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THE SWING FOREX TRADER
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Swing traders are considered miniposition traders. They may have started out as day traders. As the market kept moving in the desired direction, ei ther they scaled out of a portion of the position, set a stop-loss objective, and kept letting the trade ride; or they felt that there was a breakout of a pe riod of consolidation and the market would continue in trend mode for three days or more. Regardless of how they initiated a swing trade, they need to focus on a higher-degree time frame and spend less time on the mi cromovements that 5- or 15-minute periods generate.

If you are a swing trader holding a position for more than one day, 5 and 15-minute charts will generate too many short-term signals. The most reasonable time frames to follow are the daily charts, the 240-minute charts (which break down to a 4-hour time frame), and the 60-minute charts. As far as using pivot points, it is important for swing traders to pay attention to the daily pivots as well as to the weekly and monthly numbers to help give a potential entry or exit target price but also to help be aware of any confluence of support or resistance for those various time periods. Table 9.2 shows the breakdown of the importance of which pivot points and time frames to follow.

In Figure 9.2, I have the daily chart on the euro on the left and the British pound on the right. If you examine the charts closely, you will see that the daily chart on the pound is in the bottom right-hand corner of the chart; it generates a sell signal first on September 5, 2006 . The euro did not generate a sell signal until the following day. However, the 240-minute charts shown in the top windows show corresponding sell signals in the re spective time periods, as the daily charts show. This method of taking trades in the shorter time frame when the signals line up (that is, take sell signals at resistance and buy signals at support, and use the higher time frames to confirm the triggers on the shorter time frames) will be instru mental in your trading results. Both charts on the daily time frame have the weekly and the monthly pivot lines across the screens, and the 240-minute charts in the windows at the top have the daily pivot points lining up to help illustrate where the sell and buy signals are in relation to the predicted sup port and resistance levels for those time periods.

This is the method I use to line up specific charting time frames with the proper pivot point time frames. Keep in mind that, as a day trader, you are not so much concerned with long-term macroeconomic situations as you are with riding a momentum wave; and the same is true for swing trad ing. Granted, it helps to have a good understanding of fundamental condi tions, being aware of release times for economic reports; but for the most part, as a day trader and a swing trader, you are simply looking to ride a move and profit from it. That is your job. In short-term trading, conditions change; and you need to capture opportunities as they arise. Forex markets are ideal for momentum trades. The foreign currency market tends to trend well over the course of 3 to 10 days, and this allows swing traders opportunities to capture larger price swings over a given period of time. One of the greatest benefits here is that you have access to the markets on a 24-hour basis, unlike the equity markets. Therefore, you can monitor your positions, place stops, and take action to exit a trade at any time, day or night.

BASIC RULES FOR SWING TRADERS

Because of the time frame involving several days in swing trading, the nature of this style of trading is slightly more advantageous in forex, mainly due to the fact that you have 24-hour access to monitor and to trade a forex position. Because of this constant market action, there are very few times that gaps occur. Therefore, I do not trade or use the gap-“fade” techniques. However, here are some basic rules that apply to swing trading and to which forex traders should adhere.

• If a day trade moves sharply in your favor, carry it through the overnight session, except for Fridays. Do not hold positions over the weekend unless you have a very well funded trading account or can manage a position that has a big profit built into the trade. When a market closes strong near the highs in the U.S. session ( 5 P . M . EST ), odds favor the likelihood that there will be more upside potential in the European session. Tighten stops and look to exit the next day near a pivot point target resistance level.

• If your trade starts making money from the get-go, your entry was cor rect. Good trades generally start to move in your favor almost immedi ately. Prices may come back to test your entry level a little, but they certainly should not test your risk level. It's perfectly acceptable for the market to hover at your entry level for a bit before performing in your favor.

• Do not carry a losing position from one session to another. Exit the trade and look for a better signal.

• When you enter on a bona fide trading signal, don't get fancy and try to get a better fill by placing limit orders; go to the market. Other traders or systems (competitors) may also pick up on the signals, and you could miss out on a great trade.

• Never anticipate that a signal will happen. Wait until the close of the pe riod for which you are trading to confirm the signal. If the market is going to move, it is best to go with the trade momentum as confirmed by the closing time period rather than guess and be too early on a long entry, only to watch the market crash and burn.

SUMMARY

When you are looking for a short-term day trade, focus on the 5- and 15minute time periods for which a signal was generated. If you have time constraints that limit you to following the markets, such as work or bedtime, then scaling out of positions and trailing stops are great features. If you capture a strong-trending market condition and turn a day trade to a swing trade, then follow the 60-minute chart at the close of each 60 minute time period to see what the relationship of the close is to past highs and lows.

In addition, focus on the higher-degree time frame pivot points, such as the monthly and weekly support and resistance levels, as well as on the moving average values, to see where prices are in relation to both averages. If there is a crossover and prices close above a prior high and if the 60 minute chart closes above all of these variables, then you want to go long and/or look for buy signals on the shorter-term time frames, such as the 15 and 5-minute periods. For swing traders, watch the daily charts and the 240 minute time period in conjunction with the 60-minute period

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