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Forex Strategy - The Swing Trade

The swing trade is exactly as it sounds: one trades the up and down swings of the market's movements. It's just like the stock market version, except cheaper, riskier, more exciting, and infinitely more profitable (within reason - see money management section). I say "cheaper" with reservation. In standard spot forex lot, one PIP is ten dollars, so any slippage will cost you. However, the same is true in stocks; in addition, equity trades almost always require commission (thus making forex slightly cheaper since most forex brokers don't charge you commission). Anyway...

I am certain that I am not the first person to articulate the concept of the swing trade (nor will I be the last). I am going to assume that you, fair reader, have already been exposed to this concept. As such, I think a screenshot or two is all I need to show you what I consider a swing trade in forex. Observe:

FX Forex Technical Analysis - Swing Trade (Up)

As you can see from the graphic above, the swing trade is very easy to recognize in forex. And now the really good news - forex tends to trend quite a lot. What does this mean? Well it simply means plenty of opportunity to set it and forget it. In the higher-high, higher-low scenario above, one coould have easily made several hundred PIPs simply with one entry a few PIPS above some some arbitrary peak (with a stop a few PIPs below the corresponding low). Now observe the swing trade in reverse:

FX Forex Tenchical Analsys Swing Trade (Down)

This screenshot makes the swing trade even clearer to see. Again, several hundred PIPs could have been gained simply with a set and forget strategy.

Some quirks I have noticed with forex:

  • Take Profit and Stop Loss levels must depend on the volatility of the pair you are trading. If you use a hard stop (e.g. 20 PIPs) on a volatile pair (anything with JPY) you will very often stop out while the move is happening. Thus, careful consideration of the historical (both long and short-term) volatility is essential to having a good success rate.

  • Trends occur quite often. I think this may also be true during intra-day equity trading, but I wouldn't know. FX is unique in that the same factors affect both supply and demand, so historically speaking volatility is higher in forex than stocks. This fact often leads short bursts of trendiness, which one may be able to take advantage. Of course, the problem is that, since forex never sleeps, all the trends could happen while you are sleeping!

Overall, I have had good success with a simple set and forget swing trading strategy. This method works on any timeframe you care to use. Personally, I like the 30 minute or 1 hour timeframe, because I believe these longer frames filter out some of the news. However, I have also had great success on a 5-iminute time frame. The 5-min frame is also good in the sense that it gives you something to do while waiting for the hourly to develop. Of course, the SL and TP should be adjusted relative to the volatility (which means at longer timeframes each will be larger).

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