subject: A three step Forex swing trading strategy [print this page] A three step Forex swing trading strategy
A simple and popular approach to forex trading is to use the strategy of swing trading. Its advantage is that it is relatively uncomplicated, it can applied to any time frame, and it works best with shorter trades. Repeated smaller profit gains can be achieved fairly easily, and so the risk of aiming for those elusive large profit jumps are alleviated. Many trading techniques require an encyclopaedic knowledge of technical analysis, by this swing trading strategy is based on the simple ability to identify a trend and its limitations.
Forex swing trading in three steps
1. Analyse the trend
Establish the direction of a trend, either up or down, for your chosen currency pair. One useful way is to apply the 10ma and 30ema lines to the chart, for whichever period you are charting (eg. the 5 minute, one hour or four hour chart). Use an indicator such as the ADX to establish the strength of the trend, and if it is reasonably strong, look for support or resistance points.
2. Find an Entry point
Look for an entry point using normal candlestick patterns. Alternatively, watch the price oscillations as they move between the two moving average lines. You may want to set up an order for when the price retreats from its trend. Make sure that you buy cheap! In a downtrend, sell the pair, which is the same as shorting a stock or buying a put. You will then buy it back for a profit. In an uptrend, buy the pair and sell for a profit.
3. Set a stop loss and profit target
Always set a stop loss before you set a profit target. It is really important to make sure that your capital is protected. After that, set a profit target based on your favourite method: fibonnaci lines, or a particular percentage, or even a swing back up onto the trend line. Whatever it is, be willing to take your profit and exit the trade - don't get greedy and try and ride the trade. It is always better to lock in your profit and set up the next trade, if the trend is holding.
In forex, trend reversals can happen very quickly, and trades can be executed extremely quickly. Under the right circumstances, profits can be taken within a couple of minutes. With such an exciting trading environment such as found with forex, make sure that you have investigated a good forex trading strategy, and have developed a solid trading plan. You may want to consider starting off with a good automated forex system, so that you can follow the trades that are set and learn from more experienced traders.
