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About Justin Bennett Finding the right Forex strategy is tough. Where do you start? How do you know when you’ve found the right one? Considering the thousands of trading strategies in the world, the answers to these questions are difficult to pin down. It only gets worse when you add the endless number of technical indicators.
Justin Bennett is a Forex trader, coach and founder of Daily Price Action. He began trading equities and ETFs in 2002 and later transitioned to Forex in 2007. His "aha" moment came in 2010 when he discovered the simple yet profitable technical patterns he teaches today. Justin has now taught more than 1,000 students from over 60 countries in the Daily Price Action course and community. He has also appeared in various printed material including an interview in Stocks & Commodities magazine.
But it doesn’t have to be that way. Why not start with identifying a suitable trading style, such as Forex swing trading? Search
Compared to the seemingly endless numbers of strategies, there are far fewer trading styles. While the exact figure is debatable, I would argue that there are less than ten popular styles in existence. Once you’ve identified a trading style that fits your personality, it becomes much easier to find a suitable strategy within that style.
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If you have identified swing trading as a candidate—or just want to know more about it—then this post is for you.
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By the time you finish, you will know exactly what swing trading is and whether it’s right for you. I will also share a simple 6-step process that will have you profiting from market swings in no time.
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Read on to learn how to make swing trading work for you. The 3-Step Approach to Forex Money Management and Risk Control
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Before we move on, it’s important to know the difference between styles and strategies. As I mentioned above, there are far fewer trading styles than there are strategies.
Categories » Daily Forex Setups
Here are a few of the most popular styles:
» Free Forex Trading Lessons
» Swing trading
» Friday Q&A
» Day trading
» Trading Articles
» Scalping (often a subset of day trading)
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» Position trading » High-frequency trading Within each of these, there are hundreds if not thousands of strategies. In other words, there are many different ways to day trade just as there are many ways to swing trade. It’s up to each trader to make the style his or her own. For instance, one day trader may use the 3 and 8 exponential moving averages combined with slow stochastics. Another trader of the same style may use a 5 and 10 simple moving average with a relative strength index. Both are considered day traders, but their strategies are different. The same goes for swing trading. The endless number of indicators and methods means that no two traders are exactly alike. That’s especially true once you add human psychology as a variable. In summary, trading styles define broad groups of market participants, while strategies are specific to each trader.
What is Forex Swing Trading? As the name implies, swing trading is an attempt to profit from the swings in the market. These swings are made up of two parts—the body and the swing point.
As traders, it’s our job to time our entries in a way that catches the majority of each swing body. While catching a swing point can be incredibly lucrative, it isn’t absolutely necessary. In fact, attempting to catch the extreme tops and bottoms of swings can lead to an increase in losses. The best way to approach these trades is to stay patient and wait for a price action buy or sell signal. I’ll get into those various strategies shortly. For now, just know that the swing body is the most lucrative part of any market move. Later in this lesson, I will also show you a way to use those swing points to evaluate momentum.
Day Trading vs. Swing Trading On the opposite end of the spectrum from swing trading we have day trading. These two couldn’t be further apart. As you now know, the goal with swing trading is to catch the larger swings in the market. Naturally, this requires a holding period that spans a few days to a few weeks. Day trading, on the other hand, uses very short holding periods; sometimes just a few seconds. There are other styles of trading, but these are two of the most popular. I’ll get into some of the pros and cons of both, but first let’s take a look a simple 6-step process for swing trading.
Step 1: Move to the Daily Time Frame I spend most of my time on the daily charts. They offer a bigger picture of what’s happening with the price action and provide more reliable signals. However, not all daily time frames are created equal. I use a specific type of chart that uses a New York close. Each 24-hour session closes at 5 pm EST, which is considered the Forex market’s unofficial closing time. It is possible to use the 4-hour charts for swing trading, but I’ve found that the daily works best. My suggestion is to start with the daily time frame. Once you become profitable at swing trading with the daily, feel free to move to the 4-hour time frame. As a general rule, price action signals become more reliable as you move from the lower time frames to higher ones.
