How to make profit with Swing trading and Day trading?
Table of Contents
The amount of time you can spend trading is closely related to the decision of the FX trading method.
It is important to find a method that allows you to continue to trade Forex while doing your daily life and work.
Therefore, in this article, we will explain about day trading and swing trading that can be done even by people with limited time.
What are Swing Trade and Day Trade?
There is more than one way to make money with FX. Some people trade every night, others say “about once a week”.
The method of FX is different for each person.
Perhaps the most famous Forex method is “day trade”.
As the name implies, day trading is a “day”, that is, a short-term trading style that closes trading within one day.
When the holding time becomes a little longer, it is called “swing trade”.
As the holding time becomes longer, not only the price movements read from the chart but also fundamentals analysis such as monetary policy and political circumstances becomes important.
There are “position trades” that are longer than swing trades and “scalpings” that are even shorter than day trades (see the table below), but they are all for experienced users.
For those who are starting FX, we would like to consider day trading and swing trading.
| Type of strategy | Average Trading Period |
|---|---|
| Position trade (long-term trade) | weeks to years |
| Swing trade | 2 – 3 days to a few weeks |
| Day trade | within 1 day |
| Scalping | seconds to minutes |
Think about which one is better for you, day trading or swing trading.
What is Day Trading?
One of the definitions of day trade is “Not carrying over positions to the next day”.
In the foreign exchange market, the end of the New York market concludes the day, so it is a good idea for day trading to end trading by that time.
In day trading, the time required for one transaction is from a few minutes to a few hours at most.
Since the trade is completed in a short time, it is a trading style that even people with limited time can work on without difficulty.
The feature is that you can do it at your own convenient time.
It can be said that trading by the limited time is an advantage.
This is because those who have a lot of time available for FX tend to become overheated and over-trade.
You can work by deciding the time such as “Tomorrow will be work, so I will end the FX trading by 23:00”, “Trade FX from 9 o’clock when the child goes out” are also some advantages in day trading.
XM also provides their own mobile trading app, and it can help you trade anytime anywhere easily.
Find out more about XM’s mobile app in the page here.
Required Fund and Leverage for Day Trading
You don’t need a lot of money to start a day trade.
The characteristic of FX is in leverage.
In a word, leverage is a “mechanism that allows you to make large transactions with less money than you originally need”.
If you apply leverage up to 500 times, it is a high risk, but if it is about 100 times, the risk is not so high.
XM has a Micro account type that can be traded from 1000 units, so you can reduce the risk exposure as you like.
Starting from 1000 currencies and increasing the volume of transactions by becoming accustomed to it is the shortest way to step up while suppressing risks.
For the list of available fund deposit and withdrawal methods for XM, visit the page here.
Recommended Spread and Trading Cost for Day Trading
Since transaction commissions are almost free in FX with XM, the transaction cost is mainly the spread (the difference between the buying price and the selling price).
A general spread of EUR/USD, the major Forex currency pair is around 0.8 pips.
With 1000 currencies, the cost of one transaction is about 8 cents.
However, since day trades tend to increase the number of trades, it is impossible to neglect the spread.
So you should choose a currency pair with a narrow spread.
XM has launched a “Ultra Low Spread” account type which offers the trading condition with the lowest trading cost.
The spread and the trading commission is different depending on the account type you choose with XM.
Visit the page here to see the list and comparison of XM’s all Forex trading account types.
Appropriate Market Volatility for Day Trading
If the exchange rate stays flat, no matter how many day trades you make, your profits and losses remain zero.
Opportunities are created because the exchange rate moves every moment.
However, if it seems that it will take a month for the currency to rise, it cannot be said that the market is suitable for day trading.
For a day trader, the preferred market is the one that moves at least one cents or two cents in a few hours.
When selecting a currency pair for day trading, let’s choose one with “high volatility”.
Recommended Currency Pairs for Day Trading
The recommended currency pair for Day Trading would be EUR/USD or USD/JPY with low cost.
If the transaction cost is low, the psychological burden at the time of entry will be reduced, so it is ideal for practice.
However, it has the drawback of low volatility.
On days when there are no events, you may feel that the rate is always the same.
You should check the schedule of the day and aim before and after the time when there are events where price movements are likely to be active, such as economic indicators announcements, monetary policy announcements, and dignitary statements.
You can follow all the important market events with XM’s Economic Calendar in XM Official Website.
Another recommended currency is the GBP/JPY.
The characteristic of the British pound is that it is so volatile that it is sometimes called “murder currency.”
