Swing trading or identifying the price trend with the help of swing analysis is one of the most widely used and successful forex strategies. It may be called a price action strategy because it doesn’t involve the use of lagging indicators.
How to Identify Trend with Swing Trading Strategy?
The price moves in the form of waves, thus leaving Higher Highs, Higher Lows, Lower Highs and Lower Lows on the chart as demonstrated below;
Now in order to identify the ongoing trend, all you need is to observe these Highs and Lows very carefully. If the current wave forms a Higher High and Higher Low as compared to the previous wave then we say the ongoing trend is bullish.
Similarly, if the price forms a Lower Low and Lower High as compared to the preceding wave then we say the current trend is bearish. Swings provide the most accurate direction about the existing trend.
Which Timeframe Is Suitable?
Well it depends on your forex strategy. The swing trading strategy is suitable for any timeframe. If you are a day trader then you may conduct swing analysis on hourly or four-hour timeframe, if you are a long term trader then you can do it on daily or weekly timeframes. Higher the timeframe, higher will be the reliability of the trend signal.
How to Trade the Trend?
If the ongoing trend is bullish then you should consider only buy (long) trades or wait for a reversal candle to emerge and vice versa. Also, the trades should not be based solely on trend analysis, the entry should be around key support/resistance levels. In our next topics, we are going to discuss how to calculate support and resistance levels. For more tutorials, do check our forex for beginners trading course.