Forex Swing Trading Strategies That Work
You may have heard about swing trading, but you are not sure what it is. Is it a strategy? A type of trading? One of its most important features is that… swing trading allows you to speculate in financial markets without having to spend all day behind the screen!
In this article we take a deep dive into swing trading, including our top Forex swing trading strategies. Just some of what you'll learn includes:
- What is swing trading?
- How swing trading works in Forex
- How a swing trader operates
- The best instruments and tools for this trading style
- Forex swing trading strategies
So ... what is swing trading?
What is swing trading?
To write a clear definition of swing trading, first we need to cover the different time frames in which traders trade.
The financial markets are hugely diverse, and there are many different ways to squeeze profits from them. Alongside the large variety of trading strategies that are available, there are also different trading styles. One of the main variations in trading style is the time frame in which you trade.
Long-term traders sit at one end of the spectrum. These are often traders aiming to follow extended trends (which can last months or even years, in some cases). One of the key advantages of long-term trading is that it offers the potential for large profits. However, like all other forms of trading, there is potential for losses too. Successfully following a trend for several months will normally outweigh what can be achieved in the short term.
But there's more. Long-term trading systems will often not require much attention beyond a small amount of monitoring each day. But they do require a lot of patience, and will likely only offer infrequent opportunities to trade.
On the shortest end of the spectrum are scalpers. Scalpers make ultra-short trades - often within a few minutes - and they are only searching for small profits before exiting.
They are just trying to gain a pip here and there.There is an advantage to the extremely short length of these trades. Namely, you curtail your exposure to the market. It gets better too, because you are only looking for very small price movements, and opportunities for trading are plentiful.
However, the downsides of scalping include:
- A huge commitment in regards to time and attention
- The requirement for extremely well-run and disciplined exit management
- Transaction costs can be significant because of the high number of trades
One step up from scalpers are day traders, who hold positions for a handful of hours. A day trader will not hold a position beyond the end of the day. This means that they avoid exposure to any market-moving stories that break overnight.
In between day trading and long-term trend-following sits the world of swing trading. Swing trades last anywhere from a few days to a few weeks. The swing trader is essentially looking for multi-day chart patterns to benefit from bigger price moves or swings than you would typically get from a day trade.
Many people find swing trading to be a natural fit, because it offers an acceptable compromise between the frequency of trades, and the associated time demands.
Want to learn more about swing trading? While there is a lot of information in this article, sometimes the best way to learn is to ask a pro trader about their experience.
The good news is that you can do this for free with Trading Spotlight! Three times a week, three pro traders run free webinars taking deep dives into the world's most popular trading topics. You can learn more about these webinars and register free by clicking the banner below.
What is a swing trader?
Swing traders are simply traders that trade in the multi-day to multi-week time frame. They generally work on four-hour (H4) and daily (D1) charts, and they may use a combination of fundamental analysis and technical analysis to guide trading their decisions.
Whether there is a long-term trend, or whether the market is largely range-bound, doesn't really matter. A Forex swing trader is not going to hold on to a position long enough for it to count significantly.
Instead, volatility is the key for swing traders. The more volatile the market is, the greater the number of short-term price movements, and this creates more opportunities for swing trading.
What are the advantages of swing trading?
There are a number of benefits to swing trading, especially for new traders.
Swing trading requires less time
As noted, extremely short-term trades require constant monitoring. On the other hand, long-term trades may not be active enough for most people, and require a lot of trading discipline.
Swing trading tends to appeal to the mindset of a beginner, simply because it uses a more user-friendly time frame. Swing traders spend much less time analysing and trading as they are doing fewer trades than scalpers over longer period. This gives them more time to think about and place their positions, yet also means they only need to spend a few minutes a day making trades.
Swing trading takes advantage of longer trends
While scalping and day trading relies on short-term volatility, swing trading allows traders to take advantage of weekly, monthly and yearly trends.
This therefore means that swing trading may offer better results than day trading, because the analysis will be more relevant. Analyses performed on larger units of time are often stronger analyses, whereas shorter-term trading is more vulnerable to false signals.
