Swing trading can be highly effective in forex markets enabling you to trade with low risk and high rewards.

Swing trading is however misunderstood by many traders and they lose.

Here we will look at a specific method to swing trade that will give you low risk and high reward.

Swing trading

Takes advantage of corrections in value sideways or strongly trending markets and a typical trade will last 2 - 5 days.

Many traders think they can swing trade on a daily basis but this will just see you lose your equity quickly.

Day trading no matter what system you use is a mugs game, as volatility within a day is totally random and levels have no significance.

If you want proof then ask a day trader for a real time track record of profits and you won't get one.

Now let's get started on a simple 3 point method to swing trade.

1. Establish valid support and resistance

You are looking for support or resistance that has been tested and held on several occasions preferably at new chart highs or lows.

2. Watch Momentum

Watch prices move strongly toward the support or resistance and look for confirmation that price momentum is going to turn.

This is the critical point!

You need CONFIRMATION that price momentum is waning, a turn is likely and the odds favour a swing trade.

You want some evidence that price momentum is not strong enough to take out support or resistance.

The best indicator for this is the stochastic indicator - It's the ultimate indicator to time a swing trade and if you don't know how it works learn about it from our other articles.

The stochastic is a visual indicator and here we will simply look at the visual set up you need.

When the market is for example trending up to resistance, the stochastic lines will both normally point up. When the market is moving down the opposite set up will apply.

The signal you are looking for is:

For the stochastic lines to cross each other and point either up (bullish divergence) to show support has held or cross and point down (bearish divergence) to show resistance has held - This is your signal to take the trade.

You can see this set up on any free chart service and one of the best is futuresource.com.

3. Target

When you have entered a trade you need a target.

Next pull up the Bollinger band.

If you have had a quick volatile move to test support or resistance, prices will be normally at the top or bottom of the band.

Look for prices to return to the middle band and make this your target.

Don't hang around and trail stops.

As soon as you hit this band or near it take profit.

Other points

1. Only trade sharp volatile moves into valid and significant support and resistance.

2. Always wait for a stochastic crossover to enter don't predict.


3. Set a target and get out.

A typical swing trade will last for around 2 - 4 trading days.

If you look for set ups that meet the above criteria you can get some low risk high reward trades that will build significant profits over time.