Effective Forex Swing Trading Strategy

Posted on 19. Apr, 2010 by Kelvin in Guest Post, How To, Random Noise

This is a guest post by Kelvin from How-To-Trade-Currency

If you have been reading up on forex or have been trading forex for some time, you will know that the forex market is made up of Up and Down waves. Even when you are in a strong trend, you will still see the market moving in waves instead of sky rocketing with a single candle.

These ups and downs that you are seeing daily on your charts are known as swings and since they occur so frequently, there are a lot of trading opportunities available for you everyday if you know how to trade these swings correctly. For the benefit of doubt for those new traders who might be reading this post, let us first go through a quick tutorial on what are swings and how you can identify them.

Definition of Swings

There are basically 2 types of swings: UP swing and DOWN swing. An up swing is a V-shaped movement of the market and it looks like the picture below:

A down swing is a N-shaped movement of the market and it looks like the picture below:

It sounds simple right. But the key to trading the swings is not as simple as just identifying them. You have to know when they are going to reverse so that you can enter a trade in that particular direction to grab your profit.

Here is what you need in to trade forex swings:

1) Setup oscillators like the RSI or Stochastic to help you identify when the market is overbought or oversold. You will also need to setup MACD indicator to help confirm a trend line break so that you will not be lured into entering a trade due to fake outs which are very common in trading.

2) Once you have got the indicators setup, you will need to identify key support and resistance levels like the pivot points, Fibonacci levels and previous support and resistance. These are areas where you will most likely see the price reverses.

3) Personally I only trade swings that are bigger as they usually provide more profits. Therefore I usually pick the London Open or New York Open session to trade as these are times where the big dog traders start to enter their trades and create more volatility in the market.

Here is how you trade forex swings:

a) Wait for the price to move near to your identified support or resistance levels. If possible, draw the most recent trend line for the chart that you are looking at.

b) When the price approaches the support or resistance levels, you should check your oscillators (RSI or Stochastic) to see if the market is overbought or oversold. If you are looking for a SHORT trade, you should see if the oscillator is overbought and if you are looking for a LONG trade, you should see if the oscillator is oversold.

c) If the 2 conditions above exist, you should wait for the price to breach the trend line that you have drawn. In order to prevent fake outs, you should check your MACD indicators to see if the breach of trend line is valid or not.

If the price is breaking below the trend line, you should check your MACD for a bearish crossover and if the price is breaking above the trend line, you should see your MACD for a bullish crossover.

d) Once all the above conditions are available, you should enter a trade to take your profit. It is best that you only trade when all the above 3 conditions are available as it will increase your winning percentage.

Try this strategy out on your demo account first and make sure you are able to consistently win with this strategy before you trade LIVE with it.

To learn more forex tips and receive a free report How To Be a Successful Forex Trader written by Kelvin, visit his blog at www.how-to-trade-currency.com today.

Related posts:

1. Setup Your Own Auto-trading Strategy – Currensee
2. MyFxBook – New Stats and Strategy section
3. 7 Tips & Tricks For Trading Forex
4. Trading Forex – Currently Long on EUR/USD
5. Trading Forex – EUR/USD & Greece Default

Tags: Forex Swing Trading, How To Trade Currency, Trading Forex