Swing trading is a favorite style of trading for many Forex traders, especially among the beginners. It is a cycle of trading that lies somewhere between day trading and trend trading. In contrast to a day trader who holds the position for a few hours but never overnight, a swing trader holds the position for a few days, normally between 1 and 4 Days, while a trend trader would be one who holds a position for a relatively longer period.
Choose the Currency Pair Carefully
To be successful in swing trading, an investor has to pick up a currency pair that moves a lot relative to each other. It has to be a popular currency pair too so as to ensure liquidity in trading. The essence of swing trading is studying the financial charts and determining how currencies swing between the support levels and the resistance levels. The trader anticipates these swings and then rides on a swing for a few days as he/she knows it will last for a few days and will continue to move in particular direction. The trader knows that the currency will start on a swing in the reverse direction after it reaches its support or resistance level and then makes a profit with the swing in the opposite direction. So the currency trader looks for swings and trades both long and short the currency pair. To do this, you should choose charts like the weekly chart so as to ride on a slightly longer trading period (as compared to day trading).
Do Not Attempt Swing Trading When the Market Is Volatile
However, swing trading works favorably only during times when the currency rates are stable and not during the time when the market is termed bullish or bearish. Thus you must initiate trading as a swing trader only when the Forex market is quiet. Look for the times when currency pairs rise and decline after remaining stable for a few days and this pattern is repeated again and again.
The mantra to become a successful swing trader is to be able to identify the limit to which a currency would move in a direction and then switches direction. This requires you to identify the resistance and support levels clearly. If you can do so correctly, you will get a lot of chances to trade and book profits during the swing of the currency in one direction and then back. For a swing trader, it is therefore important to understand the trading trends for this type of trading.