It also means that each trade has more time to generate a profit, due to trades following longer swings in prices.
Swing trading is more cost efficient
One of the main costs of trading is the spread, or the difference between the buy and sell price of an asset. While spreads are a very small amount, they do get charged every time you make a trade, which means it can significantly eat into the profits of ultra short-term trading.
For swing traders, the spread does not really matter because the trades take place over time scales so wide that a spread of a few points or pips do not significantly cut into profits.
Swing traders can use a range of indicators
The swing trading time units - four-hourly, daily and weekly - makes it possible to get the most out of the simplest indicators.
Indeed, if we take the example of a daily candlestick closing above the 20-period moving average, it's much more representative than the same candlestick closing above the moving average on a 5-minute chart. Ultimately, higher time frames are more accurate, and swing traders can benefit from this.
Using MetaTrader 4 and 5 Supreme Edition, it's easy to analyse multiple time units on a single graph or multiple, where the Mini Chart indicator allows you to display two or more time units of a single instrument at the same time.
To learn more about MetaTrader Supreme Edition, and download it for FREE, click the banner below!
Swing traders can exploit larger price movements
Swing traders can exploit significant price movements or oscillations that would be difficult to obtain during a day. The more volatile the market, the greater the swings and the greater the number of swing trading opportunities.
Risks associated with swing trading
While swing trading has a range of benefits, it also comes with some risks. They are:
- The accumulation of swap fees: Swaps are a daily interest rate that are charged on positions that are held overnight. While these aren't an issue for scalpers or day traders, these fees can add up for longer-term trades.
- Fundamental risk: Economic and political events during the weekend could affect the financial markets at the opening, which can throw off a trend and disrupt your trading strategy.
The best instruments for swing trading
So which markets can you swing trade? The good news is that this style of trading is possible on all CFD instruments, including stocks, Forex, commodities and even indices.
In the Forex market, swing trading allows traders to benefit from excellent liquidity, enough volatility to get interesting price moves, all within a relatively short time frame. Some of the most popular currencies for Forex swing trading are:
- Euro: Pairs include the AUD/EUR, EUR/CAD, EUR/JPY and EUR/GBP
- Japanese Yen: Pairs include the USD/JPY, JPY/CAD and JPY/GBP
- British Pound: Pairs include the GBP/AUD, GBP/CAD and GBP/CHF
- US Dollar: Pairs include the NZD/USD, USD/CAD, AUD/USD and EUR/USD
For stock market swing trading, indices are also very attractive instruments. These include:
- The DAX30 CFD
- The CAC40 CFD
- the Dow Jones 30 CFD
- The Nasdaq 100 CFD
- The Nikkei 225 CFD
Some stock indices have larger spreads than other instruments, such as Forex pairs, they are often a good asset for swing trading, simply because you only need to pay for the spread once. The same goes for exotic currency pairs, such as the USDCZK.
How to start swing trading
Are you eager to get started with swing trading? The good news is that you can get started with the following steps:
- Open a swing trading account: You can see the full process for opening an account in our article How to open a MetaTrader 5 account.
- Download and install your trading platform: Either MetaTrader 4 or MetaTrader 5.
- Open the platform and make your first trade: Now, you need to choose an asset and open your first trade. You can see the full process to do this in the tutorial video below.
Once you've got your account and your platform and you know how to make a trade, the next step is to create a Forex swing trading strategy. We've shared our favourite strategise in the following sections.
Forex Swing Trading Strategies
Swing trading is a style, not a strategy. The time frame defines this style, and within that, there are countless strategies we can use to swing trade. Swing trading is a style that operates over short to medium time frames. It lies between the very short time frames of day trading, and the longer time frames of position trading.
It's not so short that it commits all your time to monitoring the market, yet it is short enough to provide plenty of trading opportunities. These strategies are not exclusive to swing trading, and as is the case with most technical strategies, support and resistance are the key concepts behind them.