Step 2: Draw Key Support and Resistance Levels Apart from Step 1, this is the most important piece of the entire process. Think of drawing key support and resistance levels as building the foundation for your house. It’s impossible to identify favorable swing trades without them. Before I show you some examples using swing trades, let’s define the two types of levels.
Horizontal support and resistance These are the most basic levels you want on your charts. They provide a great foundation for trading swings in the market and offer some of the best target areas. If you want to know how to draw support and resistance levels, see this post.
Trend lines Not all technical traders use trend lines. If I’m being honest, I have no idea why someone would ignore them, especially a swing trader. They not only offer you a way to identify entries with the trend, but they can also be used to spot reversals before they happen. Be sure to review the lesson I wrote on trend strength (see link above). It will explain everything you need to know to use trend lines in this manner.
Step 3: Evaluate Momentum At this point, you should be on the daily time frame and have all relevant support and resistance areas marked. Remember how I mentioned using swing points to evaluate momentum earlier in the post? Well, this is where those swing highs and lows come in handy. There are three types of market momentum or lack thereof. 1. Uptrend: Higher highs and higher lows 2. Downtrend: Lower highs and lower lows 3. Range: Sideways movement A market that’s in an uptrend is carving higher highs and higher lows.
Notice how each swing point is higher than the last. You want to be a buyer during bullish momentum such as this. On the opposite end of the spectrum we have a downtrend. In this case, the market is carving lower highs and lower lows.
You want to be a seller here. We’ll get into the various price action signals in the next step. Last but not least is a ranging market. As the name implies, this occurs when a market moves sideways within a range.
Although the chart above has no bullish or bearish momentum, it can still generate lucrative swing trades. In fact, ranges such as the one above can often produce some of the best trades. This is mostly due to the way that support and resistance levels stand out from the surrounding price action. Just look at the two pin bars in the chart below.
Step 4: Watch for Price Action Signals Let’s review where you should be at this point. Steps 1 and 2 showed you how to identify key support and resistance levels using the daily time frame. Then in Step 3, you learned to evaluate the market’s momentum. This tells you whether the market is in an uptrend, a downtrend or range-bound. If the market is in an uptrend, you want to begin watching for buy signals from key support. My two favorite candlestick patterns are the pin bar and engulfing bar. You can learn more about both of these signals in this post. Here is a great example of a bullish pin bar that occurred at key support during an uptrend.
The goal is to use this pin bar signal to buy the market. By doing this, we can profit as the market swings upward and continues the current rally. On the flip side, if the market is in a downtrend, you want to watch for sell signals from resistance.
Again, we use a signal like the pin bar to identify the swing high, also called the swing point. You might not catch the entire swing, and that’s okay. The idea is to catch as much of it as possible, but waiting for confirming price action is crucial. When looking for setups, be sure to scan your charts. Don’t make the mistake of searching for setups. Those two actions may sound similar but they are far from it. Scanning for setups is more of a qualitative process. In other words, you’re scanning for the very best setups and if you don’t find anything, that’s okay. Most traders feel like they need to find a setup each time they sit down in front of their computer. This is called searching for setups. So remember to scan for swing trade opportunities; never go searching for them.
Step 5: Identify Exit Points There are two rules when it comes to identifying exit points. The first rule is to define a profit target and a stop loss level. Many traders make the mistake of only identifying a target and forget about their stop loss. Don’t make that mistake. In order to calculate your risk as explained in the next step, you must have a stop loss level defined. The second rule is to identify both of these levels before risking capital. This is the only time you have a completely neutral bias. As soon as you have money at risk, that neutral stance goes out the window. It then becomes far too easy to place your exit points at levels that benefit your trade, rather than basing them on what the market is telling you. So what’s the best way to identify your exit points? Simple. Just use the support and resistance levels you identified in Step 2. Remember that bullish pin bar on the GBPUSD? (See Step 4 if you need a refresher.) Here is a simple way to determine a profit target.
