It is every Forex traders dream to buy a currency pair at the lowest price possible and then sell at the exact closing high. If we had this ability we could have capitalized on every last pip in the GBPJPY daily uptrend pictured below! While this is something we as traders aspire to do, it’s not always possible. The next best thing is to take advantage of market swings within an existing trend. So what is Swing trading and how does it work?
- Swing Trading
- Timing Entries
- Trading Tips
Trading the Swing
Swing traders keep this buy low sell high mentality, and look to take advantage of dips in the market. While swing traders realize they may not identify the exact high or low of their favorite currency pair, they can enter into the market at a favorable price as the market temporarily dips. Normally this is done through trend identification and an entry mechanism like an oscillator.
To time out entry into the market, an oscillator such as Stochastics, MACD, RSI or CCI can be employed. The trick is to buy into an uptrend after a decline on short term bearish momentum. Below we can see a Stochastic oscillator in use on the daily chart. Trader will wait for momentum to turn bullish after the %k line returns from an oversold value beneath 20. The objective is to buy into an existing uptrend, at the lowest possible price. This way the Swing trader is ready to sell high, when their profit projections are met.
Learn Forex – GBPJPY Retracement Swings
(Created using FXCM’s Marketscope 2.0 charts)
Final Trading Tips
Swing trading can be a very natural and intuitive way to approach markets. Buy high, sell low. Seems easy right? However, traders will have to remain patient and wait for a swing to occur. While our first instinct may be to jump in to the first trend we see, we should always wait for an appropriate entry signal prior to execution. This will allow us to maximize potential returns by consistently entering into trends at favorable prices.
As with any trading strategy, traders should always utilize a stop order on their positions. In the event that an existing trend comes to an end, traders will look to close any existing directional trades.
---Written by Walker England, Trading Instructor
To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.
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