You have a steady job that takes up most of the day. However, you still want to make transactions on Etoro to make a profit. If so, you can trade in the Swing Trading style. It does not require you to spend too much time sitting in front of the screen but can still get good trading opportunities if you follow the rules. In this article, I will introduce what Swing Trading is and How to use Swing Trading effectively in Etoro.
What is Swing Trading?
Swing trading is medium-term trading on a timeframe of several days or weeks. Traders typically work on four-hour (H4) and daily (D1) charts. They can use a combination of fundamental and technical analysis to make their decisions.
As considered a medium-term trade, short movements do not have much influence on the result. A smart trader will not close a good position when seeing strong volatility occurring in a short period of time.
Instead, volatility is the key. The more volatile the market is and the greater the amount of short-term price volatility is, the more opportunities to make money will be.
What are the advantages of Swing Trading
Swing Trading offers many advantages, especially for new traders as follows:
Flexible transaction time
Swing Trading tends to be appealing to beginners simply because it uses a more user-friendly timeframe. Investors will spend less time analyzing and trading because they are doing fewer transactions compared to other investors. This gives them more time to consider and place their positions. That means they only need to spend a few minutes a day to make a transaction.
Swing Trading is a mid-term trend investment
While Scalping and Day Trading both depend on short-term volatility, Swing Trading allows traders to take advantage of longer-term trends. Analysis performed on larger time frames are generally more stable, while short-term transactions are more susceptible to noise and false signals.
This also means that each transaction has more time to make a profit. Because with medium-term transactions, prices often follow the trend that has been predicted earlier.
Swing Trading is effective with little cost
One of the main costs of a trade is the spread aka the difference between the buying and selling prices of an asset. Although the spreads are small, they are charged every time you trade and reduce the profit of regular trades on short time frames.
Swing Traders are less affected by fees because they place fewer orders over long periods. The spread, usually a few points or pips, is charged less and should therefore be small compared to the size of the overall profit taken.
Swing Trading with technical indicators
Swing Trading’s basic time frames include four-hour, daily, and weekly. From there, you can make the most of the simplest indicators.
Indeed, if we take the example of daily closing above the 20-period moving average, it is much more accurate than closing the candle above the 5-minute chart moving average. In general, analysis over longer time frames tends to be more accurate.
Using MetaTrader 4 makes it easy to analyze multiple time frames on one chart or multiple charts. In which, the small chart indicator allows you to display two or more time frames of an instrument at the same time.
What are the risks of using Swing Trading?
Increase in swap fees: The swap fee is the daily interest fee charged on positions held overnight. Although this is not an issue for investors or day traders, this fee can increase for long-term transactions.
Basic risks: Economic and political events can influence financial markets to disrupt trends, affecting your trading strategy.
Swing Trading – suitable financial tools in Etoro
The Swing Trading style is applicable to all CFDs, stocks, Forex, commodities, and even indices.
In the Forex market, Swing Trading allows traders to benefit from excellent liquidity and the volatility can help you achieve the desired price moves over a medium to long term timeframe. Some of the most popular currencies for Swing Trading Forex in Etoro are as follows:
- Euro: including AUD/EUR, EUR/CAD, EUR/JPY, and EUR/GBP pairs
- Yen: including USD/JPY, JPY/CAD, JPY/GBP pairs
- Pound: including GBP/AUD, GBP/CAD, GBP/CHF pairs
- Dollar: including NZD/USD, USD/CAD, AUD/USD, EUR/USD pairs
- Some reference indices:
- DAX30 CFD
- CAC40 CFD
- Dow Jones 30 CFD
- Nasdaq 100 CFD
- Nikkei 225 CFD
Some stock indices have larger spreads than others. For example on Forex pairs, but it is not so important for medium-term trading because you only need to pay the spread once.
A basic guide to using Swing Trading in Etoro
To be a successful Swing Trader, you must understand that a trend is what makes you profitable. Therefore, long-term trend tracking indicators are indispensable tools for your charts. They will help you find opportunities that bring great profits to you.
How to use with the Moving Average indicator
Conditions: Set up the Moving Average indicator in Etoro. The H4 Japanese candlestick chart or above
Open a BUY order when: The price penetrates the MA from below.
Explanation: When the Japanese candlestick chart crosses the MA from below, it shows that the trend will reverse from up to down. When the candlestick crosses the MA, it is time to open a BUY order in an uptrend.
Open a SELL order when: The price cuts the MA from above.
Explanation: When the Japanese candlestick chart cuts the MA from above, it is a sign of a bullish to bearish reversal in the future. Open a SELL order when the price cuts the MA.
How to use with support and resistance
Resistance is a zone where it is difficult for the price to continue rising when the sellers are very crowded. There, the price often bounces back. On the contrary, support is where the price cannot fall further and has a high chance of rebounding. Most Swing Traders open long-term orders based on the levels (support/resistance) to increase the probability of winning.
Conditions: The H4 Japanese candlestick chart or above
Open a BUY order when: The price enters the support zone.
Explanation: According to statistics, most of the time, when the price hits the support zone, it will rebound. Based on the habit of price action, traders will place BUY orders right at the support zone to increase the probability of winning.
Open a SELL order when: The price hits the resistance zone.
Explanation: When the price hits the resistance, it will react that is mostly bouncing back lower. So it is possible to open a SELL order at the support zone to make a profit.
Things to note when using Swing Trading
– Regularly follow the news to avoid unexpected market reversals.
– Better to consider the analysis in the Asian session because it is less volatile.
– Do not overdo indicators when using Swing Trading.
– Do not go against the trend of the market.
Through the above article, you may have answered the question “What is Swing Trading?” as well as “How to apply it effectively when trading in Etoro?”. Good luck to you when you find a strategy that suits you.