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Wednesday, August 17, 2011

Swing trading

Intro about swing trading


Hi everyone. Today I wanted a little about trading technical market swings. They are some sort of minor trends that can last for a week or two and they usually happen within a defined range that a given market is in at that particular time when a swing occurs. I got the idea to say a few things about it by looking at gbp/usd pair today. I hope the post will be useful to you. 

Define a range before trading a swing


Firstly, you need to identify the high and low of a range that a given security is in. If the security (in this case gbp/usd) is approaching support you wait for it to reverse near it and start trending up. It may not happen, but it very often does. There are a few things you might want to remember before trading swings. You have to avoid choppy markets and if you see price go up and down and again up and down and not moving in one direction it means the security is trading sideways and you will not gain anything from these kind of market conditions. 

Unique phenomena of swings in currency markets


So, you have to see a bottom, possibly confirmed twice and then a gradual move upwards where you will be able to buy dips. A unique thing in trading currency markets is that very often when a swing starts you can see a move up during European session, move down at the end of American session and some consolidation during Asian session. I noticed the phenomena a lot of times and you can see it in the example below with gbp/usd pair. 

Example of gbp/usd swing

The pair bottomed on Friday by forming a double bottom and moved through its’ most recent resistance at that time. One Monday it retraced back to support (previous resistance) and was not able to break through. That’s when one could have bought a reversal and went upwards with the market. You then see the same pattern reoccurring throughout the week, where the pair goes up, reverses to the support and then again rallies upwards again. 

Go to smaller time frames to jump into a swing


When you see these things happening you have to go to smaller time frames: 1, 5 and 15 minute charts and wait for reversal patterns to form at the support levels. You will not always get ideal structures, but more often than not you will find double bottoms or my favorite 123 pattern. They would be a clear indication that a counter swing move is over and you can prepare for a continuation of an upward swing. 

Exiting the market


You might exit your trade at the end of the day or if you are going with a couple of positions you might close one at the smallest sign of a forming counter swing move and leave the second one to run till you see that the market has exhausted itself or is at the other end of the range and will probably have a downward swing. Then by applying the same rules you get ready to move down together with the market.
I believe I will update the post soon with more information about swing trading. 

See also:

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.