Advantages and Disadvantages of Forex Swing Trading Strategies

Swing trading is one of the most commonly implemented strategies in the world of private forex trading, with traders around the world taking advantage of the extensive gains it can provide. Based on the principle of price correction, this trading strategy appears to identify specific currency prices that are uninhibited up or down by market optimism/pessimism and by identifying currency pairings that may begin to reverse. Essentially an analytics-based trading strategy, how do the pros and cons of forex swing trading strategies add up?

Advantage

Forex momentum trading strategies are primarily advantageous because they consist of trading large market movements. While a single scalping trade may appear to knock a small profit in just a few minutes, a swing trade may take place over 24 hours or more as the market corrects pricing. This means that the potential gains from a correctly predicted swing trade are huge, potentially into the high tens of thousands/hundreds of PIPs, if you get it right.

This also makes this type of trading a relatively inexpensive way to trade. As there are few trades that are open in the long run, trading costs are minimal and, as part of the desired gains, absolutely insignificant, making transaction costs a much less significant burden to bear.

Swing trading is also advantageous in terms of time investment required. It is possible to take your position and embark on a short-term trade before riding the wave as the price is corrected without requiring any active participation other than keeping track of performance. Especially if you have set your parameters to stop, swing trading is only time-consuming when it comes to deciding which currency pairings to trade, rather than requiring close, active participation by the trader.

Disadvantages

Of course, no overview of a trading strategy would be complete without a proper examination of the potential drawbacks. Swing trading has the potential to be a very risky strategy if you back the wrong horse. Take the example of shortening the USD after a three week rally against a weak GBP. While logic and data may dictate that the cycle should begin anew and the USD begin to fall back, what is there to prevent it from continuing to rise into new territory? With swing trading, the potential losses can be magnified over time.

Furthermore, identifying suitable entry points for swing trading can be something of an art form, requiring a sense of the market that can only really be fine-tuned with practice. For this reason, some beginners find that swing trading is an overly technical and difficult trading strategy that can be tackled.

While forex swing trading strategies like any other trading form carry their own drawbacks, they should not be enough to deter you as a private investor from relying on this trading model. As part of a diverse forex trading system, forex indicator trading strategies can be an ideal way to realize significant gains in the power of price corrections, with limited trading costs and time investment needed to maximize earnings.