A Simple Forex Swing Strategy

It is paramount to remember that swing trading revolves around making the most substantial return possible in a short timespan. To accomplish this goal, traders must look for any given pair’s highs and lows. Again, it does not matter is the long projection is that a forex pair will not increase beyond its support. What matters is what happens in the short-run. For that, historical performance from any given pair must be researched. The high and lows need to be analysed in search of a pattern.

•      At what times of the day does the pair present a high level of volatility?
•      How many times a week does the currency repeats this cycle?
•      What conditions caused instability?
•      How stable is the pair historically?

All these questions help traders identify when the market will make a swing. Further, it is also essential to check the prices at moves’ end. The end price helps to determine the overall pair’s performance. That, in turn, allows any trader to see the chances of the market slowly turning bearish or bullish, which would enable them to open their positions accordingly.

Ergo, if a pair is somewhat stable (with the occasional volatile periods) and a short-term downward trend, with a long-term projection to break its support. Then, it is safe to say any short term swing will be quickly followed by a downturn. Thus, it is best to open a position at the start of a bullish run while having a close stop loss in anticipation of a quick drop.

It sounds relatively easy to do, and it is! This is a simple forex swing strategy. And to demonstrate that, let’s use an example.

For this example, we will use hypothetical movements on real pairs. The first one will be the GBP/USD pair, analysed on an hourly chart, to explain how swing trade is a highly beneficial strategy.

The first that must be done is going to the MetaTrader 4 platform and select two different moving averages (MA). 

The first MA will show the historical trade over the previous 25 hours, and the secondary MA will show the historical trade over the last 100 hours. 

It is important to remember that the trading chart is set hourly. 

The first thing that could be appreciated in this hypothetical chart is that the red line (which in this case, it represents the short-term MA) has an upward trend. 

The green one, by a simple process of elimination, is the long-term MA, and it also shows an upward trend.

What those two curves tell any trader is that the market has already swung from a bear (down) pair to a bull (up) pair. 

Even if the only information available was the first half of the graph, it is easy to appreciate that the 25 MA is swinging upward, while the 100 MA remains unchanged.

In this case, the full swing happened on June 16 at 1.41932. The reason why that specific point in time matters is because it showed when the 25 MA intersected the 100 MA. 

Not all curves will have these clean-cut moments, but it is easy to appreciate how important it is to beware of two different moving averages when looking at pairs. After all, moving averages are lagging indicators. So they show how things are moving overall.

Since the trend is upward, the simple forex swing strategy determined that it is time to go long on the GBP/USD pair. 

That means opening a position at 1.41932 and place a stop-loss only a couple of hundred pips apart, with a limit 700 pips further down the line. 

Obviously, it does not take much to notice that the market kept trending upward. So, it is wise to trail the 200 pip stop with the swing.

Again, the swing kept happening until the GBP/USD pair peaks at around 1.47450, long after the original conditions set were satisfied. If a trader decided to leave once their 600 pip condition was met, they would have easily reached their target in under a week.

This was a one chart example. Anyone interested in trying a simple forex swing strategy like this one without any previous training in forex trading should do so at their own peril. The best advice is to open a demo account and try this strategy against hundreds of pairs and moments. Understanding what would happen if there is a market shock or if the trade was held longer.