If trading is likely frustrating and difficult to you, don’t worry about that, you are not alone. A lot of traders, if not most, start their trading careers with lofty targets and a full tank of hope. However, unfortunately, if you aren’t approaching the market from the correct ‘angle’, those things can fade so fast.
At Learning to Trade the Instamate , we view whether or not a retail trader (as you or I) gains consistent success in the market heavily depends on which method that the trader decides to use. That means, we believe if you are trading with the incorrect methodology, definitely, you will fail to make money, even if you’re doing everything else in a right way.
Being successful in trading is the final result of getting the “3 M’s” right; including Method, Mindset and Money Management. Just with only two of the three, you cannot succeed, obviously. Hence, it is clear that you must have all three down pat.
With this lesson, I want to concentrate on the first M that means “Method”. This will give you the best chance to succeed in your trading. It is very necessary for you to understand which method is the best, reasons why it is the best and how you can become proficient in it. Now, let’s get started!
Swing Trading – The only real chance of the retail trader
Actually, I won’t lie to you. As a retail Forex trader, or a retail trader of any market really, also, having multiple ‘forces’ that work against you, which you may or not have been aware of until now. To be truthful with you, you are a one-man (or woman) team when you’re a trader, and unless you have access to exceedingly large sums of money / the ability to withstand large drawdowns, you are not going to last very long if you fail to employ the appropriate trading method.
For the big players in the market, for example, banks, hedge funds, etc., they know where smaller retail traders place their orders and what they typically ‘do’ in the market (such as buy breakouts, day-trade, etc.). They do know all the small-timer strategies and believe it or not, they enjoy taking your money daily in the market. In fact, you can’t survive without a stop loss, however, they can, or at least, they can for much longer than you or I and this reason why day trading is dangerous for one to trade, so notice that. Since traders put very small / tight stop losses on their positions and they often get stopped out by ordinary daily price fluctuations in the market.
I’m not going to say your broker ‘wants you to lose’, so it is essential to know that. However, saying that they want you to day-trade is a fair assessment, I think so. But, why do they want you to day-trade you ask? Well, let’s see, for one you will generate a lot of fees in the form of spread payments or commissions, and for two, you will lose many trades for the reason I mentioned in the previous paragraph. In brief, day-trading is known as a fool’s game sucking people in by appealing to their greedy/ impatient yearning to make ‘fast money’.
On the opposite end of the trading scale, we have position trading or investing, basically, this is long-term buy and hold strategies that while they may pay off when you are ready to call it quits, they fail to suitable for anyone who looks to earn a living as a trader, as you and I.
That leads us to what I call the trading ‘sweet spot’; swing trading. If don’t already know, you can find here’s what swing trading is. Swing Trading is a method of technical analysis to help you spot powerful directional moves in the market lasting on average, two to six days. Swing trading permits individual traders as us to exploit and develop the powerful short-term moves which are created by large institutional traders who fail to move in and out of the market as fast.
What is a ‘swing point’ in the market?
For putting this in a little simpler terms, I’m supposing that you have looked at a basic price chart before. If you have done, you probably knew that markets don’t move just in straight lines for very long. However, price will ‘swing’ from high to low points in the market, instead. It is especial in a trending market that these chart swing points are critical points on a price chart in which we can anticipate a price action signal to form at, and that often supply high probability entries only before a trend which is getting ready to resume.
The below chart shows us what swing high points and swing low points can look like. As swing traders we would have looked for an entry near the swing lows since this market was trending higher.
So, you can see that swing trading is the art and skill of reading a price chart in order to predict the next ‘swing’ in the market. For me, I apply price action trading strategies for the aim of finding high-probability entries in the market at these swing points. Well, you may see that I refer to this as ‘buying weaknesses or ‘buying the dips’ in an increasing market and ‘selling strength’ or ‘selling the rallies’ in a falling market. With this terminology, it relates to the general approach a swing trader utilizes; as a market falls down, deciding to buy and within an up-trending market, hopefully buying the swing low point (or close to it), and of course, the opposite would be the case suitable for a down trend.
Other reasons why you should become a swing trader
We’ve just discussed what swing trading is, also the main reason you need to learn it and make it as your method of trading. Now, let’s discourse some of the other advantages of it.
As I’ve written in other articles, when trading the daily chart time frame as a swing trader does, you are reaping a great deal of benefits compared to those poor souls who still believe that scalping a 5-minute chart is the key to success.
One of the reasons to explain why swing trading is known such a great advantage to the retail trader is that it permits you to skip all the market ‘noise’ of short time frames, similar to those under the 1-hour chart. For brokers and the big institutional traders, it is clear that they WANT smaller retail traders to trade day-trade / scalp and short time frames, since they do know that they will easily get your money if you do.
Swing trading on higher time frames as the 4 hour and daily permits you to piggy back off the big moves which are created by the bigger players in the market. Also, it lets you place your stop loss outside of their reach, so giving you greater ‘staying power’ so that you can stay in the market longer and rise your opportunities of getting aboard a large, profitable move.
Need to fit trading in around your schedule
Swing trading permits you to fit trading in around whatever you may have a busy schedule, or if, in fact, you don’t have a busy schedule, it will permit you to make money trading and still enjoy your free time. A you can see, there’s nothing more boring than just having to sit in front of the charts all day, not to talk about that it’s bad for your trading and your health as well.
Additionally, with swing trading, you can analyze the markets on your schedule, for short periods of time, since you are concentrating on higher time frames as said above. Besides, as you are holding your trades for a day or more in most cases, you can choose to enter a trade on a Tuesday let’s say, and then, you go to sleep and wake up a day later and check on your trade. It is not necessary for you to sit there all night worrying about your trades, nor should you. An almost ‘magical’ thing occurs as you stop paying so much attention to your trades. Then, you begin to welcome better trading results.
People make their trading more complicated than necessary by simply being too involved. With swing trading, it is the best method since it’s complementary to how you should behave in the market as it rewards you for being less involved and also taking less trades over time, which is accurately what you need to do if wanting to have any chance to achieve your success. Swing trading will help you avoid over-trading, so the take home message here is. And, over-trading is the biggest reason for the explanation of why people lose their money trading.
It is crucial to avoid being fooled by the marketing and gimmick trading systems out there. If around the trading block a few times already, you can probably know what I’m talking about. There are a great number of promises and guarantees out there in the world of trading; however, the question that you should be asking is not about guarantees, but about the method itself. Is the method really going to effectively teach me to understand a price chart and also how to catch big moves in the market? Is it really going to guide me how to trade properly? You should ask yourself about these types of questions in any trading system or education that you are considering, since these are ones that matter. Not fall prey to big claims of fast money and completely-automated trading robots; remember that, if it sounds too good to be true, you can know that it probably is.
Also, in my price action forex trading course, I do teach the same swing trading techniques to my students that I have used to trade with for the past decade, the methods which have stood the test of time across a range of various markets and conditions as well.