What Is A Swing Trader | The Essential Guide For 2020

Last Updated on September 17, 2020 by Alphaex Capital

What Is A Swing Trader

What Is A Swing Trader

One of the best aspects of trading the forex markets is being able to hone in particular skill sets and specialising in them. There is an endless way of trading the markets and it is common for forex traders to stick to one type of trading that they feel most comfortable with. What works with them, may not work for others.

In this article we will go over what is a swing trader and how you too can decide whether or not this style of trading suits you.

What Is The Definition of a Swing Trader

The definition of a swing trader is someone who specialises in taking advantage of market movements that are short term. Swing trades are usually opportunities created from a market low or market high which causes a reversal of the general trend (or an intra-trend).

The name comes from the idea that the price has swung in another direction, so instead of reaching a higher price – the market has now changed direction and creating lower prices – thus causing a swing in the price.

What Is A Swing Trader - Trade Example

As you can see in the example above, an opportunity arises when the markets change direction. Now the image used as an example is there to be as clear as possible. You can find opportunities to trade every day.

The idea is to take a huge chunk of a change in trend to profit.

What Is A Swing Trader In Forex?

A swing trader in Forex is someone who specialises in only using swing trading methods using the currency markets only.

Swing traders in this area tend to focus on opportunities in the market in a narrower timeframe, towards the 1 hour – 1 day charts.

The upside of this is thanks to leverage, smaller swings in the markets can lead to larger potential profits. So, it is quite possible to earn a monthly sized return within a couple of trades a week.

It also means that trading opportunities can be more frequent. Which is a good and bad thing.

The downside is the fact that leverage means you can end up losing money just as quickly.

To learn more about risk management, click here.

What Is The Difference Between A Swing Trader And A Day Trader

This, again, is the beauty of trading the markets. Everything is subjective and each individual can focus on whatever style of trading they desire most!

Before we explain the difference, we will define what a day trader is.

A day trader is someone who focuses on trading strategies that are opened and closed within the same trading day.

This is a very popular method used in forex thanks to leverage.

One of the key benefits of day trading is that you do not have to pay overnight financing fees – these fees are for holding the position for you over night and currency SWAPs.

A currency swap is the difference in interest rates between the two currency pairs. You either have to pay it, or receive it, depending on the difference. Most commonly you will be paying it.

The reason why you pay overnight fees is because of leverage, you BORROW the money/asset from the broker in an agreement to pay back or receive the DIFFERENCE between when you bought and sold the asset.

Essentially, a day trader is looking to profit from the markets at the same day and usually take smaller returns more frequently.

The main difference between a swing trader and a day trader is that the swing trader is looking to take as much money as possible from the change of market direction over as long as necessary time period. This can lead to a swing trader having their positions open for several days to months at a time.

Whereas a day trader looks to profit from the market as quickly as possible and have no trades open overnight.

Most commonly, both styles utilise technical analysis to pin point trading opportunities. However, intraday market news can have a large impact on a day trader.

Someone that is looking to find their trading style could very easily pick up swing trading as trading opportunities are frequent enough to trade throughout the week, but not frequent enough where you have to sit by your computer screen all day, unlike other trading methods.

In addition, when you have entered into a trade, you can set your stop loss and take profit levels and let it run as per your analysis.

Whereas with day trading, you will be required to be near your computer to monitor and enter a trade at a moment’s notice.

What Do Swing Traders Look For?

By definition swing traders look for reversals in the markets. These can appear in many forms, to name a few:

The purpose of the above types of reversal indicators is to identify a turning point in the market with great accuracy, allowing swing traders to get in and take advantage of an early move.

Traders have a saying:

The trend is your friend until the bend at the end.

What this means is, like swing trading, speculating in the direction of the market is the most profitable – whether you get in at the start of the trend, the middle or even 75% of the way in. The point is, you never know how long a trend can last for or how far it can go.

You can say with swing traders that they are looking to find and enter trades at the start of a potential trend change, therefore are in earlier before most others. This in turn means that they can potentially make a lot more profits over time.

However, you should note that not all swings / trend changes are perfect. It is just as common for trends to stall and then continue.

Finally, swing traders tend to look for larger risk:reward ratios due to the nature of the trading style.

It is most common for larger timeframes to have a risk reward ratio of 1:3-5. So for every £1 you risk, you are looking to obtain £3-5 off every trade, whilst shorter timeframes tend to go for 1:2 risk reward ratios due to smaller movements.

What Is Swing Trader Indicator

There are many methods for swing trading which are publicly available for free. Personally, a need for an indicator should only be used to highlight a POTENTIAL opportunity. The markets are not black and white, or If this then that rule based.

The power behind being a swing trader is the fact that their accurate when it comes to technical analysis on a longer time period, so there is no need of an indicator.

However, naturally, traders may want a swing trader indicator to make their life easier. You can find swing trading indicators either at Metatrader or with a quick Google search, there are hundreds of them available online for you to use.

But if you want to hone in your powers – stay away from the indicators – you’ll thank us later!

Pros and Cons Of Being A Swing Trader

If you think that focusing on swing trades seems ideal for what you want from trading forex, we have provided a quick Pros and Cons table below to make some of the key points standout.

Use on longer timeframesPotentially more expensive to trade as per overnight trading fees
Prevents overtradingLonger timeframes can mean fewer opportunities
Larger Risk Reward ratiosUsually, larger stop losses involved, so could take larger losses over time
Do not have to monitor your trades or screen all-day

What Is A Swing Trader – A Summary

So you want to find a trading style that suits your behaviours and interests, something that can allow you to work away from the computer screen whilst searching for larger than normal, money-making ideas. Then swing trading may just be for you.

Overall the qualities of a swing trader allows for the above, it’s easier to learn, clearer to trade but the key to success with swing trading is to be patient.

Just like fishing, you have to wait for the fish to bite before you can reel it in!

Patience is something that cannot be taught and can most likely scare people off – however, with swing trading – applying the right strategies at the right time can reward the patient traders the most.

It should also be noted that there is no “best” way to trade, trading is an art and a learnable skill that anyone can take advantage of. What works for others, may not work for you. That is why it is always important to test on a demo account first.

Still not sure? Why not take our trading quiz below to find out what suits you best!

Take our “Type of Trader” test below by answering a couple of quick questions, and we’ll send you the results.

Forex Trading Course

Do you want to finally understand how the markets work and learn from a top forex expert who has in-the-trenches experience trading within investment firms from the City of London for the past 10 years?

Click the button below to get instant access to a 100% FREE Forex trading course, with ZERO strings attached. That’s right, a FULL trading course – for free – without a single request for any form of payment! (Unbelievable I know).

(It’s because we get paid by advertisers and not you :)).

So go ahead, click below and see what golden nuggets you can find in our course.