These concepts give you two choices within your swing trading strategy including, following the trend, or trading counter to the trend. Counter-trending strategies aim to profit when support and resistance levels hold up. Trend-following strategies look for the times when support and resistance levels break down.
For either type, it's useful to have the ability to visually recognise price action, or the movement of an asset's price on the chart.
Swing trading strategy 1: Trend trading
When identifying a trend, it's important to recognise that markets don't tend to move in a straight line. Even when ultimately trending, they move up and down in step-like moves. We recognise an uptrend by the market setting higher highs and higher lows, and a downtrend by identifying lower lows and lower highs. Many swing trading strategies involve trying to catch and follow a short trend.
Look at this daily chart of the EUR/USD.
Source: EURUSD, Chart D1, MT5 Admiral Markets. Data range: from July 9, 2019 to December 2, 2019. Performed on December 2, 2019. Keep in mind that past performance is not a reliable indicator of future results.
This Japanese candlestick chart shows a downward trend that lasts for three months, from June 25, 2019 to September 30, 2019. It moves with a typical zigzag pattern, with lower highs and lower lows.
After September 30 there is a pullback or reversal. During this period, the market is not setting new lows, while the highs are moving higher and higher until October 21.
How long will a pullback persist? We have no way to know. Instead we look for confirmation that the market has returned back to its original trend.
In other words we:
- Look for a trend
- Wait for a countertrend
- Enter the market after we see the counter trend has played out
The tell-tale signal that we are seeking is a resumption in the market setting higher lows. At the time of writing, it is a bit early to see whether the EURUSD has returned to a downtrend, simply because while the first two highs in November are lower, the second low is not lower than the first. We would need to wait for additional lower lows and lower highs to confirm the trend.
However, if we jump back to June, we could sell the EUR/USD at 1.14018, placing a top loss at the highest point of the previous countertrend - 1.13484. The risk is 53 pips and the strategy aims for a risk-reward ratio of 1:2.
With a risk of 53 pips, the swing trade take profit should be set at 106 pips lower than the starting point of the short trade, or 1.12958. This price is reached July 1, when the market hits a low of 1.12808. Your trade is then closed, and you make a profit of 106 pips.
A second version of this strategy would try and run the profits even further. In this swing trading strategy, we do not set a limit. Why don't we use a limit? Because we want to run our profits for as long as we can. We don't know how long the trend might persist, and we don't know how high the market can go. So we will not try to make a prediction by setting a price target, but we do know that prices don't go straight up.
This means you have to allow the market to move adversely to some degree, to properly ride the trend. This also means that when the trend breaks down, you will have given back some of your unrealised profits before you close out. Rather than use a limit, we will place a stop at the low of the last 20 time periods.
We never move this stop further away: but if the 20-hour low is higher than our previous stop, we would raise our stop to the 20-hour low. Broadly speaking, this means that our stop is trailing the trend.
The 20-hour low that defined our stop would at this point have been 1.13059. We sold at 1.14018, and were stopped out at 1.13059. We make a profit of 96 pips. This is slightly less than we made with the first strategy, but aiming to run your profits in this way can lead to a yield of high profits when a trend persists. These occasions tend to be infrequent.
Want to know the good news?
In the long run: with the right risk management, the profits should outweigh the losses incurred from those times when the trend breaks down.
If you're ready to try this on the live markets, Forex is one of the best markets to try swing trading. Why? It's simple - the market is open 24 hours a day, 5 days a week, which means you can trade when it suits you. It is also a very volatile market, which means there are plenty of trading opportunities. And, with Admiral Markets, you can access 40+ currency pairs and live markets, absolutely free.
Find out more by clicking the banner below!
Swing trading strategy 2: Counter-trend trading
The next swing trading strategy is more of a countrending trade, and therefore does the opposite of the first one. We use the same principles in terms of trying to spot relatively short-term trends from building: but now try to profit from the frequency with which these trends tend to break down.
