Swing Trading Forex Markets

Swing trading is a concept of trading in financial markets that tries to take advantage of short-term waves (or swings) in asset prices. It originates in stock trading and has a close connection to so-called momentum strategies. Swing trading uses the tools of Technical Analysis and utilizes risks management rules such as position sizing and stop-loss orders to ride short-term trends with limiting the capital at risk. It lies between day-trading and long-term value investments, although entering a swing trade might involve day-trading methods and swing trading can be used to enter investment positions more precisely.

Visualizing and trading a swing

swing trade
Examples of daily in swings in Apple Inc. stock Source: www.freestockcharts.com
Swings occur on every time frame but the classic version of swing trading involves the analysis of the daily time frame; you can see great examples of daily swings on the chart of Apple Inc. above. It shouldn’t be a surprise that the best way to use this method is to apply
In hindsight, it is really easy to spot swings—not so much in real-time and there are several different approaches trying to do it. The good thing is that to be profitable it is not necessary to exactly time the swings; if you are roughly right in a consistent manner it’s sure that you will be positive on the end of the day.

  • Trading oversold and overbought readings on momentum oscillators
  • Looking for divergences in momentum indicators that signal trend changes
  • Looking for swings in different time frames (like using a confirmed trend reversal on the 10 min chart to enter a trade on the hourly chart)
  • Analyzing the alignment of Moving Averages with different periods
  • Using candlestick patterns to spot turns

The key is consistency, which is why a lot of traders use automated systems to trade swing trading strategies to remove emotions from the equation. Almost all of the above-mentioned approaches can be automated with algorithms; easily achievable with today’s trading platforms if you prefer trading algorithmically.

The risk and money management methods of swing trading

Stop-loss orders
These orders are essential for swing trading as they limit the losses of the trade and ensure that you don’t get stuck in a losing position. Trailing stop losses are also great for protecting your profits. When trading forex be careful to keep the special factors of currencies (described in the next section in detail) in mind when determining your stop-loss levels.
Position Sizing
With proper position sizing and stop loss orders traders you can plan the worst case scenario for a trade and be sure that it fits with your money-management rules. In today’s environment with a lot of brokers advertising leverage a ratio up to 1000:1, a conscious risk management strategy is a must have for every trader.

The specialties of swing trading currencies

There are some aspects of forex markets that make swing trading a bit different than stocks or some other asset classes. The decentralized nature of the interbank currency markets means that the real price action which traders are facing during volatile periods can make it hard to effectively use some of the techniques.
This is especially true in the case of very short-term swings and around economic releases. The effects, which traders often have to deal with include:

  • Stop hunting

This is a practice by large banks and forex brokers that have access to information about the orders of smaller traders and can easily trigger stop loss to achieve better entry points for their own trading positions.

  • Excessive volatility

The fragmented market means that if volumes are thin prices can be very choppy and staying in a position might be tricky even if the basic assumptions of the trade are correct.

  • Slippage and re-quotes

These are closely connected to volatility and can have a major impact on your profitability. If your orders are not executed on the price that is displayed (or implied by your rules) the difference may eat deep into your profits.

swingtrade example
Examples of swing trading difficulties in the 1-minute chart of EUR/USD Source: www.freestockcharts.com
Carefully selecting your forex broker and the type of the account (ECN, STP, etc.) can dramatically reduce these dangers so before engaging in swing trading a research of the available opportunities is essential.
The positives

swingtrade positives
Examples of swing trading difficulties in the 1-minute chart of EUR/USD Source: www.freestockcharts.com

There are many favorable differences compared to stocks too. Individual stocks have much bigger gaps than currency pairs usually. Even the effect of extreme movements in currencies, such as the outstanding jump in the Swiss Franc in January 2015 can be mitigated by good risk management practices while dealing with stocks can be tricky because of the huge possible overnight moves.

Options provide a good solution for this problem but not all stocks have a liquid options market—in contrast, options on all major currency pairs are tradable.

Another positive is that on the long-run currencies have very stable trends—they represent macro-changes of a whole economy that is much more predictable than most of the individual companies and even stock indices.


Swing trading is a very popular approach to financial markets and rightfully so; it provides a good framework for traders and gives a timing method even for investors to fine-tune their execution. Although forex markets have a few important specialties that require some changes to the classical methods but swing trading strategies still should be part of the accessories of a forex trader, no matter if he or she prefers day-trading or macro-investing.