns.

An example of a price action pattern is the rejection candle reversal pattern, which predictably manufactures the same response from the market as it has in the past many times before.

By using historical data and observing the past behavior of pin bars, we can start to identify low risk trading opportunities at key turning points in current markets.

As a swing trader, you will eventually be able to read the ‘herd mentality’ in the candlesticks and accurately anticipate future price movements based on observations in the past .

Checkpoint

The Art of Swing Trading

We’re taking about the skill of catching trend momentum at the optimal moment.

A lot of ‘gurus’ say to take the breakout of previous swing highs or lows – I don’t like this approach because these recommended entry levels are consistent turning points in the market and are prone to breakout traps.

The smart way to approach swing trading is to look for short term oscillations (counter trend movements) within in a trend to take advantage of good buying or selling opportunities.

First you need to identify ‘swing levels’ where old resistance becomes new support, or the other way around.

When a swing level is tested, traders can look for buy or sell signals generated by their trading system. In our case we look for price action reversal patterns to enter us into a trade.

The idea is to buy on weakness and sell on strength to get you into the trend at the best possible prices.

Read that again…

Buy on weakness
Sell on strength

The example above demonstrates the advantages of buying on weakness in an uptrend.

Smart trading is exploiting those short term oscillations (counter trend movements) to enter into the trend momentum at these swing levels.

Swing trading allows you to catch the ’meat’ of the move by generally holding a position that can last anywhere from a few days to a few weeks – sometimes months.

Much better than day traders and scalpers who spend hours in front of the screen to pick up breadcrumbs.

Slow and steady wins the race here. The advantage here is you don’t need any sophisticated computer setups or ultra-high speed connections.

Spreads don’t become an issue either, when you’re pulling in 150-200 pip or more on each trade, you’re not going to kick and scream about a spread charge from your broker greater than 3 pips.

Checkpoint

Managing trading with your life

Let’s face it, we all have busy lives.

Most of us have full time day jobs, studying or looking after kids at home. That doesn’t free up a lot of time to allocate to spend in front of the computer for Forex trading.

Most new traders who opt into high frequency trading find it hard to blend it into their busy lifestyle. It consumes much of the traders life – often making them very anti social, and if trading isn’t going well, a very negative person to be around also.

Location can be a problem for some people as well. The trick is to keep trading as simple as possible.

Their time zone may not be a good fit for intra-day systems, especially if you have to get up at 3 am to when volatility is high enough.

This is where swing trading really shines.

You only need to check the markets at key intervals which are often 8-12 hours apart.

If you go a step further and focus only on the closing price for the day to do your price action swing trading analysis – you really only need 10-20 minutes per day to allocate to the trading screen to set or check your trades.

By using the set and forget approach, there is no need to ‘babysit’ your trades or watch over them.

Once your trade is set, the market takes over and you go live your life. So, it’s possible to trade on a more casual timetable but still reap the benefits of a full time trader.

Checkpoint

In a Nutshell

This type of trading may not appeal to everyone at first, but if you find your system frustrating – I really suggest you look into this.

Some traders need time to adapt to certain methods, or try others systems before deciding which is or isn’t a suitable fit for them.

I am however confident that if you persist and truly want to become successful with Forex, that you will eventually find yourself swing trading with the rest of us.

Traders who are interested in maximizing their profits for the minimal amount of time invested should really consider making the switch to swing trading strategies.

The goal of a swing trader is to take advantage of momentum until it has run its course. We use price action trading strategies and combine them with swing trading methodologies to capture the bulk of trend movements.

The benefits of price action trading and swing trading marry well together and create a symbiotic relationship that produces a stress free, simple, logical and stable trading approach to the market.

If you would like to know more about price action swing trading, become a master chart reader, or are just looking to gain a true edge in the market – you may be interested in our price action protocol trading course.

To find out more about the course, see our War Room Trader Membership for price action and swing traders.

Let me know in the poll below what your favorite style of trading is at the moment.

Swing Trading Strategies That Work

Last Updated on March 16, 2020

Does the market always seem to move lower after you hit the buy button?

Do you wish your trade will be over soon because you HATE to watch your P&L swing up and down?

Are you frustrated to see the market ALMOST reached your target profit, but only to do a 180-degree reversal and hit your stop loss?

If you replied YES to any of the above, then I’ve got the answer for you.

Now you might be wondering:

“What is swing trading and how does it work?

Because in this post, you’ll learn everything you need to know about swing trading — including 3 swing trading strategies that work.

Then let’s begin…

Swing Trading Basics: What is swing trading and how does it work

Swing trading is a trading methodology that seeks to capture a swing (or “one move”).

The idea is to endure as “little pain” as possible by exiting your trades before the opposing pressure comes in.

This means you’ll book your profits before the market reverse and wipe out your gains.

Here’s an example:

Next, here are the pros & cons of swing trading…

Pros:

  • You need not spend hours in front of your monitor because your trades last for days or even weeks
  • It’s suitable for those with a full-time job
  • Less stress compared to day trading

Cons:

  • You won’t be able to ride trends
  • You have overnight risk

Then let’s move on…

Swing trading strategies #1: Stuck in a box

The swing trading strategies I’m about to share with with you have “interesting” names attached to it.

