A Complete Guide for Swing Traders
In the Forex business, a trader can follow a lot of strategies when trading. Among all of those styles, swing trading is a potential one because, in this method, a trader has to wait for a swing to execute his trades. Many intermediate investors and some professionals use this strategy to make profits. There are multiple benefits of using this trading strategy, and this is why we also suggest our newbie readers use this strategy for making consistent profit. Since this is a potential trading strategy in the Forex world, we will help you to learn the ins and outs of this method.
How does this type of trading work?
Swing trading is not like position nor day trading. It is actually the combination of both. In this strategy, an investor needs to wait for a rhythm to take place in the platform. For this, he may need to wait for a day or even a few weeks. This strategy is a way to earn a good amount of profit. All that a trader has to concern about is the entry and exit point. As a swing investor, you have to look for two types of fluctuation –
- Lows: These take place when the price reaches the lowest value and starts moving upward again. It is a chance for a longer deal. A newbie may close it during the highs.
- Highs: These take place when the market reaches the peak value and starts going down. During a short trade at the highs, you can close the deal at the lows.
Note that the highs and lows are very important points for the retail traders. If you trade CFDs with Saxo capital markets, use their demo account to know the significance of these points.
Two powerful indicators for swing traders
1. Moving averages (MA)
It is the simplest and yet the most powerful and popular indicators for these investors. The simple or exponential moving average can be used to determine a perfect position for dealing. To do this, UK traders have to choose two different periods like the 100-day and the 200-day period, or the 50-day and 100-day periods. Therefore, these two durations will draw two different moving average lines. You have to look at their interception points (also known as crossover) to figure out an entry or exit spot. You can also use the latest moving average line and compare it with the previous one to identify the trend reversal.
2. Relative strength index (RSI)
This indicator provides the beginners with a value to understand whether the financial instrument is oversold or overbought. RSI is considered one of the best and robust technical indicators because of offering multiple advantages. Using the scale range (1 to 100), one can identify the condition of the market. For example, if the value is less than 30, it will indicate that the currency is oversold or undervalued. On the other hand, when the value exceeds 70, it will indicate that the market is overbought or overvalued. Overbuying reveals the signal of a downward trend, and overselling indicates that the graph may turn in an upward direction.
How can you improve your win rate as a swing trader?
1. Limit the losses
It is an essential rule that must be followed as a rhythm investor. It indicates that the beginner has to move fast and cut his losses.
2. No more than 1% risk
Every novice should take a risk of less than 1% of his account. It is one objective of this trading strategy. The trader will focus on gaining smaller profits, which is entirely reliable. By keeping the risk to less than 1%, you can limit the losses.
3. The previous performance of the currency and its volatility
In the Forex industry, volatility is the major factor which controls the profit and loss. Since it is unpredictable, novices should refer back to, and analyze previous results.
Since the method is highly effective and less risky, we encourage novices to adopt this and thereby slowly improve their skills.