How to Swing Trade the Forex Market?

While daytrading has its advocates, there are a number of traders who prefer to do swing trading, which takes a longer time horizon. This is particularly suitable if trading is not your full time occupation, as swing trading allows you to access the markets each day and take actions for the following day.

Although swing trading came into popularity trading stocks and shares, the Forex market has an advantage over these, in that it is open 24 hours a day during the week. This means you can not only plan your trades but also make them in the evening when you get back from work. In this way you know exactly what price you can enter the market at, rather than having to leave an out of hours order to your broker.

The successful swing trader usually keeps certain principles in mind in order to stay on the right track. One of the first you may hear is "Let the trend be your friend". While there are countertrend systems, this maxim is generally applicable, and you won't go far wrong if you stick with trading in the general direction of the market.

Of course, it is not always easy to know which way the trend is. That is why you will come across different opinions on how to determine this. Often it will be in the form of saying how many days of a moving average to use -- a long-term moving average, such as an SMA 200, will give a good indication of the overall market direction. A further point to watch is that the market is not always trending up or down, but may be going sideways. This period can be traded, but may require slightly different approach.

The second principle is that you try and catch the price when it is making a run. For swing trading, you want to find a price that develops momentum, and is likely to continue strongly in the same direction. This requires you to look at a much shorter time span, and consider the message being given to you by technical indicators to see if the price is moving in the direction that you would expect.

The final step in swing trading the Forex market is to determine the right points at which to enter and exit your trade. This is a key part of your Forex trading strategy, and you should make sure that your system is designed to give you a clear signal. Many such systems have the crossing of two moving averages or indicators as the signal point, and it is easy to see this coming and when it occurs.

Other traders learn to recognize candlestick patterns which can accurately portray the sentiment of the market. The Doji, the candlestick that has no body, is often a sign of change and indecision, and can signal a reversal of direction if the other indicators support this view. Alternative successful candlestick patterns include the engulfing and star formations, and they are worth studying as part of your Forex trading education.