If you are familiar with the purchase of Stocks in Forex, then you have definitely come across the term swing trading, possibly even used in your trades.

If you are familiar with the purchase of Stocks in Forex, then you have definitely come across the term swing trading, possibly even used in your trades. Swing trading basically works on the principle of using swings of price in the market. If it is in the range, there are swings in the range. A similar principle applies when looking at an upward and a downward trend. Our end goal is usually to capture one swing and gain all possible profits from it.

By buying stocks in a range

By buying stocks in a range of areas of support, then it would be wise to leave that trade before opposing pressure comes in. If you go long in this scenario, you will leave that deal before sellers come in. Their point of entry will be estimated from the previous area of resistance, or previous swing high. This will enable you to catch the maximum amount of profits from when you went long. If you decide to go short and sell on a downward trend, cancel that deal before buyers come in to influence the graph. Your area of entry is estimated by looking at the previous area of support, enabling you to pocket all profits possible from this swing. Sometimes, the price may take a couple of swings before hitting your take profit area, but with patience, you will be able to attain your profit as anticipated.

One strategy used in swing trading

One strategy used in swing trading is when the rate is stuck in a box or a range, you are better off buying low and selling high. Execution is done by allowing rates to fall to an area of support and letting it reject all lower prices. This can be seen when buyers come in heavy to resist the movement by sellers. Here, you can go long and set your stop loss lower from where you have identified a price rejection. The stop loss is not in place regarding the previous area of support because sellers can come in and surpass that area, eventually kicking you out of that deal. Your stop loss goes below the area where you bought your shares, not above.

The Working Concept of Swing Trading

Another strategy that can be used is by catching the wave. This is most applicable when a market is in an increasing graph. There are multiple swings in this section, but those going up are stronger than all counter-trend moves. As a trader aiming for good, practical profits, you are better off capturing swings that are in parallel movement with the trend of that market.

It is often a good option to wait for rates to come to an area of value, which is 50 MA in a healthy upward trend and look for a form of price rejection pattern. These price rejection patterns could either be in the form of a bullish engulfing, hammering, shooting star, morning star, or three white soldiers. This is where you can consider going long, entering the exchange on the next candlestick, and have your stop loss below the area of purchase about the former candlestick. Plan on exiting that trade just before the opposing pressure kicks in, which is about the previous swing high. This is where potential sellers come in and change the movement of the market.

Counter-trend trade is considered to be an aggressive method of trading but has a good risk-reward on your trade, if well executed. An upward movement where the graph continues in this form till it reaches its swing high presents a prime opportunity for you to enter that exchange. The countertrade starts to work when a market seems to break the former swing high to continue in an upward movement. This was mainly caused by buyers who saw it fit for them to go long and continue entering the exchange, eager to catch the next move higher. When the direction reverses, it traps them in the trade. It fueled further selling pressure as it hit its stop losses, making rates go lower.

Traders looking to use the counter-trend method will go short and enter the exchange on the next candlestick after the reversal sign is clear, with the anticipation of catching one swing. In such an exchange, you don’t want to stay too long in it because you’re trading against the trend. Any sign of reversal should be the first alarm to tell you to leave the deal with whatever profit you managed to gather.

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Ken Liu