Swing Trading FX. Paul Brittain Alaron Trading Pbrittain@alaron.com 1-702-255-4107. Swing Trading. Because the currency market often experiences short lived intraday trends, perhaps the most efficient way to trade them is through swing trading. Swing Trading.
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Because the currency market often experiences short lived intraday trends, perhaps the most efficient way to trade them is through swing trading.
Swing traders don’t attempt to predict the duration of a trend, or to hold a bullish or bearish bias. The premise of this trading style is that one can capitalize on both trending and retracement phases of a market.
The vital assumption is that all upward price action must eventually result in a period of correction.
To successfully swing trade in the currency market, it is necessary to have a relatively quick trigger for entry and exit.
Moving average crossovers are often the optimal method of timing entry and exit. This is because, a crossover is capable of marking the end of one trend and the beginning of another.
If this trading style seems almost too good to be true…your intuitions are correct. By looking at a chart, a trader would almost never lose if he/she accepted moving average crossover signals to enter and exit a trade.
The problem is that most traders are not sufficiently capitalized to hold positions that will eventually become profitable.
Traders can compensate a Moving Average Crossover system by placing appropriate stops and using a trend confirming indicator such as MACD or Stochastics.
Trading on Moving Average Crossovers alone will result in false signals. Filtering signals with a confirmation indicator will alleviate some of this.
A rule of thumb for stop placement in swing trading is at the relative high or low of the previous two price bars. If the relative high or low is not beyond your entry, use the high or low of the next feasible bar.
Stops should be trailed. Each price bar that goes in your favor the stop should be placed just above the high or low of the previous bar.