Remember that as noted earlier:
- Uptrend = Higher highs and higher lows
- Downtrend = Lower highs and lower lows
We also saw how an early part of a trend can be followed by a period of retracement before the trend resumes. A counter-trend trader would try to catch the swing in this period of reversion. To do so, we would try to recognise the break in the trend. In an uptrend, this would be when a fresh high was followed by a sequence of failures to break new highs - we go short in anticipation of such a reversion. The opposite is true in a downtrend.
When counter-trending, it is very important to maintain strong discipline if the price moves against you. If the market resumes its trend against you, you must be ready to admit you are wrong, and draw a line under the trade.
Swing trading strategy 3: A versatile swing trading strategy
If you'd like to take an even deeper dive into swing trading, along with learning a versatile strategy that even beginners can use, check out our recent webinar on the topic!
This webinar was a part of our Trading Spotlight series, where three pro traders share their expertise LIVE, three times a week. In this webinar, expert trader Paul Wallace shares his insights into swing trading, with live market examples:
Want to see more? You can register FREE for Trading Spotlight here.
Improving your swing trading strategies
What can traders do to improve their strategies? Well, there are several things you can try. The first is to try to match the trade with the long-term trend. Although in the examples above we were looking at an hourly chart, it can help to also look at a longer term chart - to get a feel for the long-term trend. Try and trade only when your direction matches what you see as the long-term trend.
Another way to improve your strategy is to use a secondary technical indicator to confirm your thinking. For example: if you are a counter-trender, and are thinking of selling, check the RSI (Relative Strength Index) and see if it signals the market as overbought.
A moving average (MA) is another indicator you could use to help. An MA smooths out prices to give a clearer view of the trend. And because an MA incorporates older price data, it's an easy way to compare how the current prices compare to older prices.
You can see this in the following Forex chart of the GBP/USD pair:
Source: GBPUSD, Chart D1, MT5 Admiral Markets. Data range: from July 9, 2018 to December 2, 2019. Performed on December 2, 2019. Keep in mind that past performance is not a reliable indicator of future results.
In the chart, the red and green lines are both moving averages:
- The red line represents the moving average of 25 periods.
- The green line represents the moving average of 100 periods.
The method we are using to identify market movement is that of moving averages (MA). A shorter and a longer one. Together with this indicator as our input signal, we will use the basic stop loss and take profit.
When the red line crosses the green line, it suggests that we can see a price change in the direction of the crossing.
When does this happen?
- The red line (shorter MA) crosses above the green line (longer MA), on September 4 at approximately 4:00 p.m.
- We would buy here, looking for the price increase to continue. Keep in mind that the ascent has already begun before we receive our signal.
When swing trades turn against you...
What happens if we don't close a swing trade in time?
There can always be unexpected changes in price. Therefore, we must always adopt good risk management. Let's look at it with an example.
Source: GBPUSD, Chart H1, MT5 Admiral Markets. Data range: from June 15, 2016 to June 27, 2016. Performed on September 9, 2019. Keep in mind that past performance is not a reliable indicator of future results.
By observing the crossing of ascending means we could have entered a purchase order. If we do not set our objectives correctly, with a take profit and stop loss a fall can occur that causes us to lose a large part or all of our capital.
In the early hours of June 24, 2016, the results of the Brexit vote began to be evident.
What was the result? The value of the pound sank.
If we had maintained a long position, we would have been trapped for a long time in a very bad trade.
There was a fall of several hundred pips in less than a minute. In these circumstances, good risk management is essential. If your position is the right size compared to your venture capital, you can weather the storm. Below we explain how.
Managing risk in Forex swing trading
Something you might have heard about trading Forex is that the majority of traders lose money. Did you know that this is even true for successful traders?
The truth is that no trader wins 100% of the time - sometimes you misjudge the market, sometimes it moves unexpectedly, sometimes you might just make a mistake. This is where risk management and money management are so important.
In trading, but especially Forex, you have to know how to lose before knowing how to win. And when we talk about knowing how to lose, you should know how to lose little to win big. Simply, if you can manage your swing trading risk, you can close out losing trades early, which will help ensure you enjoy more profits than losses.
