NB: You
should by no means practice emotional trading. This is bound to cause a temporarily
break that passes a typical resistance point. This system of trading tends to
capture gains from the changes in the currency pairs within a period of two to
seven days. Traders who embark on this method of trading use technical analysis
which greatly differs from fundamental analysis. They also make use of some
market sentiment analysis which looks for currency pairs that show short-term price
momentum. These traders look for opportunities to capitalize on short-term price
trends and patterns instead of long-term trends which are usually used. Now
Forex swing trading is a technique used in making a U-turn at a particular
point while trading. It is sometimes confused with reversal trading, but unlike
reversal trading strategy, swing trading is only engaged in for a short period
of time whereas reversal trading looks for a change in trend. To have any
effective technique for swing trading in Forex trading, you have to understand
support and resistance.
Support: This is that price beyond which,
historically, a currency pair's price has difficult falling under.
Resistance: It is that price which a currency
pair, historically, has difficulty breaking past in an upward motion. It is the
opposite of support.
Whenever a
resistance or a support level is broken, it might mean that a new trend has
started. These times are referred to as "breakouts" and they mean
that a new lower and upper limit for that pair’s price is to be set. But, what
swing traders are really looking for is not a new trend. Rather, they are
looking for indications of emotional trading going on in a heavy way, and this
has temporarily either increased or lowered the price of a currency pair to an
unsustainably high or low level. The swing trader always seeks to enter into a
position makes him/her profit in a short period of time.
Normally, in
the Forex market, a swing is only maintained for two to seven days. Swing
traders rely on technical analysis for their predictions. They have little or
no interest in what is
known as
"fundamental analysis". With technical analysis, they can analyse the
historic trends in a certain currency pair's price changes. This will include
recent, short term, and long term (up to three years back) research. If the trader
notices what can be seen to be an anomaly manifesting in price movement, he may
then turn to some quick market sentiment analysis. A common part of market
sentiment analysis for the Forex trader is looking at "open
interest".
Open interest refers to the number of contracts that are open
but not exercised on a given day.
Below are some
basic swing trading techniques you can practice:
• Make sure
your Forex swing trading strategies are as simple as possible. Never take up
any strategy that seem too complicated for you to easily understand or make your
strategies more complicated than have to be. If you can't understand the simple
basics of a strategy intuitively after a little bit of study, then you shouldn’t
use it.
• Learn and
utilize the Relative Strength Index (RSI) and stochastic indices
• When it
seems that you are trading into resistance which is at a market high, consider
using the stop reverse technique on a break-out. Why? Because the major Forex
market trends begin when high resistance barriers are breached. You can stop-loss
orders being executed by capitalizing on new trend followers.
• Do not
hesitate, by trying to feed your greed. Be ready to take profits as they come.
Meaning once
you have made a profit that is within your anticipated price movement range, grab
it immediately. The Forex market is so volatile that your profits tend to
vanish too quickly when you hesitate. Remember that small profits add up to big
ones.
If you Study
and practice these techniques used in swing trading you can profit from it in
the Forex market.
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