In this case, the GBPUSD rallied past our target, and that’s okay. Remember that the goal is to catch the majority of the swing. We don’t need to catch the entire move to make a profit. We can do the same thing with the AUDNZD bearish pin bar from Step 4.
Remember, those horizontal areas and trend lines are your foundation. Once they are on your chart, use them to your advantage. That involves watching for entries as well as determining exit points. See this lesson to find out how I set and manage stop loss orders.
Step 6: Calculate and Manage Risk Once you have identified your exit points for the trade, it’s time for some risk management. Before I discuss how to identify stop loss levels and profit targets, I want to share two important concepts. The first is R-multiples. This is a way to calculate your risk using a single number. For instance, a setup with a 100 pip stop loss and a 300 pip target is 3R. Similarly, if your risk is $100 and you stand to make $500, the risk to reward ratio is 5R. The second concept I want to discuss is asymmetry. A favorable risk to reward ratio is one where the payoff is at least twice the potential loss. Written as an R-multiple, that would be 2R or greater. You can learn about both of these concepts in greater detail in this post. When calculating the risk of any trade, the first thing you want to do is determine where you should place the stop loss. For a pin bar, the best location is above or below the tail. The same goes for a bullish or bearish engulfing pattern. A stop loss that’s approximately 10 to 20 pips above or below the candlestick being traded is a good place to start. Now that you have the stop loss placement identified, it’s time to determine the profit target. This is where those key levels come into play once more. Remember that when swing trading the goal is to catch the swings that occur between support and resistance levels. So if the market is trending higher and a bullish pin bar forms at support, ask yourself the following question. Where is the next key resistance level? The answer will not only tell you where to place your target, but will also determine whether a favorable risk to reward ratio is possible. If it is, then you may have a valid buying opportunity in front of you. If not, you may want to stay on the sideline.
Is Swing Trading Right for You? There is no right or wrong answer here. After more than a decade of trading, I found swing trades to be the most profitable. Keep in mind that I’ve tried just about every trading style and strategy under the sun. Before 2010 I experimented with everything from one-minute scalping strategies to trading Monday gaps. However, just because swing trading Forex has worked for me doesn’t mean it won’t work for you. Finding a profitable style has more to do with your personality and preferences than you may know. In fact, if your chosen style doesn’t fit your personality, you are bound to struggle. The key points below will help you decide if swing trading is right for you.
You might want to be a Forex swing trader if: – You don’t mind holding trades for several days Most Forex swing trades last anywhere from a few days to a few weeks. This means holding positions overnight and sometimes over the weekend. There are, of course, a few ways to manage the risks that accompany a longer holding period. One way is to simply close your position before the weekend if you know there is a chance for volatility such as a government election. – You want more freedom with your time Swing trading Forex is what allowed me to start Daily Price Action in 2014. Without using this style of trading, there is no way I’d have the time to maintain this website. On average, I spend no more than 30 or 40 minutes reviewing my charts each day. Spending more time than this is unnecessary and would expose me to the risk of overtrading. – You don’t mind taking fewer trades but making more on each one Because swing trading Forex works best on the higher time frames, opportunities are limited. You may only get five to ten setups each month. However, the return from each one can be much greater than those who day trade. For instance, my minimum risk to reward ratio is 3R. That means for every 1% of my account balance at risk, I stand to make a 3% profit. – You’re looking for a slower paced style of trading When it comes to trading Forex, slow isn’t a bad thing. In fact, a slower paced style like swing trading gives you more time to make decisions which leads to less stress and anxiety. So, if you’re looking for a more relaxed way to trade the market, swing trading might be the answer. – You have a full-time job or school I wasn’t always a stay at home trader. Having the ability to trade Forex around my work schedule was a huge advantage. Had I needed to sit in front of my charts all day to watch every tick, it wouldn’t have been possible. This is the kind of freedom swing trading can offer.
