Forex Swing Trading

Forex swing trading is an exciting way to trade foreign currency, and it's also the best way to begin your forex trading career. Why? Because you'll see results in a relatively short time, as opposed to long term trend following, but it doesn't expose you to the volatility you get with forex day trading.

So what exactly is forex swing trading? Simply put, it's a system that takes advantage of reactions within a major trend (either on the bearish or bullish sides). It is a form of short term currency trading, as trades normally last a couple of days or up to a week.

What signals the right conditions for forex swing trading are support and resistance. You must watch for prices moving into support or resistance, and then execute a trade in the opposite direction. But don't act on the assumption that support and resistance will hold, but rather you should look for confirmation in the form of waning and turn of price momentum. With this confirmation assured, go ahead and execute the trade.

In forex swing trading, you utilize a stop loss order, placing it behind the support or resistance level. This is different from forex trend following, where you would normally use a trailing stop.

Because forex swing trading is a short term strategy, the best currencies to trade are those that are volatile and liquid. These include Euros, Yen, Pound Sterling, Swiss Franc, Australian Dollar, Canadian Dollar. Liquidity is important in forex swing trading so that you can not only lock in profits quickly but also limit your losses.

Click Here for Your Ultimate Guide to Forex Swing Trading

There are four steps to follow in a forex swing trading system:

1. Look for support and resistance. Use trend lines to see areas of support and resistance for your trade. Don't rely on just one test for this, but look for at least three tests, preferably more.

2. In forex swing trading, timing is essential. To time your trade right, you must get confirmation of price momentum, and this means waiting for a test of support or resistance. Wait until you see the currency start to turn away from support or resistance with increasing price momentum, and that's the time to execute your trade.

To get this right you need good indicators, and two of the best are Stochastic and the RSI (Relative Strength Index).

3. Watch for breakouts. You'll find that most major trends start from new market highs, and if you are trading into such a resistance you should consider using a stop reverse on breaks. A word of caution here though: make sure the situation is one of strong resistance that is confirmed by the market. Otherwise, you could end up with false or weak breakout trades.

4. To be successful in forex swing trading, you need discipline. That's because you need to take profits early before a price counter move starts. That means before prices test the next level of support and resistance. Don't be tempted to stay in a trade too long, as you run the risk of a reversal setting in before you get a chance to get your money out. In other words, don't be greedy.

Finally, as in any other aspect of currency trading, you need a good broker. In the case of forex swing trading, you want a broker that offers tight pip spreads, such as about 2 - 3. Without this tight spread, you can end up losing a lot of your profits to commissions because of the number of fast trades for smaller profits that characterize forex swing trading. But it's an exciting system, and fortunately it's also a good one for forex beginners.

  Click Here for Your Ultimate Guide to Forex Swing Trading