The UK is the leading international location for Forex trading.
Forex is one of the many financial markets where people can trade global assets. Like all other markets, there are different strategies and techniques that traders can use to make profitable trades. So what can you do to succeed in the Forex market?
For a rundown of some of the key Forex swing trading signals, keep reading.
Forex is the foreign exchange market, allowing people to trade different currencies. Foreign currency exchange has existed for centuries, but the modern Forex market as we know it came about in the 1970s, and it's now the most traded market in the world.
Forex trading is mostly conducted by commercial and investment banks, but professional and individual investors can also make Forex trades. Currencies work as an asset class because money can be made through the interest rate differential between currencies and from the exchange rates.
Swing trading focuses on small changes in the market. The price of assets never moves in a completely straight line but constantly changes directions. These small changes in direction are known as swings, and by entering and exiting at the right time, traders can make profits.
Swing trading is generally used with mid to long-term goals in mind. Traders using this method will usually hold positions for days or weeks.
Any experienced trader knows that they should be using signals to help them make better decisions. Signals can help a trader know when to buy or sell an asset based on what a specific signal indicates. These signals vary depending on the trading technique in question.
Swing trading signals use a range of criteria, showing ideal entry and exit points. Without using signals, you're not likely to make significant profits through any method of trading.
If you want to start swing trading, there are a range of signals you can watch out for to help with your strategy. The better you understand a swing trading signal, the more effectively you'll be able to implement it. Just bear in mind that it takes time to get good at analyzing markets, so you shouldn't expect to become a professional at all of these overnight.
All swing trade signals can be split into one of two categories. These are oscillators (advanced trading indicators) and trending indicators (price lagging indicators)
Oscillators are any swing trading signals that precede the price movement of an asset. These serve to show good exit and entry points. Many traders consider these to be the best indicators, as they give you advanced warning of a price change.
These aren't always 100% accurate - sometimes, an oscillator will provide a sell signal, and the value of the asset can keep increasing. Because of this, it's generally a good idea to combine multiple oscillators, giving a better overall idea of what's going to happen. This will reduce the number of false signals you follow.
Some trade signals are used more than others, and this is one of the most widely used across various financial markets. This is in part because it's easier to interpret than many others.
It indicates when an asset is being either overbought or oversold. This is the sign of an imminent change in direction. When this signal shows an imminent change, it's often a good time to buy or sell.
It works using two lines that interact and move with each other. As these lines move, they can enter either a lower or upper zone (indicating oversold or overbought, respectively). These lines entering the lower zone indicate a good time to buy, and when they enter the upper zone, it's a good time to sell.
On top of these two signals, the stochastic indicator also helps with divergences. You can perform a technical analysis, which will show bullish divergences (indicating the price may go up) and bearish divergences (indicating the price may go down).
RSI (relative strength index) is another indicator that is commonly used across different markets due to its reliability. Like the stochastic indicator, it helps show when assets are overbought or oversold and displays divergences.
The main difference you'll notice when looking at the two is that the RSI indicator uses just one line, which moves into the overbought and oversold areas.
The upper zone is typically above 70, and the indicator line moving above this is an overbought signal - a good time to sell. The lower zone is generally below 30, which is the oversold signal - indicating a good time to buy.
If you understand how the divergences work for the stochastic indicator, you'll have no trouble figuring it out for the RSI indicator. It works in the same way, with a bearish divergence preceding a drop in value and a bullish divergence indicating a rise.
Trend indicators are also known as lagging indicators because they provide a signal after a price move is confirmed. New investors sometimes don't see the value of an indicator that comes after a change, but they can actually be very useful.
They don't predict changes, so using these won't get you ahead of movements. They provide value in that they confirm changes, which means you get far fewer false signals than you do with oscillators.
They do come with one notable disadvantage: as they are lagging indicators, they give a reversal signal only after the price has started to move. This means that you'll miss out on a portion of the price change and therefore, a portion of the profits.
Some experienced traders consider the MACD (moving average convergence divergence) indicator to be the best market indicator available. This makes it one of the most popular Forex trading signals.
