Learn Forex Trading: Swing Trader

Swing trader measures an ideal holding period for many participants as 3 days, the the preferred time frame is 4H.

Depending on the currency pair, the profit potential per trade for swing traders can range from 50 pips to 150 pips or more.

Swing traders tend to be a bit more conservative than scalpers or day traders; they typically wait for several confi rmation signals before triggering a trade.

The tools preferred that uses a swing trader are: Bollinger Bands, Fibonacci retracements, and

trendline channels to all chart views. For example, when both daily and weekly Bollinger Bands converge at a single breakout number, odds increase that price will reverse

right at that level.

At the same time, swing traders are not bothered by intraday volatility and price swings because they are more concerned with catching the medium-term trends. Profit targets and stop-loss levels are naturally larger for swing traders because they have a slightly longer-term view than day traders.

Since trades usually have larger targets, spreads won ’t have as much of an impact to overall profi ts for swing traders. As a result, trading pairs with larger spreads and lower liquidity is acceptable.

Swing trading offers these top three advantages:

1. Favorable risk to reward. Swing traders normally are not concerned with intraday movements of the market because they have a slightly longer time horizon in watching the markets.

As their time horizon is longer than that of day traders, swing traders normally set favorable risk to reward ratios of 1:2, 1:3, or more.

If the stop loss is set at 50 pips, the profi t target is normally 100 pips, 150 pips, or more.

2. Save time. Swing traders are mostly technical traders, which means they do not have to spend time every day to keep abreast of fi nancial news.

This is not to say that news is not important, but due to the swing trader’s trading style of exiting positions in two to fi ve days, daily news events don ’t matter much. This is one of the biggest draws of swing trading and makes the method perfect for new traders or part-time traders who have full-time jobs.

3. Hassle-free. Many traders feel the need to meddle with ongoing trades or to trigger unnecessary ones. This normally happens when traders trade several times a day. As swing traders depend on a trading plan to trigger long and short positions, they do not fall into this trap. In fact, swing traders thrive on following a structured plan. Following a plan keeps human error to a minimum and enables swing traders to avoid emotional trading.

Swing Trader Rules

Medium-Term Range Trade

Rules

1. Use daily charts.

2. There are two ways to range trade in the medium term: position for up-

coming range trading opportunities or get involved in existing ranges:

Upcoming range opportunities: Look for high-volatility environments,

where short-term implied volatilities are significantly higher than

longer-termvolatilities;seekreversionbacktothemeanenvironments.

Existing ranges: Use Bollinger bands to identify existing ranges.

3. Look for reversals in oscillators such as RSI and stochastics.

4. Make sure ADX is below 25 and ideally falling.

5. Look for medium-term risk reversals near choice.

6. Confirm with price action—failure at key range resistances and

bounces on key range supports (using traditional technical indicators).

Indicators Options, Bollinger bands, stochastics, MACD, RSI, Fibonacci retracement levels.

Medium-Term Trend Trade

Rules

1. Look for developing trend on daily charts and use weekly charts for confirmation.

2. Refer back to the characteristics of a trending environment—look for those parameters to be met.

3. Buy breakout/retracement scenarios on key Fibonacci levels or moving averages.

4. Look for no major resistance levels in front of trade.

5. Look for candlestick pattern confirmation.

6. Look for moving average confluence to be on same side of trade.

7. Enter on a break of significant high or low.

8. The ideal is to wait for volatilities to contract before getting in.

9. Look for fundamentals to also be supportive of trade—growth and interest rates. You want to see a string of economic surprises or disappointments, depending on directional bias.

Indicators ADX, parabolic stop and reversal (SAR), RSI, Ichimoku clouds (a Japanese formation), Elliott waves, Fibonacci.

Medium-Term Breakout Trade

Rules

1. Use daily charts.

2. Look for contraction in short-term volatility to a point where it is sharply below long-term volatility.

3. Use pivot points to determine whether a break is a true break or a false break.

4. Look for moving average confluences to be supportive of trade.

Indicators Bollinger bands, moving averages, Fibonacci.