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Swing trading is a very popular technique used by Forex retail traders. In this article, I will discuss what it takes to succeed in swing trading, as well as the most common mistake made by swing traders.
What Is Swing Trading?
The currency market is famous for large price fluctuations. Prices may ‘swing’ upwards one week, and later ‘swing’ downwards the next week. Swing traders are people who attempt to ride these large price ‘swings’ to profit from them.
For example, if I believe that the current market price is reaching its peak, I may enter into a sell trade in expectation of profiting from (what I believe will be) a subsequent drop in price in the very near future.
Swing trades are typically held for a few days up to a couple of weeks, depending on the strength of the prevailing ‘swing’.
Why Is Swing Trading So Popular?
This form of trading is particularly popular in the currency markets because the markets are often ranging. This characteristic allows ample opportunity for swing traders to choose which market ‘wave’ to ride on.
Also, unlike the small profit targets of a scalping trade, swing trades potentially yield a much bigger profit. A scalp trade may net an average of about 10 - 20 pips profit, but a swing trade can yield as much as 100 pips or more per trade.
The Most Common Mistake Made By Swing Traders
Because the nature of swing trading involves the prediction of market tops and bottoms, many traders invariably make the mistake of incorrectly estimating the end of a ‘swing’.
For example, as the market price begins to turn around on an uptrend, a swing trader may incorrectly perceive it to be a trend reversal signal. However, this turnaround may only be a temporary price retracement before the market continues on the upward movement, causing the trader to suffer from a potentially large loss.
Swing trading is not as easy as it looks, and many traders get burnt because they don’t know how to properly estimate market tops and bottoms.
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