This is a swing trading for dummies course that teach you the basics of what you need to know about the swing trading, the type of swing trading strategies and a few swing trading techniques and tips.
It should take you about 10 minutes to read through it word for word but if you just scan through it, it may take you 3 minutes.
Let’s get started?
What Is Swing Trading?
Swing Trading is a short to medium term trading method which means that trading positions can be held for at least two days and upwards to a few weeks.
Now if you compare this to day trading, trading positions are opened and closed withing the same trading day. Nothing is carried on to the next day.
Okay, so swing trading is defined as a trading method, right?
But what actually is that trading method or what are the characteristics of a swing trading method apart from a trade being opened for more than 2 days, which essentially is the timeframe required to classify a trade as a swing trade?
To answer this question you need to understand these two things:
- and price swings
Why? Because this is essentially are the “bread and butter” of swing traders.
I will explain.
What Is A Price Swing?
When you look at a price chart, to a naked, untrained eye, it simply looks like this:
But to a swing trader, this chart tells a lot more things than what the untrained eye can see, things like:
- a swing trader can easily identify the past and current trend on the chart and know if the structure of the trend is intact or not or if the trend can potentially change because the structure is broken
- a swing trader can easily identify the past price upswings and downswings and these can either form support and resistance levels that price can bounce up or down from some time in the future.
- a swing trader can easily identify the major support and resistance levels
This EURAUD daily chart below is the same chart as above and shows how the price moved between Jan 2015 and April 2016.
And when a swing trader looks at this chart, this is what he sees instantly:
Why Trend Identification Is Important To A Swing Trader
To a swing trader, trading with the trend is really important.
Because in a trend, there are two things that a swing trader looks for:
- to see if the trend still intact or is the trend about to change or showing signs of changing
- and then once trend identification and analysis is complete, the next thing a swing trader does zoom in closer and look that the up swings and down swings of the trend.
Why look closer at the upswings and downswings of price in a trend?
Answer: that’s where the the best trade entries for swing traders generally are taken because such levels offer really good risk:reward ratio.
If you don’t know how to identify trends or the structure of trends, I recommend you read my price action trading course about trends and the structure of trends.
What Is A Down Swing and Up Swing Pattern In A Trend?
These two charts below will explain the concept of down swings and up swings in a trend very clearly…
This first chart shows AUDCAD on the daily time frame in a downtrend market.
Next thing you also notice is the price patterns of upswings and downswings as price continues to go lower and lower.
A similar but opposite situation happens in an up trend market as shown by this EURUSD daily chart below:
These up swings and down swings of price are like the waves in a trend:
- in an uptrend, the peaks and troughs of these upswings and down swings are increasing.
- in a downtrend, they are decreasing.
So in an uptrend market, price makes increasing higher highs and increasing lower lows. So here are some important points for you to remember:
- the downswing in an uptrend happens when price makes a higher high (HH) and moves down to a higher higher low (HL).
- So that whole distance between the formation of HH and HL is a down swing…it is not just one point.
Similar, in a downtrend or bear market:
- the downswing happens when price makes a lower high (LH) and moves down to a higher lower low (HL).
- So that whole distance between the formation of LH and LL is a downswing…it is not just one point.
Once you begin to understand these concepts mentioned above, you will see and understand how trends end or start. This is the very important trading concept.
How Do Trends Start/End?
How does a trend start? How does an trend end? What tools or methods would you use for knowing the start and end of trends?
These are questions not only for swing traders but many other forex traders as well.
For many swing traders, price action leaves clues as to when a trend may be starting or ending.
Now you can see how the concept of upswings and downswings that you’ve just read above are going to make sense here when it comes to trend identification.
When using price action only to identify trend start and end, the following two are really important concepts that every forex trader should know like the 10 commandments, except you only have to remember only 2 laws:
- An uptrend is said to begin when the Higher High is intersected and price closes above it.
- A downtrend begins when the a Lower High is formed and the higher low (HL) is intersected.
