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.

AUDJPY

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

AUDNZD

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.

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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.

 

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