Swing trading strategies for successful trend tracking

  • By Luke Andresen

  • June 29, 2018
  • 6:26 pm BST

One trading strategy used by forex and CFD traders is known as swing trading. Swing trading allows traders to either keep positions open for hours or for longer depending on the condition of the market. This method can be used to track and predict trends in the various trading instruments and markets.

The concept of swing trading

Swing trading is used to track the trends of each day for a specific instrument. These trends fall into two categories by which they can be identified: the uptrend and the downtrend. The uptrend consists of high highs and lows that represent an increasing underlying price, while the downtrend represents a decrease in price through lower highs and lows. Charts are often used in trading to help traders visualize trends and track them, forming part of technical analysis. This allows traders to recognize stop loss and profit levels, as well as their entry and exit points. The ranges between an FX pair, index CFD or commodity contract can also be used in swing trading techniques, allowing traders to track the lack of direction in price action as it waits for supply or demand to increase. The key to swing trading is learning to identify a starting or continuing trend by analyzing price action.

Potential trading risks

At times the reflected trends can be created by deceiving price actions, causing a false or inaccurate trend. The trend will reflect on a chart as short uptrend bursts, but always coming back down soon after. These “false breakouts” do not usually last long and should be monitored carefully before a trader opens any positions.

Applying swing trading strategies

The trends of price instruments very seldom move in straight lines; rather, they vary according to changes in supply and demand. Although these charts can be complex, it is often best to keep it simple when analyzing them. An uptrend will move upwards gradually, and even if there are lows, they are still higher than usual – over any given amount of time, from five minutes to an entire day.  In contrast, a downtrend will very visibly continue to move downwards, and any highs will still be relatively low. Trading platforms such as MT4 automatically monitor these price actions and represent them in a security chart, either as a bar chart or by rendering changes with the candlestick method.

Confidence in trends 

An example of confirming a trend can be seen if a trader is watching for a bullish trend. If an upwards movement is noted, the trader should look out for subsequent upward movement afterwards, or at least higher highs and lows. This momentum can help confirm the trend. A stop loss order can be put in place to protect traders from any false breakouts. Following lower lows and highs can also indicate trend confirmation, especially if a price fails to go higher than the new high. Observing the time over which the price fluctuates can also confirm the trends, as trades or prints move up or down the price ladder at consecutive time intervals.

When it comes to the swing trading method – whether it’s CFD or forex trading – patience is the key to successfully confirming the desired trends. The price action will reflect how the trend is moving and whether or not you should go into a trade. Stop losses are also vital to protect yourself from those false breakouts, especially when you are unsure of a trend’s direction. The best way to implement this strategy in your trading is to practice monitoring and analyzing trends to get comfortable with how they fluctuate and when you can be confident enough to trade.