Forex Swing Trading Guide and Examples

When it comes to trading, there's a wide array of trading styles and strategies to choose from.

From scalping and day trading to swing trading and position trading, the options can be overwhelming for beginner traders, and swing trading, in particular, is a trading strategy that offers its unique approach to the markets.

The key difference between day trading vs swing trading is that the Forex swing trade is a style that aims to capture shorter-term price movements, usually spanning from 3 days and up to 3 weeks. Unlike lightning-fast scalping or long-term position trading, swing trading strikes a balance that resonates with many traders starting their journey.

The beauty of swing trading lies in its flexibility as it allows you to harness the power of technical analysis, indicators, chart patterns, and methods that align with your trading style, goals, and personality.

From uncovering the best-kept secrets of successful swing trading to adapting to the unique market landscape of 2023, we will explore various aspects from what is swing trading in Forex to profitable swing trading strategies you need to confidently navigate the twists and turns of the Forex market.

What is Swing Trading?

Forex swing trading is a trading style or a trading strategy that aims to capitalize on the up and down price oscillations within the long-term trend enabling swing traders to profit from the rises and falls that create these swing waves.

When markets are trending, they seldom follow a straight-line trajectory instead, even during powerful bull or bear moves but periodic price corrections emerge, moving in the opposite direction of the established trend.

For Forex swing traders or stock swing trading, the goal is to identify and capture the low points of these price corrections during uptrends. By buying a currency pair at a discounted price, they hope to benefit from further upward movement. During an uptrend, markets exhibit higher highs and higher lows which is nothing more but the ebb and flow of the market.

 

Source: TradingView EURUSD 4-Hour Chart

That is where the age-old adage: "buy low, sell high" comes from.

However, the challenge lies in determining when a price is sufficiently low to buy and when it's high enough to sell. The swing trading strategy allows anyone to take advantage of the cyclical nature of the Forex market by accurately timing when these swing highs and swing lows develop over time. 

Is swing trading better for beginners?

Swing trading Forex is suited for beginner traders and for those who have a 9 to 5 job or for people who have other commitments (running a business, studying at school, etc.) but can dedicate a few hours each night to stay informed about the FX market.

Your personality fits the swing trader Forex profile if:

• You’re comfortable holding a position overnight.

• You prioritize quality setups over a high frequency of trades.

• You are comfortable with larger stop losses.

• Exhibit patience in your trading approach.

• You have limited time to dedicate to Forex trading.

The swing trading strategy rewards those who possess the patience to wait for favorable opportunities and can maintain a sense of calm when trades temporarily move against them. However, if you find yourself becoming anxious or sweaty when trades go against you or if you struggle to dedicate a couple of hours daily to analyze the markets, then swing trading may not be the optimal choice for you.

How Swing Trading Works – Swing Trade Forex Example

To better understand what is swing trading Forex let’s consider a trading example. You can pick your favorite stock for swing trading and the process should be similar.

Step 1: Embrace the Daily Time Frame 

In swing trading, the daily time frame becomes your trusted companion because it offers a broader perspective on price action and delivers more reliable swing trading signals.

For utmost accuracy, consider using a specific type of chart that follows the New York daily close which concludes at 5 PM EST.

Check our Forex brokers comparison table to see which broker offers the MetaTrader 4 with NY close charts.

On the Forex chart below, the overall price action suggests a bullish trend in the EURUSD forex pair. Visualize the price action and you'll quickly realize that it resembles anything but a straight line.

 

Source: TradingView EURUSD Daily Chart

Step 2: Establish Key Support and Resistance Levels

Building the foundation for your trading endeavors begins with drawing key support and resistance levels which allows everyone to find profitable swing trading opportunities.

The 1.0200 big psychological level on the EURUSD daily chart represents a key resistance level

 

Source: TradingView EURUSD Daily Chart

Step #3: Asses the bullish and Bearish Momentum

Market momentum can be categorized into two types:

1. Bullish momentum: Higher highs and higher lows

2. Bearish momentum: Lower highs and lower lows

During an uptrend, the market forges higher highs and higher lows and LH and LL in a downtrend with each swing point surpassing its predecessor, indicating a bearish momentum.

