In forex, or any other stock market, having a trading strategy cannot be overstated because it helps you set a profit plan and work towards it.
Swing trading is a commonly used strategy and is ideal for beginners because it has a manageable time horizon.
If you are someone who has browsed through the different trading strategies and has chosen swing trading as the best strategy for you, then this post is for you because I’m going to walk you through a step-by-step guide on how to swing trade.
In this post, we are going to cover five major steps in learning how to swing trade. In addition to that, a series of frequently asked questions with regard to learning swing trading are going to be answered.
Before getting started, I assume that you have browsed through the different trading strategies obtainable in forex and cryptocurrencies and have chosen swing trading as the best for yourself.
So, let’s get started.
Table of Contents
What Is Swing Trading?
Swing trading is a trading strategy in which investors try to capture the price movement that happens over a short (or medium) period of time. These traders attempt to identify and profit on what is known as a swing in the market.
Swings typically take a few days or weeks (depending on the time frame) to appear in the market, but when they do, traders who can identify them profit significantly.
One of the major disadvantages of swing trading is that it is not good when there is consolidation in the market. Traders adopting swing trading strategies must be patient because, as we know, a higher percentage of the chart partern is consolidated.
How to Swing Trade
You can swing trade by identifying and leveraging an up-and-down price movement of a minimum size, regardless of the time it might take.
To do this, certain steps need to be taken, and that is what we will be discussing in this section.
Below are six basic steps that you will need to learn how to swing trade.
Step 1: Open a trading account.
When learning how to swing trade, the first thing you want to do is open a trading account. As a beginner, you need to open a demo account so that you can practice your trading strategy first. There are a lot of brokers that allow demo accounts on their platform, so you should browse through them and choose one.
When you have consistently profited on your demo account, you can then think of funding a live account. It is normal in trading that when you start, you are going to incur some losses, and if you don’t start with a demo account, you will certainly give up.
Step 2: Choose an asset for swing trading.
Once you have opened your account, the next thing you want to do is choose an asset to swing trade. Different brokers support different currency pairs in their platforms, and it is critical that you choose a broker that supports the asset you want to trade.
It is advisable to stick with some particular currency pairs and get used to them. This will help you identify when best to trade those currencies with your strategy.
Step 3: Research the Market.
Once you are ready with your account, the next thing to do is to research the market through technical analysis.
As swing trading goes hand in hand with a trend in the market, it is very important that you identify trends in the market and then start looking for possible reversals.
Technical analysis incorporates a whole lot and it is very important that you give it time and learn it very well.
Step 4: Learn risk management:
Before starting to swing trade, it is very important to learn and observe a risk management system. No matter how much you trust your analysis, the market can still go against you, and that is why you need to use a risk management system to minimize the losses that you could incur even if it does.
In any position you want to take, you need to make sure that you are in agreement with the trend and also place stop losses and take profit orders to mitigate risk.
Step 5: Monitor your market.
Once you identify an entry opportunity and place your order, it is very important to keep a close eye on your order so that even if the market goes against your sentiment, you can exit. While trading, you always want to avoid any environmental distraction that could interfere with your trades.
Also, in some cases, you can move your stop loss or take profit up or down depending on your position, and this is only possible when you are monitoring your market.
Step 6: Exit Your Trades:
If your trade is not exited by your stop loss or take profit order, exit it as per your trading strategy. You can only do this when you are keeping a close eye on the market.
How to find the best stocks to swing trade
You can find the best stocks to swing trade by looking for very calm stocks that don’t have excessive price movement. In essence, while looking for the best stock to swing trade, always look for one that trends up and down with steady price movement but not with too much volatility.
Comparison of Day trading and Swing Trading
- Day traders profit from short-term price movements, whereas swing traders profit from longer-term time frames.
- Day traders need to be more active in the market to monitor it, while swing traders don’t necessarily need to.
- Day traders make a small profit per trade and place a high number of trades in a short period of time, while swing traders make a high profit per trade and place trades once in a while.
- Day traders make use of technical analysis, while swing traders make use of both technical analysis and fundamental analysis.
- Swing traders make use of medium-to-high timeframes like 12-hour or 1-day, while day traders make use of small-to-medium timeframes like 5-minutes, 1-hour, or 4-hours.
How does Swing Traders make money?
Swing traders make money by identifying trends in the charts and leveraging the up swing and down swing that come in such a market.
Usually, the profit these traders make per successful trade can be a multiple of what day traders make. The only downside to this trading strategy is that traders do exercise some patience while waiting for an opportunity.