What is the analysis behind the Swing strategy? (Stay Connected, Follow the page to learn more on same topic)
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Swing traders, due also to their short holding period, are not so interested in fundamentals and are primarily focused on technical analysis. It may be something as simple as a 3 day moving average crossover strategy, tweaked to get in and out of positions early. Or a more elaborate mixture of various technical indicators superimposed upon each other.
In any case, the intention is the same, to get in early when the momentum changes and to turn the position around when the market retraces. This strategy, therefore, works particularly well when the market is trending sideways rather than up or down. Forex markets do have many swings even when the market has a clear trend, but attempting to sell in a strong bull market early enough to catch the swing may prove painful.
Defining the right market
Defining whether the market is currently suitable, over a given time frame is crucial to the successful outcome of this strategy. You have to consider the time horizon you are trading over, in Forex markets swings happen in comparatively shorter time intervals. It is, therefore, necessary to stick to the time horizon you are trading in to determine if the market is trading sideways. A sideways market is defined when highs and lows do not go past previous highs and lows, giving rise to so-called channels as well as other chart patterns.
The shorter the time frame the smaller the difference between high and low, or the shorter the channel of price action. For day charts, you can expect most majors that are drifting rather than trending to have between 2% and 6% wide channels. In comparison, if you are looking at an hour chart the channel might be more like 0.5% to 1.5%. Often sideways markets in time periods that are less than one day can move in very tight ranges as the market consolidates its new level.
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