Using FX Swing Trading To Your Benefit
Using FX Swing Trading To Your Benefit
Using FX Swing Trading To Your BenefitOne of the best ways to make money on the currency exchange for novice traders is by making use of swing trading. This trading technique is quite easy to understand and can make big gains if properly implemented. Let us take a look at what this technique is simple yet highly effective at generating profits.
The reason why FX swing trading works is that it is based on human emotions. Humans are quite emotional and these emotions are working at a subconscious level at the time of trading. This is the reason why emotions such as greed tend to push prices upwards and fear tends to push prices downwards in the currency market. If you want a proof of this, you can see it on a Forex chart in the form of short term price spikes.
One thing that you would realize is that these spikes do not last long and quickly return to normal realistic levels. So what kind of trading strategy can be used to capitalize on these short term spikes. Well, let's take a look.
The first thing that needs to be looked at is whether there is a sudden spike in prices or not. As soon as a spike occurs you have a situation in which you can enter into a trade so as to indulge in swing trading to earn a profit.
The next thing is that once the spike is in motion you need to take a look at the charts and see how overbought the currency is. Some of the momentum indicators such a MACD, RSI and Stochastic can be used to find out if the currency has been overbought or not.
Once there has been overbuying of the currency, it is time to wait for the momentum to shift downwards, while prices are still high and go in for a short. This condition is known as a trading divergence and as soon as momentum shifts warning of a trend change it is time to open a trade.
The next step is put a stop behind the resistance and pick a downside target which is a little above the support price and take your profit from that.
One of the most important things that you need to realize while indulging in swing trading is that it is often the case that if a currency is more overbought, harder would be its fall. So what you need to do is that to be able to earn huge amounts of profits you need to trade extremes. This way you the option of earning more profits from lesser number of trades, thus reducing the amount of time that is spent on trading in the forex market each day.
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