This helps you understand the trading setup better so you know how to apply it to your trading.

Now, let me introduce to you the first swing trading strategy for today…

It’s swing trading in a range market because the market is “stuck” between Support and Resistance (somewhat like a box).

Here’s how it works:

  1. Identify a range market
  2. Wait for the price to break below Support
  3. If the price breaks below Support, then wait for a strong price rejection (a close above Support)
  4. If there’s a strong price rejection, then go long on the next candle open
  5. Set your stop loss 1 ATR below the candle low and take profits before Resistance

Here’s an example:

Now you might be wondering:

“Why should I take profits before Resistance?”

As a swing trader, you’re only looking for “one move” in the market.

So to ensure a high probability of success, you want to exit your trades before the selling pressure steps in (which is at Resistance).

Good because we’ll be applying this concept to the remaining swing trading strategies.

Swing trading strategies #2: Catch the wave

This swing trading strategy focuses on catching “one move” in a trending market (like a surfer trying to catch the wave).

The idea here is to enter after the pullback has ended when the trend is likely to continue.

This doesn’t work for all types of trends.

Instead, you want to trade trends that have a deeper pullback because there’s more “meat” towards the upside.

As a guideline, you want to see a pullback at least towards the 50-period moving average (MA) or deeper.

Now, let’s learn how to catch the wave with this swing trading strategy…

  1. Identify a trend that respects the 50MA
  2. If the market approaches the moving average, then wait for a bullish price rejection
  3. If there’s a bullish price rejection, then go long on next candle
  4. Set your stop loss 1 ATR below the low and take profits just before the swing high

Here’s an example:

Do you want more examples?

Then go watch this training video where I’ll show you how to identify more swing trading setups step by step…

Now you might be wondering:

“But why the 50-period moving average?”

I go with the 50MA because it’s watched by traders around the world so that could lead to a self-fulfilling prophecy.

And usually, the 50MA coincides with previous Resistance turned Support which makes it more significant.

Now, it doesn’t mean you can’t use 55, 67, 89, or whatever moving average you choose because the concept is what matters.

Swing trading strategies #3: Fade the move

Now you’re probably thinking:

“What’s the meaning of fade?”

It means… to go against.

Basically, you’re trading against the momentum (also known as counter-trend).

So, if you’re the trader that likes to “go against the crowd”, then this trading strategy is for you.

Here’s how it works…

  1. Identify a strong momentum move into Resistance that takes out the previous high
  2. Look for a strong price rejection as the candle forms a strong bearish close
  3. Go short on the next candle and set your stop loss 1 ATR above the highs
  4. Take profits before the nearest swing low

Here’s an example:

Do you want more examples?

Then go check out this training video below for more detailed examples…

Now…

You’ve learned 3 types of swing trading strategies that work.

But there’s one important thing that’s not covered…

Your trade management.

What if you enter a trade and the market didn’t hit your stop loss?

But neither has it reach your target profit.

So what should you do?

Do you hold the trade?

Do you exit the trade?

Well, I’ll cover all these and more in the next section…

How to manage your trades so you can trade with confidence and conviction

Now, with trade management, there are 2 ways you can go about it…

  1. Passive trade management
  2. Active management

1. Passive trade management

For this method, you’ll either let the market either hit your stop loss or target profit — anything between, you’ll do nothing.

Ideally, you want to set your stop loss away from the “noise” of the markets and have a target profit within a reasonable reach (before key market structure).

Here are the pros & cons of it…

Pros:

  • Trading is more relaxed as your decisions become more “automated”

Cons:

  • You can’t exit your trade ahead of time even though the market is showing signs of reversal
  • Possible to see a winning trade become a full 1R loss

2. Active management

For this, you’ll watch how the market reacts and then decide whether you want to hold or exit the trade.

Now, this is important…

For an active approach to work, you must manage your trades on your entry timeframe (or higher).

Don’t make the mistake of managing it on a lower timeframe because you’ll scare yourself out of a trade on every pullback that occurs.

Here are the pros & cons of it…

Pros:

  • You can minimize your losses instead of getting a full 1R loss

Cons:

  • More stressful
  • You may exit your trade too soon without giving it enough room to run

If active trade management is for you, then here are two techniques you can consider:

  • Moving average
  • Previous bar high/low

Moving Average

This technique involves using a moving average indicator to trail your stops.

You’ll hold on to the trade if the price doesn’t break beyond the moving average.

If it does, then you’ll exit the trade.

This technique is useful for swing trading strategies like Catch the Wave because the moving average tends to act as a dynamic Support & Resistance in trending markets.

Previous bar high/low

This technique relies on the previous bar high/low to trail your stop loss.

This means if you’re short, then you’ll trail your stop loss using the previous bar high.

If the market breaks and closes above it, then you’ll exit the trade (and vice versa).

Here’s what I mean:

This technique is useful for swing trading strategies like Fade the Move because the market can quickly reverse against you.

So, you don’t want to give your trade too much room to breathe and quickly cut your losses when the market show signs of reversal.

Frequently asked questions

#1: Which of the 3 trading strategies above is the best?

