Trading styles

Trading styles

What is swing trading?

• Swing trading aims to capitalize on price fluctuations alongside more significant market trends.
• Swing traders look for chances to trade within a shorter period, from a few days to many weeks. Not to be confused with day trading, where the goal is to turn a profit by the end of the day. Further, unlike position trading, where a deal may be left alone for months or even years, day trading is not a long-term strategy.
• Name:
• Trading on a whim or a swing
• Timeframe:
• Soon-to-Medium Term
• Utilizes the following methods to locate potential trades:
• Most of the time, it’s an investigation of technical details.
• Requires:
• Indicators-related knowledge
• If you’re swing trading, your goal is to capitalize on price fluctuations during a brief phase of a larger market trend. Most assets see significant countertrend movement even during extended bull or downturn markets. The goal of swing traders is to make money off this fluctuating pricing.
• Let’s pretend the pound-to-dollar exchange rate has a prolonged upswing and moves from 1.3245 to 1.3478 over many quarters. This trend would never appear like a straight line on a graph. There may be a period, days, or weeks when there is no positive movement while buyers and sellers struggle for dominance.
• Swing traders focus on exploiting these minor price fluctuations. They will attempt to enter the market at the start of a little trend (swing) and hold until it finishes.

Swing trading and forex

Profitable forex swing trading strategies exist.

The goal of swing traders is not to predict the future; instead, they seek to benefit from momentum fluctuations. Swing trading benefits from the forex market’s strong liquidity, narrow spreads, and 24-hour accessibility (during market hours).

Swing trading forex example: NZD/USD

The broad image of the New Zealand dollar’s value on the chart below reveals a declining trend. A displayed swing transaction, however, records an upward trend.

• Consider the orange horizontal line. This is an example of a “key support level.” It was put to the test three times between the end of May and the middle of June, and it passed each time.
• The New Zealand dollar had been recovering until it suddenly crashed through the 0.649.00 mark and kept falling. At this juncture, a swing trade was a different option. When it hit 0.630, it was already down around 9 percent from its March high. It has been four years since New Zealand dollars were valued as low as 63 cents.

Looking for consolidation

• Take another careful look at the chart. After weeks of falling steadily, the chart has stabilized at about the 0.630 level, where the red arrow points.
• Traders often use this indicator to foretell a swing trading opportunity. However, remember that we are not considering a pair’s long-term worth but rather its short-term volatility.
• So, the red arrow shows when it would have been most beneficial to purchase NZD, given the benefit of hindsight. This is the ideal condition that traders want to find when they speak about “buying the drop.”

Closing the trade

• The New Zealand dollar first fell much lower before rapidly appreciating to levels of 0.645 within a few days (where the green arrow is positioned). Someone who purchases around the red arrow and sells about here has completed a successful swing trade.
• Keep the value of self-control in mind. A trader who wanted to wait for an even higher profit may have had trouble since the line quickly swung back down, reducing any gains. It took until November to go back to 0.645. Executing trades in a cold, calculated manner, unaffected by your feelings, is crucial.
• Remember that successes in the past do not guarantee success in the future.

How do swing traders find opportunities?

• Swing trading, like scalping, often relies on technical indicators to determine when to join and quit a trade. As we’ve seen above, one frequent strategy is to look for regions of support and resistance, which often lead to price reversals.
• Swing traders often use a technical indicator called the relative strength index (RSI), which we will discuss in more depth in the Technical analysis course but may introduce here.
• The Relative Strength Index (RSI) is below a EUR/USD chart.

• AThe Relative Strength Index (RSI) is a momentum oscillator that evaluates the rate of price change. The range of the RSI indicator is 0-100. Above 70 indicates overbought conditions, while below 30 indicates oversold conditions, according to the standard RSI interpretation.
• The purple area in the preceding chart indicates a neutral market condition, with prices falling between 30 and 70. A swing trader’s opportunity presents itself when the indicator drops below 30 or rises over 70.

Buying when a market is oversold

First, let’s check out those two green circles over there. A reading below 30 on the RSI measure, as seen in the bottom circle, indicates an oversold market. RSI is pointing to buy trade, and the market has responded favorably to this forecast.

Selling when a market is overbought.

• But there will still be another adjustment at some time. The market is considered overbought when it reaches the blue circle on the chart. You may earn a nice profit by entering a short trade now.
• Even said, RSI is not a magic wand that will always lead to profitable trades. The bottom red circle shows another considerable drop into the white. However, the accompanying chart does not show a similar comeback after a negative trend this time.
• The key to successful trading is being correct more often than not, yet even the world’s finest traders will sometimes make mistakes. And to make good use of risk management when you make an incorrect judgment.

Swing trading takeaways

Swing trading is an intermediate-term strategy between day trading and position trading.

Swing traders anticipate and capitalize on short-term shifts within broader trends.

When swing trading, among the many technical indicators at your disposal is the Relative Strength Index (RSI).