Swing Trading Strategy – Basic Rules

Swing Trading is a trading method in the Forex market, where open positions are held during several days or even weeks, with subsequent asset’s sale.

This strategy is based on tracking of cyclical price fluctuations to earn in each direction of the chart movement. Developed for futures, this method has become very popular in Forex, showing high returns of the profit. The orders are opened near the Resistance/Support lines. Below we will consider in detail a trading algorithm.

Trading on Swing Trading Strategy

It is obvious that entering the market right after the candle touches the level of Support or Resistance is quite risky, since it is impossible to accurately predict, in which direction the value of the currency pair will move further. For that reason, traders bear the losses. However, this method helps to avoid the losses, trading only when the chart forms “reversal points,” known as candlestick patterns and constructions of three bars, shown in the picture below:

These figures should fit within certain parameters:

1. The first candlestick forms a new maximum/minimum;
2. The second forms a higher maximum or a lower minimum;
3. The third has a lower peak or the higher lowest price.

After you have seen such a pattern, the strategy assumes opening an order in the corresponding direction. Do not forget to wait until the third bar is closed.

Also, you need to build trend lines on the senior timeframe. At the same time, if you find a growing movement, enter only with a Buy order, otherwise, only with a Sell order.

For Buy positions, it is important that the reversal model appears near the support of the growing trend; for Sell positions, this figure should be on the resistance of a downward trend.

Swing Trading Strategy also includes the rules for setting Stop Losses. You can place them at the following important price values, or directly at the reversal point.

Transaction Services

In addition to proper management of the losses, it is important to retain an accumulated profit, that’s why a separate methodology was developed. It is worth noting that the developers of the strategy didn’t pay enough attention to this to that. However, we gathered the recommendations of experienced traders, according to which simple rules for setting Take Profits can be singled out.

You can set Take Profit at the opposite level, but you can never be completely confident that the price chart will reach this mark. Therefore, we recommend you to partially take a profit, transferring the position to the breakeven state, once the curve of the asset price passes a sufficient distance. You can use trailing too. 

Notes

If you open orders only under ideal conditions, described above, you increase the chance of a successful deal, but their number will be small. It is possible to trade more often, implementing the strategy not only with rebound from borders but also within the range. However, in this case, you should take into account the growing risk, including the associated with an accident trigger of Stop Loss at internal fluctuations.

Use timeframes from M15 and older. These time intervals are less in noise than ultrashort ones. Observing conditions of Swing Trading Strategy, you can count on a steady profit and relatively small losses.

We recommend using new Forex techniques only after the preliminary testing on demo accounts. So, you can sort through all the subtleties, such as false signals and the necessary money management, and choose the right amount of lots. Only after evaluating all the advantages and disadvantages in practice, you can start real trading.