Forex swing trading is a trading style based on identifying swings in the market. Since these swings can take a while to develop, swing trading is most often done over the course of several days or market cycles. If visualized as surfers, traders who utilize this method are out to catch and ride big, long waves. However, in order to catch those waves, traders first need to identify major pivots in the market. Later in the article, we will explain how to identify those pivots.
Swing trading is highly popular with traders who want or need extended breaks from their screens. Since the trades develop over long periods of time, this allows traders to be less active minute by minute and to step away with ease. In addition, burnout is less likely amongst swing traders as opposed to scalp (aggressive day) traders as preset stop losses are a big part of the strategy.
If we were to split all major traders into two groups, almost everyone would fall into the categories of swing traders and scalp (aggressive day) traders. While there is some overlap in characteristics, like a shared pursuit of short-term movements, the two are overall very different.
Since we outlined the characteristics of forex swing trading above, let’s take a look at how to scalp trading differs.
An aggressive version of day trading, scalp trading occurs over a short period of time, often minutes. This requires traders to be at their computers all day long, laser-focused on charts and the flow of information. The goal of the scalp trader is to make small profits over many trades. As a result, scalp traders do not hold their positions long and exploit small impulse moves in the market.
This type of trading allows traders a level of freedom not available to swing traders. Scalp traders can jump in and out of the market as they wish, whereas swing traders have to commit to a longer period of time. However, this doesn’t mean there is less stress with scalp trading. In fact, there is more, as the scalp traders’ trades are much more active and fast reacting to market conditions.
For forex traders, it is imperative to know what pivots are and how to spot them. Pivots are the points in the market where price changes direction, from bullish to bearish to bullish, etc. There are important points in price, and there are less important points. Swing traders will not focus on minor pivots, while scalpers will try to take advantage of every minor pivot found.
Major pivot points are easier to spot. They tend to form near support and resistance levels, or they themselves create a new important level. These are points where buyers and sellers are very active.
Minor pivots form more regularly and randomly. For example, look at the picture below.
Swing trading advantages – As we outlined at the beginning of this article, there are several things that make this trading strategy attractive to traders. The set and forget mentality with the potential to make big earnings are both highly appealing.
Swing trading disadvantages – However, if your trading style is better suited for fast-paced, quicker action, these positive attributes quickly turn negative. Like all trading styles, the pros are only pros if they fit your trading and mental style.
For the right trader, forex swing trading can be an efficient and lucrative method with which to move in the market. As far as making the decision to pursue this strategy, it’s up to you to weigh the positives and the negatives against your mental strengths and weaknesses. If, in the end, forex swing trading seems like a good fit, give it a try. But, if not, don’t worry. There are other strategies to pursue.
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