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Foreign exchange trading, or ‘Forex trading’, is conducted through a global decentralised over-the-counter market, with a daily market turnover of approximately US$6.6 trillion, according to the Triennial Central Bank Survey (April 2019). Forex trading involves buying and selling currencies, through currency pairs such as EUR/USD, GBP/USD and AUD/USD.

A variety of trading strategies exist to serve traders and investors (from short-term methods to longer-term approaches) as a way of analysing the financial markets. Day trading and scalping trading styles are employed by short-term traders on lower timeframes: those who favour liquidating positions at the close of the trading day (5 PM EST). Longer-term strategies—those who follow longer-term trends—adopt a position trading style which focuses on higher timeframes with trades/positions sometimes lasting for years. In between, we have what’s known as swing trading. Swing trading represents another trading style (4 trading styles are largely recognised) and focuses on the medium-term trend. The duration of trades ranges between a few days to several weeks.

Best Swing Trading Strategies

While there is not a ‘best’ Forex swing trading strategy or a one-size-fits-all approach, several methodologies have stood the test of time and proven beneficial. It is also important to be aware that as well as technical analysis, some Forex market participants include fundamental analysis. But for this article, our main objective is to highlight technical-based strategies.

Swing trading is a method in which traders attempt to take advantage of market fluctuations. They buy a security when they believe the market will rise and sell if they feel the market will fall, which, as you can imagine, is common in most trading strategies, irrespective of trading style.

The four most frequently occurring patterns in the swing trading domain are reversal, retracement (or pullback), breakouts, and breakdowns.

• Reversal Trading

Reversal trading is based on the occurrence of a change in price movements. A reversal occurs when the trend direction of the price of an asset changes. For instance, when an upward trend begins to level off and price begins to fall. A reversal can be either bullish (positive) or bearish (negative).

• Retracement Trading

Retracement (or pullback) trading is when you look for a price to turn in the middle of a larger trend. This can be referred to as either dip-buying (price action dips within an uptrend and Forex traders attempt to secure a buy position at lower prices) or sell-on-rally scenarios (price rallies [forms a pullback] within a downtrend and traders look to sell [fade] the upside movement). It is challenging to differentiate reversals and short-term retracements or pullbacks. This is why you incorporate a trading strategy: to define entry and exit points in any financial market (stocks, bonds, currencies, or even cryptocurrencies). A reversal is a change in overall direction, but a pullback (retracement) is a shorter-term ‘mini up move’ (‘down move’) in the middle of a long-term trend.

• Breakout Trading

Breakout trading a strategy in which market participants look to enter a trend (either an uptrend or downtrend) after price forms a breakout of structure.

Taking a position as soon as price breaks through a critical level of resistance is one common strategy employed. Entering short on a breakout through support, of course, is another typical breakout strategy. Round numbers are common support and resistances that offer breakout trading opportunities.

• Breakdown Trading

The opposite of a breakout plan is a breakdown strategy. Early in the uptrend, you look for price to ‘breakdown’ to take your position (also known as a downside breakout). As soon as price breaks through the level of support—think of trendline support—traders can take a position against the opposing trend. The same can be said for an upside breakout approach, only traders then look to take a position (long position) against the prevailing downtrend.

Conclusion

To be clear, in trading and investing, a trading strategy is in place to help put the odds in your favour. No technical indicator or price-based approach can guarantee a trade’s success.

Beginners often favour swing trading because it uses a timeframe that is easier for them to understand, much like position trading. Swing traders don’t spend nearly as much time looking at chart patterns because they make fewer trades than short-term scalpers or day traders. Traders also have more time to think about trading opportunities when swing or position trading.

Some of us are long-term traders (position trading) who want to follow trends that can last for months or even years. One of the main benefits of long-term trading is screen time is limited. Positions may also only need to be checked once a day. This is great if you have a full-time job, but it does take a lot of patience and chances to trade are obviously going to be fewer.