Swing trading

swing tradingThere are many fundamental strategic decisions that must be taken in order to find the trading profile that’s right for you. One of the most important ones is the choice between trend-following and swing trading.

Swing trading is a very popular approach to binary options trading. There are many important reasons for this. Swing trading offers a high number of trading opportunities, it fits with the short timeframes you find in binary trading, and statistical tools exist that can help you make good predictions for swings.

In this article we look closer at swing trading. We introduce what the concept is all about, and stress the differences between this form of binary strategy and trend-following. We will then present some of the main advantages of swing trading. Finally, we offer some helpful pointers that will help you make plenty of money with swing trading.

Swing trading – what is it?

Swing trading is a form of binary options trading strategy that has become phenomenally popular in recent years. Whereas trend-following also has a lot of supporters, more and more traders find that swing trading is ideally suited for binary options trading.

Let’s take first things first. A swing is a short-term, constantly occurring, rapidly moving price change. If you look at a price chart for an option, you will see that the price fluctuates very rapidly, constantly moving up and down. This zigzag pattern will be present even when it is clear that the price, over a medium time frame like an hour or two, has been moving predominately in one direction.

A swing is each of the short-term price changes that make up the zigzag pattern.

When you look at the price of an asset over the course of a trading day, you will often see an overall direction. For example an asset’s price can increase steadily throughout the day, and paint a fairly clear upwards line on the chart. Such a line is a trend.

Now, a trend-follower will be looking at this bigger, more long-term picture. A swing trader, on the other hand, is concerned with the huge amount of ups and downs that the trend is made up of. Whereas a trend-follower makes investments in accordance with the trend, the swing trader invests on each market fluctuation.

Swing trading – why do it?

As swing trading becomes ever more popular, more and more binary options traders choose to follow this strategy. There are many good reasons why more and more binary options traders choose to trade on swings. The two most fundamental ones are as follows:

  • More potential trades. This is obviously a major selling point. In binary options trading it is all about attaining a high strike rate over the course of as many trades as possible. The chance to make frequent trades is therefore a big plus. Every time there’s a swing, a swing-trader can strike and make a profit. A trend-follower on the other hand, is stuck with trading in the direction of the overall trend and unable to cash in on all the many fluctuations it is made up of. Another important point here is that the market is frequently not in a trend at all. In such conditions the price will continue to move up and down, just not in a recognizable trend pattern. In such conditions, a trend-follower cannot make money. A swing trader, on the other hand, can always find short, rapid price movements to trade on.
  • Ideally suited for binary options. Binary options are by definition short-term investments. Few traders ever invest in options that have timeframes that exceed 1 hour. Quite simply, binary traders don’t care about the long or even medium term price movement of an asset. With 30- and 60-second options, trends don’t enter into it. Even for longer timeframes like 10 minutes or 30 minutes there’s no guarantee the price will follow the trend. For short term investments, you can just look for indicators of what is going to happen in the next minute, and ignore the big picture. This is what swing trading is all about, and what makes this strategy perfect for binary options trading.

Please note, though, that swing trading is in no way ideal for everyone. There are pros and cons here, and you are not guaranteed to make more money with swing trading than trend-following.

Swing trading – how to make it work?

If you have decided to give swing trading a go, you need to adapt your approach accordingly. If you have previously been a trend-follower, you need to learn some new tricks, and try to forget some old ones. Here are three basic approaches to swing trading. See which one appeals most to you, and try that one:

Trade on all swings that occur. This can be a good way for aggressive traders to cash in on a rapidly moving market. Keep your eyes on the chart, stick to short time frames and use indicators like candlestick formation, resistance and support levels and momentum indicators to tell you when the next swing will occur and where it is headed.

Trade on selected swings. Use the same methods above to read the market, but trade only on predicted swings you have particular faith in.

Trade on parts of individual swings. Strike as soon as you see a price movement indicated, choose an option with short running time, and cash in as quickly as you can.

A combination of the above. Once you have mastered these different approaches, you will be able to adapt your methodology to the market.

 

Swing trading
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