Some tips for managing your risk in swing trading include:
- Define your maximum acceptable loss. While you obviously want your next trade to make a profit, it's important to consider the maximum amount you are willing to lose on a trade. Once you know this amount, you can set a stop loss to close your trade automatically if it moves too far in the wrong direction - this will help protect you when you can't manually be at your computer watching every trade.
- Don't risk your account on any one trade. No matter the size of your trading account, you should avoid risking your entire balance on a trade. If you do, you could potentially lose it all. A general rule is not to risk more than 2% of your account balance on any one trade.
- Consider increasing your account balance to diversify risk. While you might be able to open an account from as little as €200, it is better to start with a larger sum. This means you will have enough on your account to trade a variety of assets and diversify the risk of swing trading. Swing trading is by definition a long-term investment style, so you need more margin on your positions to cope with market volatility.
- Know your risk profile. One of the first thing to do when you start trading is to understand your risk aversion and volatility . In other words, at what stage of the loss will we start to panic? If you have an account balance of €20,000 and you lose €2,000, then you have lost 10% of your capital. Would your world collapse or would you consider that to be normal? How you react to this loss will influence the risks you are willing to take in trading.
As you have now understood, a Swing Trading strategy is a medium and long-term trading strategy. It is a strategy very dependent on the management of risk and its capital, commonly called money management swing trading.
Swing trading money management
Once you understand the big picture, you still have to manage your risk every day. And one way to do that is by managing your money effectively.
It might seem like a complicated question, but it doesn't have to be. If you wanted to keep to a total risk of 6% of your account balance (for example) you could have six trades opened, each risking 1% of your capital.
Therefore, you could lose 1% of your capital in six different trades, or a maximum of €200 in each trade if you had an account of €20,000.
Then, before taking a position, you should be aware that your maximum risk for proper management of capital in Swing Trading will be 1% or 200 euros. Therefore, your stop-loss and neutralisation position will be determined before each position. And from there, perform as many actions as you can without overcoming your risk management.
And that's it!
That limit will then influence your actions - you will close because the trade is approaching your loss limit, or you will close the trade since the asset goes up and reaches the target profit. Or, if a trade passes the breakeven point, at which point it becomes a 'neutral' trade, you can take on a new position, without risking your risk limit.
The best tools for swing trading
There are a range of tools you can use to improve your chances of success when performing swing trading strategies.
Here are a range that we recommend:
- Correlation Matrix: The correlation between Forex pairs, commodities or stock indices is one element of analysis that allows the wise trading to trade with confidence.
- Mini Charts: A mini charting tool allows you to analyse multiple units of time on a single chart. This means there is no need for the trader to switch from swing trading chart W1 to D1 to get on the H4 chart to find his entry point
- Admiral Symbol Info: In the same vein, this Forex swing indicator allows traders to see on a single chart the swing trading signals of the most used indicators on eight different time scales!
- Mini Terminal: The mini terminal tool allows you to open a position in MetaTrader in a few seconds, but it also allows you to open trades respecting the risk in fixed euros or in percentage. In fact, this EA provides you with varied information related to the stock market or the currency pair in which you apply it, including the current trend, current momentum and the strength of current movements.
Other indicators that can be useful for swing traders include:
- Exponential Mobile Average
- Awesome oscillator
- Parabolic SAR
- Admiral Donchian
So where can you access these swing trading tools? If you have a demo or a live account with Admiral Markets, the good news is that you can access these absolutely free with MetaTrader Supreme Edition!
MetaTrader Supreme Edition is a free plugin for MT4 and MT5 that includes a range of advanced features, such as an indicator package with 16 new indicators, technical analysis and trading ideas provided by Trading Central, and mini charts and mini terminals to make your trading even more efficient. Find out about MetaTrader Supreme Edition and download it free by clicking the banner below!
Top tips for Forex swing trading
Now that you know the basics of swing trading, and some good Forex swing trading strategies, here are our top tips to help you succeed as a swing trader.
