Today we are going to talk about trading styles; specifically one in particular: the swing trading.
I make this post because it can help you find your type of trading. So, take a seat and let’s go!
1. What is this style of trading?
This strategy commonly called “swing” is characterized by keeping trades open for several days. Sometimes this type of strategy goes from 3 to 5 days and in some cases it can take a couple of weeks.
2. What is the objective of Swing Trading?
The main objective of this type of trading is to identify a certain upward or downward trend and capture said movement or swing, taking advantage of the increase or fall in the price of an asset in a relatively short period of a few days.
The swing trader keeps his position open for several days, looking for a higher return on his investment.
However, said exposure generates greater risk in exchange for fluctuations in the prices of the shares resulting from news and events related to said action.
3. How swing traders make decisions
From what I have told you in the previous point, the importance of the risk-benefit ratio is obvious when it comes to using this trading strategy.
In the course of the strategy, the swing trader or the strategy in question must take positions based on a basic learning based on 2 fundamental points:
1- Identification of assets that present a clear upward and/or downward movement, that offer good performance in a period of a few days.
2- Determine the entry and exit price of the operation that offers a high risk-benefit ratio or has a high percentage of success if that ratio is not so high. In the end, either you win by being right or you get a little right but you win a lot when you get it right (read this several times because it is important).
4. How much time do you need to invest to trade this style of Trading?
The swing trader usually performs his operations in time frame one hour, 4 hours and even daily. He usually only spends a few minutes a day reviewing his trading, the rest of the time Carpe Diem and that the scenarios evolve at their free will.
5. What is the key to this popular trading style?
Volatility, in short.
That is, the more volatile the market and the greater the fluctuation of short-term price movements, the greater the number of opportunities to execute swing trading.
And patience, the most important thing.
Know how to wait and not be constantly entering and leaving the market.
6. How to Swing Trade Forex
First of all, you must remember that swing trading consists of a trading style and not a strategy itself.
Therefore, we can use countless strategies in swing trading. Next I am going to explain 2 essential concepts for two types of swing trading strategies:
- trend. The strategies that follow this concept look for the moments to exploit the trend that already exists in an asset. For example, in a rising market we try to take advantage by buying.
- Anti trend. Strategies of this type aim to make a profit when the trend changes. An example in this case would be looking for purchases when an asset falls in favor of this movement is going to change.
7. Swing Trading Strategies
We could break down this swing trading strategy into 3 points:
- We look for a trend
- We wait for a change in trend
- We enter the market after seeing that the trend change has taken place.
7.2. against trend
In this case, we go the opposite of the previous strategy.
We also try to spot the short-term trend, but now we will try to take advantage of how often that trend tends to break.
We should note that the start of a trend can be followed by a period of retracement before the trend resumes.
A swing trader who is trading against the trend might try to swing catch this reversal period.
And for that, we try to recognize the break of the trend.
When we are in this type of strategy, it is very important to maintain a strong discipline if the price moves against us; In this case, we have no choice but to accept our mistake and assume the more than likely losses.
8. How to improve your swing trading strategy
Let’s go with some points for it:
1- Match our operation with the existing long-term trend.
2- Use a secondary filter to confirm what we are thinking. For example: If we are trading against the trend and thinking of selling simultaneously, we check the RSI indicator (Relative Strength Index) to see if it indicates that the market is overbought.
9. Risk management in Swing Trading
Some of the fundamental risks that a trader can run when implementing swing trading are:
- Accumulation of swap commissions: The swap is a daily interest rate charged on positions held overnight.
- Fundamental risk: Economic and political events over the weekend could affect financial markets at the open and this can reverse the trend and disrupt your strategy.
But of course, everything is not perfect and it has its pros and cons. These are the risks and you must learn to manage them as much as possible.
Be and stand firm:
- Define your maximum acceptable loss.
- Do not risk your account in any operation, not even a high %.
- Consider increasing your account deposits to diversify your risk.
- Know your risk profile as a Swing Trader.
10. On the other hand, some advantages of swing trading
There are a number of advantages associated with swing trading, especially for beginning traders. Today I will tell you a couple of them:
10. 1. Swing Trading requires less time
Out of curiosity, swing trading tends to appeal to the beginner’s mindset, simply because it uses a more user-friendly timeframe. A swing trader spends much less time analyzing and trading and this allows him to think and place positions. And as I told you before, they only need to spend a few minutes a day doing trades.
10. 2. Swing Trading Takes Advantage of Longer Trends
Swing trading allows traders to take advantage of weekly, monthly, and yearly trends. Analyzes performed on larger time frames are often stronger analyses.
Mainly, I advise you to take into account that a complete management of the swing trading system implies the incorporation of good money management and identification of viable markets by the user.
It is true that whoever does not risk, does not win, but apart from falling into demagogy, I advise you to handle your operations with your head, weigh them and execute them at the moment you think there is less risk of falling into loss.
Without hardly realizing it, every time you get down to business and even make mistakes, you will be taking a new lesson; because in the world of trading, the patience It is one of the most recommended virtues.
Enjoy and try your strategies, only then can you move forward and find out what trader you are and/or want to become.
As always, thanks for coming this far.
We read soon.