You might NOT want to be a Forex swing trader if: – You’re looking for an action-packed style of trading There is nothing fast or action-packed about swing trading. It’s a style where the slowerpaced, more disciplined traders win. I will go as far as to say that if your holding period is more than a few days and your trading isn’t boring, you’re doing something wrong. – You don’t mind making a small amount on each position As a swing trader, your average profit for a successful trade might be 2% or greater. Most day traders, on the other hand, make a much smaller amount per profitable trade. They make up for it in volume, but the return per execution is relatively small. – You can’t stand the idea of holding positions overnight Most swings last anywhere from a few days to a few weeks. As such, swing traders will find that holding positions overnight is a common occurrence. If you can’t sleep knowing you have capital at risk or unrealized profit at stake, then swing trading might not be for you. – You need to know if you’re right or wrong immediately I have held several positions for over a month. Some have even lasted for two or three months, particularly when I’ve traded a reversal on the weekly time frame. Longer-term trades such as this require patience. It may take several days, weeks, and sometimes months before you know if your analysis was correct. That said, trailing your stop loss to lock in some profit along the way does help to relieve most of that pressure. – You get anxious when trades go against you In most cases, the market won’t take off in your intended direction right away. Drawdown is something all traders have to deal with regardless of how they approach the markets. However, drawdown can last longer for a swing trader. It doesn’t mean you stand to lose more money, but positions can remain negative much longer than if you were day trading.
Final Words Forex swing trading is one of the most popular trading styles around, and for good reason. It allows for a less stressful trading environment while still producing incredible returns. It’s also great if you have a day job or school to attend. Having accurate levels is perhaps the most important factor. If you can’t rely on the support and resistance levels on your chart, you won’t be able to trade with confidence. In my experience, the daily time frame provides the best signals. Just make sure you use New York close charts where each session ends at 5 pm EST. Check with your broker to be sure. The best way to remove emotions from trading and ensure a rational approach to the markets is to identify exit points in advance. If you wait until you have an open position, it’s too late. Above all, stay patient. Remember that it only takes one good swing trade each month to make considerable returns.
Now It's Your Turn... Are you ready to start swing trading the Forex market? If so, you definitely want to download the free Forex swing trading PDF that I just created. It contains the 6-step process I use. And if you’re unsure whether this style of trading is right for you, it will help with that too. Click the link below and enter your email to get instant access to the cheat sheet.
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Tshepo
Great inside, i m practising this strategy lately Vote:
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Justin Bennett It’s a great way to trade just about any market. Let me know if you have questions. Vote:
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Alfonso Furlong
What a great information, it’s a real cátedra. Congratulations Vote:
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Justin Bennett Pleased you enjoyed it, Alfonso. Cheers. Vote:
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Sibonelo Zikalala
Great post as usual Justin Vote:
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Justin Bennett Thanks, Sibonelo. Vote:
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Gulzar
Impressive trading style explained wonderfully.. Vote:
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Justin Bennett Glad to hear that. Thanks for commenting. Vote:
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Bedin Jusoh
Excellent work. Thank you providing free info. Vote:
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Justin Bennett Anytime, Bedin. Feel free to reach out if you have questions. Vote:
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Roy Peters
Swing trading for life! I don’t want stress I get enough of that at work.! Vote:
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Dan Budden
Totally with you on that one, Roy! All the best. Vote:
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Justin Bennett Hi Roy, it is by far the best approach for a less stressful trading experience. Just my opinion, of course. Vote:
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Khurram
Good way of teaching. I would like to make an investment with you if you would like to do it for both of our benefits ensuring slow and steady profits. Vote:
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Justin Bennett Pleased you liked it. Vote:
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Dan Budden
Another helpful article and more confirmation that I am in the right place with Daily Price Action. Swing trading very much fits around my lifestyle, although this week was the first week I had held a trade for more than a day, which had me checking my charts more often than is healthy! I much prefer the pace of swing trading the daily charts and the time you get to analyse trades before pulling the trigger. I still can’t believe how much decent free content you publish, way more than your average expensive course. Cheers for the help and I’ll see you in the forum. Vote:
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Justin Bennett Great to hear, Dan. The extra time to evaluate setups along with market conditions is one of my favorite aspects of swing trading. Thanks for sharing. Cheers. Vote:
