What is swing trading?
When it comes to forex swing trading strategies, there are certainly a lot of different trading strategies that can lead to success. However, swing trading has one big advantage: you don’t need to keep track of the cards day in and day out.
Don’t get me wrong, every successful dealer is somehow addicted to cards and will monitor them anyway, even in his spare time. However, swing trading requires only a few trades per month, which is why forex swing trading is still one of the easiest (or say stress-free) methods for posting substantial profits. Swing trading basically describes the activity between daily trading and investing. As a day trader, you open and close multiple positions daily and hold them for no longer than 24 hours. This can be nervous and seriously affect your sleep cycles. In contrast, the investor does not care too much about price fluctuations and plans to keep the investment for many months, several years or even decades.
A forex swing trader usually holds a long or short position for more than one trading session, but usually no longer than a few weeks or a few months. Strategies that involve forex swing trading also differ significantly from strategies that are successfully applied in day trading. Therefore, I will introduce you to one specific strategy that has proven to be very reliable when it comes to successful forex trading with swing trading.
Can I be successful with swing trading?
As long as you have patience and confidence, you will build perseverance that ultimately leads to success. However, the success is not final. Success is a by-product of continuous self-improvement, seeking knowledge and applying proven methods while removing fear and self-doubt.
In fact, the success of a trader largely depends on his attitude. If he finds a very reliable pattern, which is, say, profitable nine out of ten times, and opens positions based on his expectations, he will most likely change his strategy after failing twice in a row. It is problematic to constantly change strategies prone to failure. The trader has to stick to a certain route, once he finds evidence that it works.
What is the best swing trading strategy?
Although the “best strategy” is most likely not made public, I can still introduce you to a very reliable strategy that has proven to be a very profitable way of successful swing trading. So, without further ado, let’s dive into it right away.
EMA transition strategy
The EMA crossing strategy includes 50-EMA and 200-EMA. To make it very simple, we can look at the example below.
On the chart you can see EUR to USD on the daily chart, a typical trading pair for forex traders. The black line is 200-EMA and the orange is 50-EMA. The strategy is very simple and says: Whenever a 50-EMA exceeds a 200-EMA in such a way that a 50-EMA exceeds and exceeds a 200-EMA, we are talking about a golden cross, which is considered very bullish.
Conversely, whenever the 200-EMA exceeds the 50-EMA in such a way that the 200-EMA exceeds and exceeds the 50-EMA, we are talking about the death cross, which is considered very bearish.
As you can see in the table above, the two EMAs have crossed multiple times over a period of almost five years. In fact, the two EMAs crossed seven times during that time frame.
How does this help me in swing trading?
Assuming you always open a long position when a bull crossover happened and you don’t sell before the death cross appears, you could never sell the top or buy the bottom. But let’s be honest, who is capable of that at all? What we should focus on is consistent profits with very well managed risk. While you will undoubtedly miss out on some gains by applying this specific strategy, you would still be very profitable. To see how, we can look at the example below.
Here you can see the same chart as before, but with added percentage gains between buy and sell signals. You would actually make a profit of 33 percent (or 38.5 percent) if you applied this specific strategy. After your first and initial investment, you would record a 20.51 percent profit when the first sell signal appears.
You would then buy and sell at almost the same price, which means you would lose fees in the worst case. Then, after the next buy signal appears, you would make a 3.20 percent profit when the next sell signal is indicated. Assuming you not only sell but also reduce the same amount, you would make a profit of 8.77 percent the moment the next buy signal appears on the chart. From then until today, you would have a profit of 5.45 percent, but assuming you sell only when the cross of death arrives, that profit would not have been posted yet.
Given that the currency pair gained only about 35 percent from the very bottom to the very top of this time frame, this strategy has been proven to work very well.
There are many more forex trading strategies, especially when it comes to swing trading. However, the EMA crossover strategy is very useful and can be applied over longer time frames, resulting in a lower frequency of trading activities. This makes it superior to others, as it is not only very reliable and profitable but also very easy to use. Just a few shops a month is enough. If you want to increase your trading frequency, you can apply the same strategy to the H4 chart and count how often it has been successful in past market behavior.
The EMA crossover swing trading strategy is an advanced forex strategy, so you should learn the basics, such as supports and resistances, first.