Swing trading signals forex
Forex trading styles can be classified by the length of time traders expect a winning trade to last. I have written before about position trading where trades may be held for weeks or months , and scalping where trades may be held for seconds or minutes. Today, I am covering Forex swing trading, where trades may be held from one to a few days. Swing trading is very popular with retail Forex traders for two main reasons. Firstly, Forex swing trading strategies usually contain entry and exit techniques that require checking the chart perhaps only once or twice each day, or at most every few hours.
This relatively relaxed schedule is very suitable for people with busy lives and full-time jobs. It could be said that position trading also has a relaxed schedule, so is equally suitable for busy traders. This is true, but as Forex position trading is really always trend trading, profitable position trading usually requires a low win rate, and a great deal of patience in waiting until the correct time to harvest winners.
Many retail traders struggle psychologically in coping with these two issues, so as an alternative, they try swing trading, where profitable trades are exited more quickly. I believe that the best chance new traders have to trade Forex profitably is by position trading, and conversely that one of the reasons so many lose money is because they choose instead to swing trade, without appreciating fully how challenging it can be.
I will try to explain why, and in the process show which swing trading strategies and swing trading techniques tend to work best in swing trading Forex. Do you have the right plan?
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Most new traders that go for swing trading are taught to look for certain Forex candlestick formations , in alignment with support and resistance. In this style, traders are taught to be extremely selective in picking trades, and exhorted to stay on the sidelines unless everything looks perfect.
Forex Swing Trading Strategies | DailyForex
It is certainly possible to make money trading like this, but it is hard for most people to make more than just a little profit with this style.
There are several reasons for this:. This style can be very difficult psychologically , especially when the trader sits on the sidelines and sees a great move play out. This can lead to an overly itchy trigger finger on the next trade. Candlestick analysis on its own is mostly useless: ALL of these other factors are in themselves more powerful than candlesticks, yet the candlesticks are the number one factor traders are taught to focus on.
Fundamental and quantitative factors are usually ignored. Trend trading is the most easy and natural way for new traders to profit in the retail Forex market. However, there are a lot of misconceptions about how to trend trade Forex, which usually come from the misapplication of methods that are more suitable to trading stocks or commodities. Forex pairs tend to move much less than stocks and commodities, therefore applying traditional trend trading breakout strategies indiscriminately will almost certainly lead to losses over time.
Forex Swing Trading Signals | Forex Swing Trading Strategies
Swing traders are looking to exit from winning trades from one to a few days after entry. It is very problematic to apply this time frame to trend trading, as in Forex trend trading profits are statistically derived from the big winners which are allowed to run. The key thing to know is this: Forex markets tend to spend more time ranging than trending, and even when they trend, they usually range within the trend to some extent, with many retracements.
An alternative to looking for candlesticks patterns or breakouts is instead to apply a mean reversion trading strategy. This kind of trading tends to be overlooked, but statistics show why it can be applied profitably in Forex, especially in swing trading.
Historical data shows that the best swing trading indicators tend to be mean reversion indicators. A very simple mean reversion trading strategy could be to wait for the price to become over-extended.
Compare this to a robust trend trading strategy over the same time period and using the same currency pairs, where a buy trade is made at the end of each week that closes above the price 3 months ago, or a sell trade if the opposite is true. This trend trading strategy generated an average profit per trade of 0. It produced about 8 times as many trades as the mean-reversion strategy.
If we only entered trades in the direction of the 3 month trend when the previous week closed in the same direction as the trend, the strategy becomes unprofitable, with an average loss per trade of However if we only entered trades in the direction of the 3 month trend when the previous week closed against the trend direction, the strategy becomes even more profitable, with an average profit per trade of 0. Note also that this has produced relatively steadily rising equity curve over the years:.
Finally, what if we combined these two strategies even more directly: One of the most popular mean-reversion indicators is the Bollinger Band. Classically, when the bands are relatively wide, in Bollinger band trading you enter a position when the price is reversing off an outer band, and look to exit when the price is in the vicinity of the central band. There are additional methods of Bollinger band analysis that can also be used. Previously we looked at using simple price levels, but a more sophisticated swing trading strategy that takes advantage of mean reversion can be devised using Bollinger bands or other oscillators.
I am careful not to say that you cannot make money by trading more typical strategies such as breakouts.
I am saying that the numbers show that unless you have some good methods for choosing which breakouts and which currency pairs you trade, the odds are strongly against you. Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch.
He is certified in Fund Management and Investment Management by the U. Learn more from Adam in his free lessons at FX Academy. I just found Forex swing trading and I really enjoy it. I am glad to find more information here and will use for my strategies. I hope i start to make more money soon. Registration is required to ensure the security of our users.
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Forex Articles Trading Strategies Forex Swing Trading Strategies Forex Swing Trading Strategies. Swing Trading for Dummies Swing trading is very popular with retail Forex traders for two main reasons. Stick to the plan! Learn to trade better Learn new tips and trading strategies from the pros at AvaTrade. Seven Trading Sins The seven deadly sins you must avoid in order not to wipe out your account.
Adam Lemon Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch.
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