Forex Swing Trading Strategies

Last Update: June 25th, 2019

What is swing trading?

When it comes to forex swing trading strategies, there are certainly a lot of different trading strategies that can lead to success. However, swing trading has one big advantage: You don’t need to monitor the charts day in and day out.

Don’t get me wrong, every successful trader is somehow addicted to charts and will monitor them anyway, even in his free time. Yet, swing trading requires only a few trades a month, which is why forex swing trading remains one of the easiest (or let’s say, stress-free) methods to book considerable profits. Swing trading describes, in essence, the activity between day trading and investing. As a day trader, you open and close multiple positions a day and hold them no longer than 24 hours. This can be nerve-wracking and seriously affect your sleep cycles. An investor, in contrast, doesn’t care about the price fluctuations too much and plans to hold the investment for many months, several years or even decades.

A forex swing trader typically holds a long or short position for more than one trading session, but normally not longer than several weeks or a couple of months. The strategies involving forex swing trading also differ significantly from the strategies which are successfully applied in day trading. Thus, I will introduce you to one specific strategy which has proven to be very reliable when it comes to successfully trading the forex market with swing trading.

Can I be successful with swing trading?

As long as you have patience and self-confidence, you will build the perseverance which ultimately leads to success. However, success is not final. Success is the byproduct of permanent self-improvement, the seeking of knowledge and applying proven methods while eliminating fear and self-doubts.

In fact, a trader’s success depends heavily on his attitude. If he finds a very reliable pattern, which, let’s say, is profitable nine out of ten times, and he opens positions based on his expectations, he will most likely change his strategy after failing two times in a row. Problematically, constantly changing strategies is prone to failure. A trader has to stick to a certain route, once he has found evidence that it works.

What’s the best swing trading strategy?

While “the best strategy” is most likely not publicly disclosed, I can still introduce you to a very reliable strategy which has proven to be a very profitable way to successfully do swing trading. So without further ado, let’s dive right into it.

The EMA crossover strategy

The EMA crossover strategy involves the 50-EMA and the 200-EMA. To keep it very simple, we can look at the example below.

EUR/USD DAILY CHART

What you can see in the chart is EUR against USD in the daily chart, a typical trading pair for forex traders. The black line is the 200-EMA and the orange line is the 50-EMA. The strategy is very simple and states: Whenever the 50-EMA crosses the 200-EMA in such a way that the 50-EMA is surpassing and moving beyond the 200-EMA, we speak of a golden crossover, which is considered very bullish.

On the contrary, whenever the 200-EMA crosses the 50-EMA in such a way that the 200-EMA is surpassing and moving beyond the 50-EMA, we speak of a death cross, which is considered very bearish.

As you can see in the chart above, the two EMAs crossed multiple times over a period of nearly five years. In fact, the two EMAs crossed seven times during that time-frame.

How does this help me in swing trading?

Assuming that you always open a long position when a bullish crossover has happened and that you are not selling before the death cross appears, you would never be able to sell the top or buy the bottom. But let’s be honest, who is able to do that anyway? What we should focus on is consistent profit with very well managed risk. While you will undoubtedly miss some gains when applying this specific strategy, you still would be very profitable. To see how, we can look at the example below.

EUR/USD DAILY CHART

What you can see here is the same chart as before, but with the percentage gains between the buy and the sell signal added. In fact, you would have made a profit of 33 percent (respectively 38.5 percent) if you would have applied this specific strategy. After your first and initial investment, you would have booked 20.51 percent profit when the first sell signal appeared.

After that, you would have bought and sold for almost the same price, meaning you would have lost the fees, at worst. Then, after the next buy signal showed up, you would have made 3.20 percent profit when the next sell signal was indicated. Assuming you are not only selling but also shorting the same amount, you would have made profits of 8.77 percent at the time of the next buy signal appearing on the chart. Since then, you would be in profit 5.45 percent to date, but assuming you are only selling when a death cross arrives, this profit would not be booked yet.

EUR/USD DAILY CHART

Given that the currency pair only gained roughly 35 percent from the very bottom to the very top of this timeframe, this strategy has been proven to work very well.

The verdict

There are many more forex trading strategies, especially when it comes to swing trading. However, the EMA crossover strategy is very useful and can be applied to higher time-frames, resulting in a lower frequency of trading activities. This makes it superior to others, as it is not only very reliable and profitable but also very easy to use. A few trades a month are enough. If you want to increase the trading frequency, you can apply the same strategy in the H4 chart and count how often it was successful in the past behavior of the market.

The EMA crossover swing trading strategy is an advanced forex strategy, therefore you should first learn the basics, such as supports and resistances.