Skip to content
Home » 2 Trade Setups Explained – What Is Swing Trading?

2 Trade Setups Explained – What Is Swing Trading?

In the last update for my free Forex setups, two currency pairs gave an excellent example of the type of trading I write about.

This is a great lesson, in my opinion, and not something that you will find in very many places on the internet.

In fact, this is high level trading and I am happy to share it with you.


This pair was one I was thinking of a long trade in.  Remember, in swing trading, having a directional bias is not needed and what is important is to see what price is telling you.

The trend line was NOT a confirmation of anything by itself.

If you were to make it a channel, you would see that the hard right edge had broken the top of the channel.  This rapid increase in volatility can point to a short term climax.

As with all support and resistance holding/failing trades, you want to see the price action on a lower time frame – our four hour chart.  Yes, you can infer the price action on lower time frames by the higher time frame formations.

On the Friday, that small red candle showed that the price rejection was not strong but also showed the bears had not taken over.

Through swing analysis, you can see that first time price rejected upside, it was strong.  The second time price reached that price zone, there was no rejection.  There was basing and at that time, shows price acceptance.

When price breaks the lows and still does not reject, you can:

  • Position for further breakouts to the downside
  • Position inside the range before the breakout

Going long from this position instead of short, would have needed strong price rejection which we did not have.


This setup was looking for a short but of course, you don’t just short.  I had qualifications I needed and they did not appear.

I like to see failure tests of highs for a short trade as one means of entry.  The bottom line is we need to see some type of price rejection.

Let’s look at the four hour chart of this currency pair.

Looking at the original move lower, we have strong momentum in the breakout but didn’t have any basing to position in.  We can learn from how price declined where the probable move will be when support is interacted with.

After the breakout with strong momentum, we get a lazy pullback.

We are no longer trading a breakout but are now trading a pullback.

What do I need to see in trading a pullback?

  1. Is the impulse leg deserving of another move in the same direction?  Lazy moves for an impulse leg are ignored
  2. Does the corrective move appear lazy as in not having momentum in the move?  If yes, I position for another leg in the direction of the impulse leg

That is exactly what happened in this pair.

Directional Bias Can Limit Swing Trades

Having a bias of long or short is often done for long term trading.

With swing trading, we are not looking at a time horizon although many people think swing trading refers to amount of holding time.

Swing trading is literally trading a swing in the market without letting the gains retrace.

We are looking to capture one swing in the market regardless of the overall price trend direction.

Our patterns will dictate our direction.

It is not unusual to be thinking long due to basing at resistance – but then having a failure test of highs and then going short.  In fact, that is exactly what swing trading is all about!

This is why, at times, we have certain directions in mind but they can evolve into the exact opposite.


5 thoughts on “2 Trade Setups Explained – What Is Swing Trading?”

  1. Hi SD, I hope you are doing fine. I have been reading your article on 2 trade setups explained and I must say I really enjoyed the article and learnt a lot. From reading the article I really could not tell where your entries would be in both setups. Can you please explain to me where exactly the entries would be. I think I got bamboozled by the very many lines, KKKK.

    Entries are rarely perfect and if you wait for one, you miss the move. You can position anywhere in the basing range prior to the breakout. On pullbacks, you can place buy/sell stops where the trend line would be violated. Keep in mind, with the trend line, you ARE NOT trading the trend line. You are trading the pullback and resumption of the move when the line breaks. Subtle but vital distinction.

    1. Thanks SD for the clarification. I will have to read and re-read this article for maximum understanding because many setups are going the other way instead of our intended move so this article helps a lot to catch those moves.

      Here is the thing to understand: the intended moves are due to what is seen at the time the chart is posted. Directional bias can easily change if price is doing something else. It is seeing what price is doing when we have a failure in one direction. I will tell you this, some of the most powerful moves come when what is obvious, fails. That is exactly what happened last week and I published the blog post about it. Swing trading….you have to be nimble. You can have an initial bias but that can and will change at times as price unfolds.

    2. Hi SD. Thanks a mil. So you do not necessarily have to wait for an H4 candle, that is very close to or just after the point of interest, to close before you enter your trade.

      Nope. I front run all the time.

      1. SD, so how do you guard against false breakouts?

        You can’t which is one reason I either enter before the breakout or wait for the reaction and/or the close of the breakout bar. We can tilt the odds in our favor by seeing accumulation before the break, seeing pressure build….which is what I write about a lot when I use the words basing. Look for a stair step pattern into support/resistance. We don’t want to see failure tests in the accumulation part of the range. Will you avoid breakouts that fail? No. But they also can give you a trading opportunity in the other direction.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.