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Durgaprasad
Great post.thanks Vote:
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Justin Bennett You’re very welcome. Vote:
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Euphemia Nwachukwu
Hi Justin, you are there at it again, what a wonderful expository post.I will start the practice right away because it suits my personality. Vote:
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Justin Bennett Thanks for the kind words, Euphemia. Glad you enjoyed it. Vote:
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Daniel
Thank you Justin for your wonderful clear and concise presentation on swing trading. I am an ex trader that needed to get back in the ‘swing” of things and felt it was very difficult to get into since I left. Not only did I think it was an easy read: clear, concise, simple, no fluff… , but it also gave me confidence in re-understanding the forex market and having a straight line to trying swing trading again possibly along with pre-Elliott Wave theory I learned from an old mentor I had. 5 star rating. Many many thanks with best regards. Daniel Vote:
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Justin Bennett You’re welcome, Daniel. Feel free to reach out with any questions as you transition back to the trading lifestyle. Vote:
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David
Clear and concise delivery on how to trade using Price Action. Thank you Justin. All the best. Vote:
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Justin Bennett Thanks, David. Always happy to help. Vote:
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michael finberg
J Swing-trading with options is more lucrative, but you can’t stay on too long. 1-4 days tops. Less if the option has just a week left. Get a slightly out of the money strike. Divergence gets you in before the move usually and lack of time gets you out fast. That’s how 500 bucks becomes 3K in 48 hours. If you’re risking more bucks then buy options with 4-6 weeks and play the same divergence game. Exit in a week or two if you’re deep in the money. That’s how 5K turns into 40K in a week. Stops? Put at 30 to 50 % your risk capital. M Vote:
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mpho
That’s one inspiring and educational topic ever read Vote:
. Thanks Justin
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Justin Bennett You’re welcome. Glad to hear that. Vote:
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Nomsa Mabaso
Thanks Justin for information .You just make trading simpler for me.I value your input.Keep well! Vote:
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Justin Bennett You’re welcome. I always try to keep things simple. It’s good to hear that it’s working. Cheers. Vote:
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vincenzo
Great refresher lesson Justin, thanks. Vote:
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Justin Bennett You’re welcome, Vincenzo. Vote:
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Danita
Thank you for all your patient teachings. When it comes to drawing support & resistance levels, how can one utilise the Fibonacci tool? Won’t the Fibonacci levels always be the same as the support & resistance levels? Vote:
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Justin Bennett Danita, the post below will help. Cheers. https://dailypriceaction.com/free-forex-trading-lessons/fibonacci-retracement-levels-priceaction Vote:
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ANANT
awsome post your hellp as a technical expert is valuable to us Vote:
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ANANT
if i want to hold position for more than 6 months is it good to use monthly time frame Vote:
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Justin Bennett The holding period won’t necessarily dictate the time frame you use. It comes down to how you define your targets and whether the strategy you’re using works best on the daily, weekly or monthly charts. Vote:
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Steven Thanks Justin for this free forex education i am better now and i can see the progress, All i need is to join the community Vote:
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Justin Bennett It’s my pleasure. Let me know if you have any questions. Thanks for stopping by. Vote:
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Sydwell
I used to think swing trading and day trading is one and the same thing,now I know on which side I belong,thanks Jb Vote:
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Nadzuah
Thanks justin Vote:
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Rakhi Pawar
Good article Thanks for sharing great information of Forex Swing Trading. Vote:
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Andre Steenekamp
Hi Justin I have been missing out on profits with my trades by not identifying a target. I have gone trough your Forex Swing Trading lessons which has cleared my mind but what I would like to know is whether I should move my stop to the resistance or support area when the price has moved beyond Kind Regards Andre Vote:
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simon
Love your work Vote:
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Lourens
I like a bit of both swing & action trading can you give more info on 4H swing trading. Since I have been using price action ( which you showed me) my trading has become more stable less losses. Thanks Justin Vote:
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Justin Bennett You’re welcome. I don’t do too much on the 4-hour charts these days. Vote:
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Anbudurai
Great post sir Vote:
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