Forex Trading: Swinging to Profits

by James Franklen

There are a range of strategies available to a trader to churn profit on his capital while trading forex. Many of these strategies focus on long-term aspects, propagating buy-and-hold positions. Such strategies are more effective for larger traders such as hedge funds or large brokers; the volume of funds at their disposal does not allow them to trade short-term. In the like manner, small traders cannot reap much gain out of long-term approach to trading; their meager funds do not allow them to multiply their gains, nor maintain margins in between.

The short-term trading strategies serve the goals of small traders or day traders well. They do not have to follow the bulls and bears nor study the technical or fundamental analysis long way in to the future. By not opting to use the long term approach to trading, these traders are saved from continuously monitoring the position and funding any margin calls as they occur and incur expenses to do so.

Swing trading is one such short term trading strategy. The traders do not follow the long term trends; they just pick up enough leads that get their positions closed out in gains within one day or less than a week. This is why it is often equated or called as speculative trading. In such a trading, the trader is not looking for core changes in price dynamics; here the trader is actively manipulating his capital within the constriction daily tactical price movements.

A swinging strategy is effective in stable market conditions, where volatility does not overwhelmingly challenge the resistance and support levels. This is the reason why drawing up statistical/ mathematical algorithms based on uncomplicated rules around swing trading strategies is easier and effective. According to some analysts the arbitrage that exists in such conditions has over the years been squeezed due to effective algorithms being used by more and more people, squeezing the profits a little drier. Swing trading strategy reaps smaller but consistent profits. Together with stringent money management practices, a trader can make handsome profits.

An example of such an algorithmic approach to trading is that of Dr. Alexander Alder. Although his algorithm is for stock trading, the underlying valuation/ analytical tools used are similar and applicable even forex trading. This algorithm uses simple rule as a signal to trader. If three moving averages demonstrate that the price will move upwards, go long. If three moving averages show that price will move downwards, go short. A combination of SMA, EMA or WMA can be used for such an algorithm. One of the major challenges in exercising this strategy is timing the entry and exit from a currency market. Such algorithms address this challenge often.

Trading swinging strategy is inherently riskier. Trading in a speculative manner, as is done here, leaves the trader exposed to a number of variables. The risk increases a lot when trading in ranges or sideways movement of price. Decisions have to be taken quickly and that mounts psychological pressure, which can lead to errors and mistakes.


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