The Mental Toughness of Forex Swing Trading | The5ers Blog (2024)

Forex Swing Trading

Swing trading is a type of trading strategy that targets long rallies or long drops. Swing trading is also known as long-term trading or trend trading. It involves holding a position over several days or weeks. By holding the position, traders attempt to capture a longer price range in stock, forex, or any other financial instrument.

Swing trading requires patience and proper capital margin planning. Typically performed by stock investors, swing trading can help currency traders make huge profits, provided they use the sophisticated yet simple leverage advantages given to Forex traders.

To make huge profits, a swing trader must act quickly to find situations where a currency pair has great potential to move—higher or lower—in a short time frame. To find currency-pairs exhibiting short-term price momentum, swing traders make use of technical analysis and, at times, market sentiment analysis. Instead of the usual long-term trends, swing traders look to capitalize on price trends and patterns in the short term.

Swing trading is often confused with reversal trading—but unlike the latter—swing trading does not look for a change in trend; instead, it is actively engaged only for a short period of time. In the following sections, we discuss the mindset for holding long-term positions and the challenges associated with it, the benefits and risks of holding long-term positions, and why the5ers is a great trading framework for swing traders.

The Mindset for Holding Long-Term Positions and the Challenges Associated with It

If you have the qualities to perform day trade effectively, then you have a good chance of being successful at swing trading as well. What are these qualities or attributes that we point to? They include having patience, not minding big stop losses, being willing to take fewer trades, and being careful with the few setups you make. If you have all these qualities, then you are well on your way to becoming a successful swing trader.

However, don’t be too quick to start swing trading. You will also need to face and overcome some mental challenges associated with swing trading. Compared to swing traders of other equities, there are not enough forex swing traders to exploit the full trend potential. Know the reason why? Because major forex pairs are more balanced and tend to fluctuate deeper and more frequently.

In forex, 80% of the time price is either ranging or retracing, and only 20% of the time price is in actual trendy bias. This means that compared to swing traders of other financial instruments, forex swing traders need to have a higher level of patience and mental strength to hold long-term investments.
If you are motivated by a dynamic, fast-moving trade environment and impatient about finding out whether you are right or wrong, then you may not have the mindset to be successful in swing trading, particularly forex swing trading.

Watching an unrealized profit being eaten by a long retracement and slow flagging can be an exhausting mental experience. Euphoria comes for very short moments when the market spikes in your direction, and then it’s back to long retracing action.

So many thoughts may run through your mind while 80% of trade cycle time is on ranging or retracements. There are more reasons to stop the position at the many scenarios it still has to go through. For the ones who can stay honest and reliable toward the original target aim, the reward can be huge.

Watch our swing trading webinar, Naked charts – Trading mentality rules to keep you safe.

Set and Forget Trading is Not for the Pros

Long-term traders are often advised to set and forget trading positions. This is not a good idea. While you have the leverage to set and forget trading in stocks, you don’t get that luxury with forex, especially if you are a professional trader.

In swing trading, capital is held by the position, and it needs to provide a decent interest. For a forex trader, the capital is the raw material that must be efficiently handled. A common way to handle long swinging is to constantly load and unload on the position based on the different scenarios of the market. Gradual entries at the end of retracement and taking partial profit at swings high. Aggressive swingers may also hedge a part of the income in the opposite direction, trading on pullbacks.

Swing trading strategies that work are those that deal with a position for days. However, like any other trading method, swing trading requires mastering the art of speculation. Successful swing traders keep positions open for two to six trading days, sometimes even for weeks. Additionally, they will look to enter into a position that lets them profit in a short time period.

Fundamental analysis is of little importance to swing traders. Instead, they rely on technical analysis to analyze trends in the price movements of a certain currency pair. The analysis includes recent, short-term, and long-term (up to three years) research. To stay on top of the trend bias and continue banking cash flow from profits, swing traders should take micro-actions such as adding and unloading at range edges. More importantly, they need to be fully aware of and involved in the ever-changing conditions of the market.

Take Advantage with Leverage

A strategy that looks to identify trends within a short or medium-term trend, swing trading looks to hold a position only when there is a high probability of winning. Larger stop losses are required to weather volatility since trades last much longer than a day, and forex traders must adapt their money management plan accordingly.

It can be profitable and extremely risky at the same time to load a forex position. Just like in a dependent position, this risk management should be carefully planned. A swing trader must be sure about the timing to add on a position because it can easily consume all of what they’ve achieved with their hard work. Therefore, it is critical to understand the price action phases and determine the actions to take beyond confirmed key levels to lower the risk of lower profits and stressful experiences.

When forex traders find themselves trading into resistance—at a market high—the stop reverse technique can come in handy on a breakout. This is because major FX market trends begin with the breach of high resistance barriers. With the above strategy, it is easier to capitalize on new followers of the trend and the stop-loss orders being executed.

In addition to the above, traders should be ready to take profits. They must feed their greed without any hesitation. Once a profit is made, it needs to be taken immediately. The reason is that the FX market is so volatile that profits can disappear in the blink of an eye.

Funding for Swing Trading

It is quite surprising to know that the most popular and widely used proprietary trading funds promote short-term intraday traders but do not present the same opportunity to long-term traders.

The5ers’ next-generation proprietary funding program is a fund that happily welcomes swing forex traders in abundance. The program is on a live trading account from the beginning, with a profit-sharing scheme. Overnight and over-the-weekend trading is allowed also during news, and traders can trade up to the full leverage potential in forex trading by adding on to secured unrealized profits.

Forex Swing Trading Bottom Line

If you want to be a swing trader, you must consider the mental side of trading. When you are a swing trader, there is quite a bit of potential to make a nice profit in trades, but if so, you have the responsibility to be disciplined and work according to your trading plan. If you have the right character, swing trading can be very rewarding!

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