- Match you trades with the long-term trend. Although you may be looking at a shorter-term time chart (e.g. H1 or H4), it may also help to look at a longer-term chart (D1 or W1) to get an idea of the long-term trend. Then you can ensure you aren't trading against a larger trend. Swing trading is also much easier when trading with the trend, rather than against the trend.
- Make the most of Moving Averages (MAs). The MA indicator can help you identify trends by softening shorter-term price fluctuations. And because the MA incorporates old data prices, it is an easy way to compare how the current price compares with older prices.
- Use a little leverage. Leverage allows you to access a larger position than your deposit would typically allow, both amplifying your profits and losses. When used wisely, leverage can help you make the most of winning trades.
- Trade a wide portfolio of Forex pairs. Watch as many currency pairs as you can to find the best opportunities. The Forex market will always offer you trading opportunities, you must look for the ones that best match your signal. Plus, trading a range of pairs will help diversify your portfolio and manage the risk of having all your eggs in one basket.
- Pay attention to swaps. Swaps are a cost of trading - an interest charge made for positions held overnight. These swaps must be taken into account in your swing trading in order to better manage your money.
- Maintain a positive profit/loss ratios. Whether H4 or daily trading, swing trading allows you to tap into large market movements, giving you the opportunity to obtain larger profit ratios compared to very small losses possible, especially when compared to scalping.
- Put aside your emotions. It's better not to trade with emotion, but to make swing trades as a part of a well-established Forex trading plan and strategy.
How to Choose a Broker for Forex Swing Trading
Before you can start trading, you need to choose a broker. A Forex broker will give you access to the markets you want to trade, along with a trading platform to carry out your trades. However, some brokers are better than others, so it's important to keep the following in mind when making your choice:
- Are they regulated by the local regulator in your area? Admiral Markets is a Forex and CFD broker that is regulated by the FCA, EFSA, CySEC and ASIC.
- Low trading costs. The costs of trading include the spread, the swap and commissions on trades, which can eat in to your profits. So it's important to consider typical trading costs.
- Flexible trade sizes. A standard Forex lot, or trading contract, is worth 100,000 of the base currency of the pair, or the first currency listed (so one lot of the EUR/USD is worth EUR 100,000). For new traders, this might be more than you want to see, so check whether your broker offers mini (0.1) lots and micro (0.01) lots for trading.
- Real-time price data. To make informed trading decisions, you need the latest market information. Good Forex and CFD brokers will offer live price data in their trading platform.
- Available leverage. How much leverage does the broker offer? In Europe, regulated brokers should offer access to leverage of up to 1:500 for Professional Clients and 1:30 for Retail Clients.
- Minimum deposit size. What is the minimum amount you need to start trading? At Admiral Markets, you can fund your trading account with as little as €200. This allows you to start small without taking significant risk and add as you learn the market behavior and psychology of independent trading.
- Risk management tools. Admiral Markets can help you reduce your trading risk with volatility protection and negative balance protection.
- Flexible trading styles. Will the broker allow you to not only swing trade, but day trade and scalp as well, if that's a part of your strategy?
- Trading education options. Does the broker offer tools and resources to help you succeed as a trader? Admiral Markets, for example, has a library of hundreds of Forex articles, free trading webinars and free courses like Forex 101.
The good news is that Admiral Markets offers all of this and more! So, if you're ready to start trading, just click the banner below to open a new trading account.
Forex Swing Trading Strategies: A Summary
Swing trading is a style suited to volatile markets, and it offers frequent trading opportunities.
While you will need to invest a fair amount of time into monitoring the market with swing trading, the requirements are not as burdensome as trading styles with shorter time frames, such as day trading or scalping. In addition, even if you prefer to day trade or scalping, swing trading will offer you some diversification in your results as well as additional profits!
Having said that, swing trading is not right for all traders, so it's best to practise with it risk-free first, on a demo trading account. To sign up for a demo account with Admiral Markets, and start trading the markets risk-free, click here.
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.