There’s no best trading strategy out there and it all depends on your trading style to see which approach resonates with you.

For example, if you’re a trend trader, then you’ll probably look for trend continuation setups using Strategy #2. If you’re more of a contrarian trader, then Strategy #3 might be more suitable for you to fade the move.

#2: How will I know if there’s a bullish or price rejection on the next candle?

You’ll have to wait for the candle to close first before placing a trade. If the candle closes strongly near the high of the range, then it’s a bullish price rejection. If the candle closes strongly near the low of the range, then it’s a bearish price rejection.

Conclusion

So here’s what you’ve learned:

  • Swing trading is about capturing “one move” in the market by exiting your trades before the opposing pressure comes in
  • Stuck in a Box is a swing trading strategy suited for range markets
  • Catch the Wave is a swing trading strategy suited for trending markets
  • Fade the Move is a counter-trend swing trading strategy
  • Passive trade management is less stressful but you must be comfortable watching winners turning into a full 1R loss
  • Active trade management is more stressful but you get to minimize your losses

Now here’s my question for you…

Do you have any swing trading strategies to share?

Leave a comment below and let me know your thoughts different swing trading strategies

Intraday Trading Vs Swing Trading: Which Is Really Better?

Being a stock trader you need to know your trading style. This helps you to adopt the right trading methodology. Stock selection, holding period, exit strategy and the trading instruments are different for intraday trading and swing trading. Here i have decided to write the pros and cons of both the trading formats and you decide and let me know which suits you.

What is Intraday Trading?

Any trade which is exited within a day is qualified as intraday trading. This includes both long as well as short positions. It can be executed in cash market as well as in derivative market such as futures and option.

What is Swing Trading?

Any trade with a holding period of 5 to 10 days is qualified as swing trading, this can be otherwise called as positional trading or delivery trading. Short position can be created only on derivative segment.

The primary difference is the duration. But the trader can consider some more factors while choosing between intraday and swing trading.

Full time vs. Part-time profession.

Intraday trading needs your full time presence between 9:00Am to 3:30Pm from Monday to Friday. Generally the real time analyses are followed to identify the momentum of stocks. You cannot decide the stocks to trade for intraday in a day advance. It is not that every day is profitable, but if you follow some logical steps you may have net profits over a period of time. Hence intraday trader should be available in the market over a period of time.

Swing traders can carry out their analysis by end of the day; it may not require the trader’s presence throughout the market hours. You need the market access only to execute the order.

Stock Selection criteria.

Intraday traders need to be really fast and spontaneous to the change of market trend. The key macro data and other announcement may drive the market for a short while. Hence the risk tolerance level should be balanced according to the market volatility. The intraday price moves are not driven by the actual company performance, rather it is driven by market sentiment. So the stock selection for intraday trading is based on global market performance, sectors which drive the market and spot the stock with volume indication.

Swing traders follow short term trend, by deriving the demand and supply by following the price and volume. The concepts such as Dow Theory, Price Patterns and Candlesticks are use to understand the current market trend. Many swing traders also use the technical indicators and line studies to gauge the price trend. The market news and other events are discounted by the market; hence technical trader can ignore news and other events, simply stick to price and volume and decide the stocks to trade.

Emotional control.

Success in stock trading is largely dependent on emotion behavior. It involves lots of decision making, so one should learn to take rational decisions i.e. without fear and greed. This can be achieved by practicing technical analysis over a period of time.

Intraday traders should have significant tolerance level. You may experience failures and success; this may excite you or may disturb you. Both these emotions are not good for traders. Trading exposure is generally provided for intraday, but it increases risk to the capital. Hence it may influence the trading decision emotionally.

Swing traders are comfortable in handling their emotions as they select stocks in no hurry. Moreover the execution and decision making (analysis) are at two different times. Hence even novice traders may fine positional trading comfortable.

Infrastructure.

Right from selection of stock brokers, research tools, and access to market information everything is different for intraday and swing traders.

Intraday traders needs low brokerage account as the trading volume is high and they are expected to turnaround their positions very often. The Real time data are generally expensive and it is inevitable to track markets closely. They have to be well connected to the market news.

Positional traders generally use the daily charts which is available at free of cost from various sources. Stock EOD Charts for positional traders to study the charts and take rational trading decisions. Instead of real time filter they need EOD scanner to filter out stocks with momentum. The cost to carry out analysis is generally low and it can be done at their convenience.

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Investments.

The returns are directly proportionate to the amount of investment you make. Meanwhile the risk is expected to increase along with the increase in capital.

Intraday traders need less trading capital to start trading, as they get some leverage from the broker. The cost of intraday training is also low when compared to swing trading in cash segment.

Swing traders need a sizable capital to get decent returns, but they can use futures and option to leverage their trades accordingly. Trade diversification and money management concept is very important to achieve profits in long run.

To conclude.

If you are choosing stock trading as your career then intraday trading should be chosen. If you are trading to earn some extra income then positional trading can be chosen. For both the trading styles in-depth knowledge about stock trading is must to avoid losses. EQSIS provides professional stock trading and analysis training which will help you succeed in stock market.

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