Swing Trading Strategies

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While day trading is all the rage, most people interested in trading have full time responsibilities that prevents them from getting involved in that style of trading.  They do have time for another method and that causes them to seek out Swing Trading Strategies.  This will allow them to profit from the markets, earn extra money and still maintain their full time job.

What is swing trading?  Markets move in waves known as swings in the price of the instrument.  No market, for example, will trend up without having some sort of retrace in price.  The best swing trading techniques will attempt to ride either the swing up in price or the swing down in price.  If you are trading against the main direction of the price trend, this is known as counter-trend trading.  Some swing trading strategies will have both a trend and counter-trend trading component.

Many of the best swing trade techniques will have you holding a position from a day to several weeks.  You are not looking for a small price increase/decrease but are looking to take advantage of the bigger price moves that most instruments make.  Many times, swing trading strategies take place on the higher time frames which will reduce the amount of “price noise” that usually accompanies the faster time frames.  The higher time frame charts will generally have support and resistance areas further apart which many people use to base their trading decisions on.

There are quite a few advantages to having swing trading strategy as a part of your trading routine:

1. Bigger profit potential.  Since you are looking for larger runs in price, you have the ability to enjoy much greater profits than you would if you day traded the same market with less risk.

2. Less time trading.  The best swing trade techniques I have ever seen only required a minimal amount of time at the computer screen.  The scan for potential trading opportunities can be quite fast and you can do it during the slower times of the markets.  This allows those that are employed full time a chance to view the charts and find trading opportunities.

3. Greater risk to reward opportunities.  The swings you are trading have the potential to travel further to your profit targets than they do to where you would place your stop loss when the trade setup is violated.  Risk to reward ratios of 1:3, 1:5 and even 1:10 are not unheard of.

4. Having less stress.  Unlike day trading where you are reacting to minor price blips, you expect larger price blips in swing trades that, most times, won’t challenge your protective stop price.

While the advantages to swing trading are compelling, note that there are disadvantages as well.

1. Getting caught in a congested market with violent swings in each direction can stop you out repeatedly causing you many losses.  This is where proper risk measures come into play.

2. Your protective stop orders are generally bigger in size which, if you do not adhere to proper risk profiles, can have you lose a great portion of your trading account when the losses come.

3. The ease of swing trading can have traders involved in too many markets at the same time.  This can be a disadvantage and put too much capital at risk in the markets if/when your swing trading strategy delivers a losing streak.

4. Before you can utilize any of the swing trading strategies available, you will want to understand what makes up trends.  Since you are trading bigger time frame charts, it is easy to spot which way the market is moving.  If you notice price is consistently making higher price highs and higher price lows, you know that the trend is up.  In this instance, the best swing trade techniques would have you looking to buy into the market on a retrace in the price.  Lower price and highs and lower price lows would have you looking for shorting or selling opportunities when the market rallies in price.

One of the best markets to swing trade is the Forex market.  Netpicks, a trading company, actually advises most people to stick to swing trading strategy for the spot Forex market instead of daytrading it.

One of the best swing trade techniques to use on the Forex pairs is simple support and resistance types of strategies.  As we spoke about earlier, an uptrend is higher price highs and higher price lows.  Once a currency pair like the EURUSD puts in a high (example 1.3500) and retraces, we have a potential support/resistance forming at 1.3500.  If price returns to the high and pulls back, that price may become a resistance area and if the overall trend is up, some may take a counter-trend trade.

Some of the most successful swing trading strategies however will not sell at that level.  They will wait to see if price breaks above the 1.3500 level, rise above it to perhaps 1.3525 and wait to see if price returns to “test” the 1.3500 level.  If that level holds, they will buy the EUR against the USD.

What if price does not break above 1.3500?  Traders may wait to see if price retraces to the previous resistance level at, for example, 1.3450.  If that level holds, the 1.3450 level may be considered a support area and the best swing trade techniques would have you buying at that support level and a profit area around the 1.3500 level.

Support and resistance is just one of the many swing trading strategies that you can use.  Netpicks, a trading company, has various trading plans for swing trading that you can use.  They have extensive experience in the markets and can advise you on some of the best swing trade techniques that you can use in the current market environment.

Whatever swing trading strategy you apply to your trading business, keep in mind that money management is key to your overall success.  Netpicks calls money management one of the “three pillars” you need to master, along with trading psychology and of course any of the swing trading strategies you decide to implement.

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