It uses two different averages to calculate the MACD line. The first of these is the 26-period EMA (exponential moving average), which is subtracted from the 12-period EMA. From this, a 9-day EMA line is produced, which is laid over the MACD line.
From this, you can see the ideal buy and sell signals. The MACD going above the signal line is a buy signal, and going below is a sell signal. On top of these signals, the MACD indicator also shows the difference between the moving averages on a histogram.
The main reason for its wide use is because it's a very effective method. The only downside is that it has a long time frame for generating reverse signals, which is generally true of all trend indicators.
Bollinger bands use price volatility to help inform decisions. It uses a moving average along with an upper and lower line/band. The upper band represents a resistance level, and the lower band represents a support level.
The moving average can have a variety of uses, with the most common being a market entry point. The volatility of the asset is shown by the distance between the upper and lower bands. When they're close, volatility is low, and when they're wider apart, volatility is high.
Low volatility means there is a higher chance of a rapid price movement, while high volatility usually indicates the end of a trend. Prices generally stick between these bands, moving from one to the other. These swings are what you can use to make profits.
During strong trends, it's not uncommon for the price to hug one of the bands for a long time. The price may even move outside of these bands, which indicates a strong trend continuation. If the price quickly moves back between the bands, however, it negates this effect.
The ADX (average directional index) helps to determine how strong a trend is using two accompanying indicators. These are the -DI (negative directional indicator) and the +DI (positive directional indicator). These two lines, along with the ADX, can give traders an idea of when they should buy or sell (or not trade at all).
The ADX represents the strength of a trend, while the -DI and +DI show trend direction. Below 20 for the ADX is a weak trend, and above 25 is a strong trend. The -DI and +DI crossing over can generate a trade signal.
For example, an ADX over 25 and the +DI crossing over the -DI is a possible buy signal. A strong ADX with the -DI crossing the +DI could be a sell signal. When the ADX is below 20, the trend is weak, so this is generally considered a bad time to enter a trade.
The ADX uses a complicated set of equations to provide insights, so this is mostly used by experienced traders. It's also possible that crossovers are occurring very frequently, creating a lot of false signals. These can result in losses, so be cautious when this is happening.
The parabolic SAR (stop and reverse) shows a trend direction and presents potential entry and exit points. Rather than using a line, this indicator is represented as a series of dots that appear above or below price bars. Dots above the price are a bearish signal, and dots below the price are bullish.
If these dots flip, this is an indication of a possible price direction change. These dots rise/fall along with the price of an asset. They move slowly initially, then faster as the trend continues, eventually catching up with the price.
While the parabolic SAR can help generate sizable profits, it can also create a lot of false signals. This usually happens during a volatile market or when the price is moving sideways. You can also use the parabolic SAR to help set stop-loss orders.
Like other Forex swing trade signals, it's generally not a good idea to use this one indicator on its own. Using it in conjunction with some of the other trend indicators mentioned above will generally produce much better results.
One of the main benefits of Forex swing trading is the time frames it involves. Trades generally last for several weeks, so you don't need to focus on them constantly. This is ideal for traders who have full-time jobs or other commitments.
Longer trades can also be more secure. They're not affected by short-term volatility in the same way day trading is. False signals, while still present, are also less of an issue.
Compared to day trading, swing trading is considered a lot less stressful. This generally makes it more enjoyable, and you're less likely to make rash decisions based on emotions.
Every time you make a trade, there are fees involved. If you're trading short-term, you'll be paying more fees. Swing trading has larger spreads than day trading, resulting in fewer trade fees and better overall cost-efficiency.
Due to the technical aspects of swing trading, it can be very difficult to get to grips with it. You need to be able to learn how to analyze charts and use these different indicators effectively if you want to make a profit.
Because things can move fast and the Forex market is open 24 hours a day, you might miss out on certain opportunities. You can't watch charts non-stop, so when you're busy or asleep, you might miss some good entry and exit points.
This is something that you can only truly determine by giving it a go. Try using some of the Forex swing trading signals above to see how well they work for you.
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Are you familiar with forex swing trading signals? Learn about how to read them here and what you can do with that information.