Currency trading is ideal for novice traders because it’s simple to understand, exciting and can make huge rewards. You can learn and put together a currency swing trading strategy quickly and easily and we will show you how in this article.
Swing trading requires far less discipline than long term trend following and profits and losses are taken quickly; because most traders lack discipline this is an ideal method for beginners and also the odds are better than day trading or scalping, because within a day all volatility is random. Let’s look at the logic of swing trading in more detail.
Currency markets move in the long term to the supply and demand situation but humans are emotional and the emotions of greed and fear, push prices to far up or down and then the market returns to more realistic values. The swing trader will aim to sell into these overbought and oversold areas and take profit when the market has corrected but how do you swing trade?
The first point is to keep your strategy simple, you only need to look for short term price spikes, look at some momentum oscillators to see if prices are overbought (or oversold) and look for support or resistance to hold then, wait for momentum to turn up or down into the level and enter your trade.
You should always set a target and take profits quickly – this style of trading is “hit and run” and it’s aim is to bank profits quickly.
What momentum oscillators should you use?
There are plenty to choose from but popular ones are the RSI, Stochastic and MACD.
A Simple Swing Trading Strategy for Big FX Profits
To show you how simple swing trading can be, below find a simple strategy which I use which works and we will look at it in relation to a currency which is overbought and it only uses one indicator – the stochastic:
– Draw a line on a daily chart across the highs of the stochastic.
– Wait for the stochastic to approach this resistance and normally it will normallybe overbought in the 90 area
– Pick a level of resistance above the price and place your stop behind it.
– Watch for stochastic momentum to wane and sell the currency.
– Place a time stop of 1 or 2 days for the stochastic to follow through to the downside with bearish divergence – if it doesn’t liquidate the trade, if it does look for your target.
– Look to take your profit before support – don’t wait for a test of the level in case there is a recoil – get out early when the risk reward is in your favour.
You can do this in the major currencies but also use cross rates which can offer some fantastic swing trading opportunities.
The above is a very simple system and it works well. Of course, there are many swing trading strategies you can use and if you do some research, you will find the right one for you. Keep in mind that simple strategies work best, so use a maximum of 3 indicators and keep your system simple and robust.