The purpose of swing trading is to catch gains in the long term. This is the main difference between this method and intraday trading. Swing traders take profit every 3 to 5 days. The majority of the world's most successful traders use this strategy.
First, we need to understand the definition of trends. The market movement is characterized by a series of fluctuations. If every successive low is higher than the previous one, and every forthcoming high is above the previous one, then there is an uptrend, or a rally. If the market makes a downward movement, every next high is lower than the previous one and every next low is located lower than the preceding one. This is called a downtrend.
Meanwhile, a smooth change in the currency rate is not a trend yet. There are three main phases in the dynamics of the currency market: accumulation, trend formation, and distribution. Accumulation is only interesting to those who have a team of analysts at hand. Retail traders are not recommended to pay attention to the accumulation stage. During this phase, the so-called smart money comes to the market. The smart money leaves the market at the stage of distribution, followed by the dump money.
We started discussing the concept of trend for a reason. After all, the main idea of swing trading is discipline and the need to strictly adhere to the trend without ever moving against it. It is the strategy of following the trend that provides the momentum of the traded currency pair in your favor. The trend dynamics will continue until it reverses under the pressure of fundamental driving forces. Unfortunately, traders often do not follow this rule.
According to the Dow theory, there are three trends in the market: long-term, intermediate, and short-term. The long-term trend is used by traders with investment purposes. This trend is identified on weekly, monthly, and quarterly charts. Day traders work with short-term trends which can be seen on hourly charts. It is necessary to choose one trend when you trade on Forex. The main thing is to understand what a trend is and how to identify it.
It is better to trade on Forex in the core movement condition, i.e. in a trend. Finally, a trend has two useful features - it is easy to define and difficult to change.
