Swing trading is a simple to understand way if trading which is ideal for novices – its exciting its fun and as trades open and close quickly, it requires less discipline than long term trend following. Lets look at a simple Forex swing trading strategy I have used for twenty years that can help you achieve some great Forex profits.
First let’s look at the logic of swing trading; the logic is based upon the fact that humans make markets and they will always push prices to far up and to far down due to the emotions of greed and fear. You will see this time and time again in any trend, as prices rise or fall, to quickly and then come back to more realistic levels.
Your aim as a swing trader, is to sell into overbought levels and buy into oversold levels and make a quick profit, as the price retraces back to fair value – so how do you do this?
Watch for a price spike up or down and look for a level of support or resistance to buy or sell into. You then need to check price momentum and get some momentum indicators to gauge how overbought or oversold prices are and two good ones to learn are – the stochastic and RSI.
These indicators and the way to use them can be learned in a few hours and we have covered them in other articles, so look them up and learn them.
You can simply see from there set up, if prices are overbought or oversold and you then wait for a move to be confirmed. In an up trend, you would look for price momentum to fall into the level of resistance you think will hold. As soon as momentum starts to drop, you enter a trade and put your stop behind resistance next, you need a target to aim for and take profit.
A good profit taking area which normally represents fair value in a strong trend is the 20 day moving average and you want to take your profit before it hits this level. Swing trading profits can soon disappear, so you want to get out before the level is tested – Why? Because if it is a strong trend, prices will bounce back from it.
When you get close to the 20 day moving average and have a good profit, liquidate your trade and wait
for the next one – it really is that simple!
A typical swing trade will last a day to a week at most and if you do it correctly, you will have low risk, high profit potential and the ability, to generate yourself a great second income in around 30 minutes a day.
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