Summary:

Swing trading in forex involves holding positions for days or weeks to capitalize on short to medium-term market swings. It balances between day trading and long-term investing, requiring less constant monitoring.

Main Points:

• Definition: Swing trading is time-based, with trades held for days or weeks.
• Comparison: It contrasts with day trading (single-day trades) and position trading (months/years).
• Advantages: Potential for profit, less frequent monitoring, lower stress.
• Drawbacks: Higher risk due to market gaps, patience needed, possible missed opportunities.
• Forex Swing Trading: Combines technical and fundamental analysis, with indicators like moving averages and RSI.

There are many ways to trade assets, including foreign exchange (forex) currency pairs.

Today, we’ll look at one type of time-based trading called swing trading. More specifically, we’ll look at swing trading as it applies to forex.

Before we start looking at those specifics, it helps to understand the basic idea of swing trading in general. Here’s what you need to start learning about swing trading.

What is Swing Trading? How is it Different from Other Types of Trading?

Swing trading in general refers to a time-based approach to trading. In swing trading, traders open and close positions (i.e. they make trades) across days, weeks, or sometimes months. Investopedia points out swing traders look for opportunities to find positive returns in the short or medium term.

An easy way to understand swing trading is to compare it to day trading. In day trading, traders open and close positions within a single day.

Swing traders hold their assets for longer amounts of time than day traders. In the big picture, swing traders are still looking at a relatively short period of time to get a positive return from their trades. However, it’s a significantly longer period than what’s common in day trading.

For the sake of being complete, position trading and trend trading are the longest-term trading strategies. In these approaches, traders often hold onto their positions for months or years.

Position and trend trading are somewhat similar to investing in their time frames. However, the goal in investing is generally to buy and hold assets that perform well in the very long term (generally years and often decades). In trading, no matter the type, there is a focus on finding opportunities that provide higher returns in less time as compared to investing.

So, we can see that swing trading falls in the middle of these three major categories. This is true for swing trading forex as well as many other types of assets.

Charles Schwab points out that many small changes happen in larger, long-term market trends and cycles. These changes are commonly called swings. That’s how swing trading got its name.

Why do Traders Choose Swing Trading?

Swing trading is often attractive to traders who can’t constantly monitor the markets they trade in, whether it’s the forex market or another one. Day trading requires frequent market check-ins and analysis, with trades opened and closed on the same day.

When other factors get in the way (work, family commitments, and many others), day trading may not be possible. However, many traders can find the time to check in once or a few times a day to follow market developments and adjust their strategies.