This chart shows you what I mean:
The chart above is a text book example. (Its perfect in every way, in an ideal situation).
But guess what?
The reality of forex trading is more like this:
As you can see on the chart above, it does look kinda confusing…and to be quite honest, it would be because there are always going to be few false “trend changes” signals before the trend actually changes.
There’s no way you can solve the problem That’s just the way this forex market works.
You just have learn to take it as it comes. As I said, the real market is not a text book example.
One solution is to really spend a lot of time looking at charts and understanding how price moves and price action…it is not a complete solution but it will help you a lot, believe me.
How To Enter A Swing Trade
Now that you have covered the the fundamentals of swing trading:
- trends and trend identification
- up swings and down swings in a trend
The next big question is how do swing traders enter a trade? You know that a swing trade can be opened and can last a minimum of 2 days to a handful of weeks, so how do swing traders actually enter a trade? What kind of trading methods do they use?
It is generally accepted that:
- swing traders like to enter trades at really low risk, high reward entry points.
In an ideal situation, this is what I’m talking about:
- a swing trader would enter a trade in an uptrend market just when the down swing is ending so he can profit in the uptrend move on the next upswing.
- similarly, in a down trending market, the swing trader would enter a trade just when the up swing is ending so that on the next down swing, he can profit quickly as the price moves down.
That really makes sense, doesn’t it? Yes it does!
Why Price Action Trading Really Complements Swing Trading
If you wan’t to be a swing trader, I really do hope you learn price action trading, because it really complements it.
Here’s how:price action help you in finding better trade entries. Price action trading leaves you clues like bearish and bullish reversal candlesticks which can be used as your sell and buy signals.
- in a uptrend, when you see a bullish reversal candlestick in a downswing, it can be used a buy signal. These are the type of bullish reversal candlesticks you should be looking for:
- in a down trend, when you see a bearish reversal candlestick in an up swing, it can be used as a sell signal. These are the types of bearish reversal candlesticks you should be looking for:
What Types Of Swing Trading Strategies Do Swing Traders Use?
Ideally, you want forex trading strategies that are ideal for swing trading. That means, these swing trading strategies must allow you to buy when a downswing is ending in an uptrend and sell when an upswing is ending in a downtrend.
Apart from the fact the many forex swing traders like to use different swing trading strategies.
Trading strategies can be based on price action trading only or a combination of indicators and price action trading or purely just indicators.
Here are some really good swing trading strategies that you can use:
- Trendline trading strategy
- Trendling Trading Strategy With Stochastics Indicator
- floor trader method
- ross hook trading system
- 200 ema and 15 ema cross over trading strategy
- 200 EMA Multi-Timeframe Forex Trading Strategy
- 200 Pips Daily Chart Forex Trading Strategy With 3 EMAs
- 100 EMA With Parabolic SAR Forex Trading Strategy
Swing Trading Or Day Trading
Which is better? Swing Trading Or Day Trading?
Well, it really depends on you as a trader.
You got to make a choice on what you like and stick with it and make it happen for you.
I did write a post about titled Day Trading vs Swing Trading-Which Is Better? I suggest you check it out.
6 Disadvantages of Swing Trading
- Some new forex traders can find swing trading difficult to learn and do or it may not fit the trading personality of the trader.
- swing trading can take a lot of time when you are analyzing your trading setups especially if you are new new to trading forex.
- swing trading setups generally tend to form in larger timeframes like the 4hr, daily, weekly and you can wait a long time before the setup happens to take a trade.
- swing trading is not necessarily a set and forget system, you have to monitor your trades regularly to move stop loss to break even, move trailing stop etc.
- a swing trader can get so attached to a trade because he may be in that trade for a while and instead of exiting and taking profits, his attachment can cloud his judgment
- As in day trading, trading discipline and risk management as well as keeping emotions in check are very important. It is not uncommon for swing traders to exit on a retrace or trend change only to have the market immediately change back and head in the original direction and to be quite honest, this is sometimes very frustrating.