Swing trading is one of the most popular ways to trade any market and forex markets are no different. Swing trading allows a lot more freedom than day trading or scalping, but with the limited amount of trades taken it does raise the question – is swing trading forex markets actually profitable?
Forex swing trading is extremely profitable for experienced traders who trade mostly higher timeframe charts, like the daily and weekly. These are the type of traders that can hold positions for several months, usually 10+ at a time, so high level knowledge and experience is required to be able to profit from this trading style.
Is Swing Trading Profitable For Forex Traders?
Swing trading the forex markets is very profitable, but only for experienced traders.
Although it is widely considered that swing trading is more profitable than day trading or scalping, it does require a lot of knowledge and experience. If you do not find an edge in the markets like this, then your trades will ultimately become unprofitable and take away any profits that was made in previous trades.
In order to have success at forex swing trading, a high level of knowledge about technical analysis and the currency pair you are trading is necessary. You must know what drives price action for each currency pair and be aware of how news events will affect the market.
Fundamental factors play a huge influence on the currency markets over the long term, so having an understanding of how the world economies work is crucial to success.
If you do have this knowledge base, many traders find swing trading much more lucrative than day trading.
The Benefits Of Primarily Swing Trading Forex Markets
There are a huge amount of benefits to swing trading, instead of trading the lower time frame charts. I personally switched to a swing trading approach many years ago and it’s completely changed my trading, for the better.
Win Rate Increases With Swing Trading
As you’re focusing on trading much larger and clearer moves, it allows you to have a much higher win rate. The much higher win rate translates to more money in your pocket, which is probably one of the key reasons why market participants swing trade.
The higher win rate and focusing on larger moves means that your profitability (assuming you’re using a good risk management strategy) will be much higher too. It’s very difficult to make large amounts of money if you’re just taking a few pips out of the market and your win rate isn’t high.
Less Stress And More Freedom With Swing Trading
The less trades you place, the less stress it is on yourself and not being tied into an order screen for hours on end definitely has its benefits! You can just place a trade, check some levels and go about your business whilst the trade is on.
In addition, swing trading forex allows more freedom as you can open up trades for longer periods of time. This means that you don’t have to sit at a computer screen all day monitoring a potential position that may or may not hit your entry price.
Intra-day traders and scalpers are known for being extremely stressed due to the high pressure and long hours involved with trading the lower time frames. Swing trading on the higher time frames completely removes this burden!
As swing traders aren’t at the computer all day, they’re also able to maintain a job alongside trading, which is also a big time saver and allows you to make more money outside of trading further decreasing your stress levels about bills and overheads that need to be paid.
Lower Time Frames Are Too Volatile
In the forex markets, the lower time frame charts are very volatile and can cause losses, slippage and pure frustration for traders. Whereas the higher time frames are much more calm and allow you to make consistent, reliable trades without too much hassle.
As your trading screen time will be reduced, it also means that you won’t have to bear in mind any news events that usually effect the lower time frames. Trading during news events like NFP is very risky in the forex markets due to the volatile and violent nature of the market at this time. Although you won’t be immune to these events, you’ll notice the effects much less on the swing trading time frames.
The Ability To Scale Into Trades With Swing Trading
Scaling into trades is a very advanced trading technique that isn’t used by intraday traders or even day traders. Profitable swing traders are very used to scaling into positions and this is where the majority of profit is going to come from. Let me break down how this works…
- You take an initial long position on EURUSD, risking £1000.
- Once this trade is in a large profit, you move your stop loss to breakeven, meaning your net risk is £0.
- You take another long position with a large stop loss, risking £1000.
- Once this trade is in profit, you repeat the process, moving the stop loss to breakeven.
- Repeat this until the trend is complete.
Essentially, you have just added money to your take profit value, without ever incurring additional risk. This is only possible in swing trading due to the long trends we see!
The Drawbacks Of Forex Swing Trading
The only real drawback of swing trading the forex markets is the lack of frequency of trading setups. Compared to other forms of trading, you’re less likely to get a setup to take place when you’re swing trading.
Of course, the frequency of setups isn’t zero! You’ll still be able to find plenty of opportunities on the higher time frames for some nice high % winners which will keep your portfolio growing nicely.
The benefit you have with swing trading is that it allows you to scale into trades.
So, instead of having 1 or 2 lots on your typical scalping trade, you can open 5-10 lots and make the same profits anyway due to the size of the swings.
Scaling into trades is a very advanced technique that isn’t typically possible on the lower time frames. It involves ‘pyramiding’ your setups, taking the risk off a trade, then adding that risk onto another position. Therefore, you keep your total net risk the same, but your potential take profit grows exponentially during a trend.
The Most Profitable Forex Pairs To Swing Trade
The most profitable currency pairs for forex swing traders to trade are currency pairs that have long trends.
As a swing trader on the higher time frames, you need to be trading the bigger pairs as these have the largest price swings and this is where your profits come from.
The EURUSD is a very popular choice for seasoned forex swing traders due to its historical trendiness and volatility. The GBPUSD is another favourite amongst swing traders due to its strong trending properties and low noise.
However, you need to be careful as some higher time frame currency pairs just don’t have any momentum. Because of this, it’s advisable that you stick to trading the most liquid forex pairs such as EURUSD, AUDUSD and XAUUSD.
Do Swing Traders Need More Capital To Make Money?
Swing traders do need more trading capital to make consistent profits in the market. This is because the average monthly returns from a swing trader, is much less than a trader on the lower time frames.
You’ll need at least $25k-$50k in your trading account to make the most out of forex swing trading. If you want to trade on the higher time frames without scaling into trades, then its advisable that you have between $100k-$200k or even more in your trading account in order to pull in some consistent monthly profits.
This may seem unachievable but with online forex prop firms, you can now have over $100,000 in funding more or less overnight! I won’t go into too much detail here, but feel free to checkout our in-depth reviews of the industry leading prop firms like FTMO to find out more.
In Summary – Is Forex Swing Trading Actually Profitable?
In conclusion, forex swing trading is profitable and a great way to get consistent returns from the markets. Without proper discipline, any forex trader can struggle to make money no matter which time frame they trade on, so please don’t think that higher time frames are an easy ride.
Whilst the lower time frames are much more fun to trade due to their unpredictable nature and huge pips wins, these are also where novice traders are likely to lose money very quickly! We hope you’ve found this article helpful and if you’re a swing trader, I’d love to hear from you in the comments down below!
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