In the EURUSD swing trade example, you want to position yourself as a buyer, capitalizing on the potential upward swing.

 

Source: TradingView EURUSD Daily Chart

Step #4: Confirm the Swing trade signal with price action

In an uptrend, it's crucial to keep a watchful eye for sell signals emerging from key support levels.

One candlestick pattern that holds a significant value as a reversal signal is the Doji candle pattern. This particular chart pattern provides a favorable opportunity to buy EURUSD at key support level.

 

Source: TradingView EURUSD Daily Chart

Step #5: Determine Profit Targets and Stop Loss Levels

To identify your exit points effectively, revert to the support and resistance levels you established in Step 2. These levels serve as reliable reference points for defining your profit targets and stop-loss levels.

While it's natural for the market to occasionally surpass your target, remember that the goal is to capture the majority of the swing wave.

With these steps, you now possess a foundational understanding of how swing trading operates and what is a swing trader in Forex.

Best Indicators for Swing Trading

When it comes to swing trading, similar to scalping or day trading, the utilization of technical indicators plays a crucial role in determining entry and exit points for swing positions.

Here are some of the most widely used indicators embraced by swing traders:

1. Moving Averages 

2. Stochastic Oscillator 

3. Relative Strength Index (RSI)

4. Bollinger Bands 

Now, let's delve into an example using the EUR/USD chart and the Relative Strength Index (RSI) indicator:

• When a Market is Oversold: The RSI breaks below the 30 oversold level. Following the RSI suggestion, a buy trade at this point proves profitable as the market experiences a strong rebound.

• When a Market is Overbought: The RSI breaks above the 70 overbought level. In our chart, the market enters overbought territory at the red arrow. 

Nevertheless, it's crucial to understand that RSI, like any other indicator, does not guarantee successful trading on every occasion, but the key lies in being right the majority of the time and effectively managing risk when your analysis proves incorrect.

Swing Trading Strategies

As a beginner trader, there are 4 different high-probability swing trading strategies you need to know:

1. Swing reversal strategy

2. Retracement trading

3. Breakout swing strategy

4. Breakdown swing strategy

Swing Reversal Strategy

Reversal trading centers around identifying a change in price momentum (positive or negative), indicating a shift in the trend direction of a currency pair. For instance, when a bearish trend loses steam and the price begins to move upwards.

 

Source: TradingView USDCAD Weekly Chart

Retracement Trading

Retracement trading involves seeking temporary reversals within a larger trend and identifying previous support and resistance level where the price can retrace before resuming in the direction of the main trend.

These 50% Fibonacci retracements can be useful for swing traders to determine reversal points on a price chart.

 

Source: TradingView GBPUSD 4-Hour Chart 

Breakout Swing Strategy

Breakout trading aims to capitalize on early opportunities within an uptrend by opening a long position as soon as the price "breaks out" of a key resistance level.

 

Source: TradingView USDJPY Daily Chart

Breakdown Swing Strategy

Conversely, the breakdown strategy focuses on early positions within a downtrend by opening a short position as soon as the price “breaks down” through a significant support level.

 

Source: TradingView AUDUSD Daily Chart

Understanding these swing trading strategies will allow you to navigate the market with more confidence. Each strategy requires careful analysis, observation of price movements, and consideration of key support and resistance levels.

Final Thoughts

Swing trading in Forex offers a balanced approach to trading, sitting between the fast-paced nature of day trading and the longer-term commitment of position trading, providing a less stressful environment while still delivering impressive returns.

Quality outweighs quantity in swing trading, as even one well-timed trade per month can yield substantial returns.

Remember, to focus on the daily timeframe because you can gain a clearer understanding of the swings in the price and have more reliable signals for swing trading.

If you're in need of a reliable Forex broker to support your trading journey, visit our Best Forex Brokers page today to discover top-notch brokers that offer competitive spreads, robust trading platforms, and exceptional customer service.