What You Need to Know About Swing Trading Forex

Swing trading in forex is a transaction between currencies that occurs on the interbank market and can be defined as such: “the difference between the rate predicted by the market’s long term trend and the current spot price.

Trading against time

We see this as a trade against time for three reasons:


Time will tell whether a change in rates was a good outgrowth of an economy or merely a result of speculation by banks, with no solid basis to support it. In other words, we are betting on the wisdom of crowds versus that of experts.


Once you have decided to buy or sell any particular currency pair there is no way for your entry point to be adjusted as new data become available. If at some point your prediction proves wrong then you can lose money.


There is always the temptation to try and “slow down” the rate at which you are losing or speeding up that on which you are winning. The swing trader should resist this urge.


This is one of the characteristics – like news trading – that make it attractive for many traders; however, by risking more because of its greater volatility, swing trading has a higher failure rate.


In the longer term, all currencies – especially major ones like the U.S., Eurozone, Yen and Pound – are reflections of economic activity which are generally predictable to a limited degree.


At some point, momentum will change direction and once it does you will either catch or fail to catch that trend.”


This type of trading is also known as spread betting because you are betting against other investors on how quickly rates will change and not on how much they move.


You may trade different currency pairs depending on which has the best rate at the time: EUR/USD for example is very common because there tends to be more volatility in this pairing than many others while AUD/USD is rarely traded because it doesn’t tend to variate than long term trend trading; in fact, statistics show that 56% of all trades end up at least break even (that means that 44% result in losses).

Testing, Testing 1 2 3…

Swing trading does not allow you to test your theories as thoroughly as other forms of electronic trading because execution speed must be faster than any analysis could provide; thus, making it nearly impossible to implement any long term strategy.


Nevertheless, despite all this, swing trading is probably the most practical way to learn how to trade since you will inevitably lose money at the beginning; however, it may be easier for some people than other forms of trading (e.g. no need to choose between currencies) and there is certainly a sense of accomplishment in having put up with losses compared to other less challenging activities.”Let’s go back and talk about news events (the reason why we started this exercise in the first place).


These are the events that could cause big moves in price.


For example, if you already heard on CNN (and therefore knew) that France was able to end its nuclear standoff with Iran, would you buy or sell EUR/USD?


If you’d like to trade an event like this then there’s a spread betting company called IG Index that might be right for you; they allow traders to use margin (borrowing money from your broker) and offer very fast execution.


They also offer plenty of news items but not all of them have been equally good for trading so beware: the difference between a 2 pip move and a 20 pip move is significant enough to make some news useless while others useful indeed.”

Is this useful?

Those with little interest in investing, or with little initial capital to invest, may not find this method very relevant since it requires you to have at least a certain amount of money behind you before you get started.


Also, those looking for an easy way out that will let them avoid all work might also not appreciate learning about what swing trading is – after all, it’s certainly more complex than buying currencies and hoping for the best.


Although swing trading does take a lot of hard work and dedication there is no quick fix when it comes to making trades based on predictions.