It’s a synonym that comes from the fact that you can easily lose it if you do it easily.
With such high volatility, even if there is no event, the price movement is active and it is a currency pair that is easy to aim for a large price range in a short time.
Instead, the spread is normally wider than the EUR/USD and USD/JPY and the transaction costs are not cheap.
Pay close attention to the number of trades and make sure that you trade properly.
Recommended Market Analysis Method for Day Trading
In the analysis of day trade, the basic chart is a short time axis such as 5 minutes and 15 minutes.
Some make decisions based on candlestick formations, others use technical analysis such as moving averages, Bollinger bands, and RSI.
There is no correct answer for the analysis method, so it is best to use the one you like.
Awareness of time is also very important in day trading.
Especially for those who trade at night after work.
When the announcement of US economic indicators is concentrated, there are also many remarks from the US and Europe, and it is also the time when the US stock market opens, so it is easily affected by price movements such as the Dow average stock price.
Among them, the US employment statistics released on the first Friday of every month has a large impact on the foreign exchange market and is one of the events that attracts attention every month.
It is an essential daily trader for day traders to check the schedule of these events.
Merits of Day Trading
The biggest advantage of day trading is that you can aim for profit in a short time.
It is not impossible to increase the funds by 20% and 30% in one trade if you can trade when the exchange market moves significantly.
Morning people can trade early in the morning or in the morning, and people with irregular working hours can work on one or two hours when they have enough time.
The day trade allows you to choose a time that suits your lifestyle, regardless of the time of day.
Also, the longer you hold it, the higher the risk of suffering a large loss in an unexpected situation, but day trading is a style that assumes settlement in a short time.
The risk can be limited if the loss cut is done properly.
Another thing that cannot be overlooked is that day trading is the best style for “earning experience”.
In FX, experience is also a world where things really matter.
If you use a style with a small number of transactions, it may be difficult to accumulate experience points and it may take a year or two.
In that respect, day trading means that you trade daily, so you can improve your speed.
Demerit of Day Trading
The biggest enemy of day trading is the “low volatile market”.
If the exchange rate does not move, no matter how good the analytical power is, no one can make a profit.
On the other hand, it is your own mentality that becomes a big enemy in the “high volatile market”.
Looking at the exchange rate that moves up and down well, you wanted to trade, you failed to put out your hand easily, your heart rate gets higher, more unnecessary transactions were accumulated and losses accumulated, and so on.
It’s easy to get lost.
What is Swing Trading?
Now let’s take an overview of the style “swing trade” that is the best match for day trading.
Done once a day to once a week, that is the style of “swing trade”.
Swing trading does not spend much Forex time per day.
Instead, swing trader takes a view of the entire foreign exchange market on weekends and other days when you have a lot of time to see what currency is causing the trend.
Next, swing trader explores the factors that cause trends such as monetary policy, fiscal policy, unwinding of bulging positions, etc. and imagine the future outlook.
Finally, swing trader will implement the strategy of “where to buy or sell” and “how much and when to settle” and place the necessary orders.
Since the holding period is longer than that of day trading, the target profit margin is larger, and the weight of the fundamentals analysis becomes larger.
In addition, IFD and IFO orders, which are limit orders and compound orders, are indispensable because you will have positions during sleep and work.
For swing trading, it is enough to take look at the exchange rate and news on weekdays to see if there is any change and whether the market is moving according to your plan.
You don’t have to spend a lot of time because you only have to assemble a strategy and outlook for a week or so on a day when you can take time together, such as a holiday.
If you don’t want to trade like a day trade and you don’t have time to day trade, you may want to consider swing trading.
Recommended Fund and Leverage for Swing Trading
In day trading, about 10,000 currencies with a budget of $2,000 and 100 times leverage would be a standard.
The same applies to swing trading.
However, since the holding period will be longer in swing trading, the stop out level should be assumed more than in day trading, and the leverage should be strictly considered to be not too high.
$2000 is just a “minimum amount of money” in standard, and if you want to reduce the risk, you should add a little more money to make room for transactions.
How to choose the Currency Pairs for Swing Trading
The “theme” is important when choosing a currency pair for swing trading.
In the foreign exchange market, there are existing trends and the trends that they create, such as “safe haven Gold appreciation due to corona shock” and “British pound depreciation due to Brexit concern”.
Swing trade basically aims at profit by riding the trend like the above.
Therefore, it is important to explore “what is the seasonal them in the currency market right now” and select the currency in which that theme is causing a trend.
Information is indispensable in planning swing trading strategies.
Even if there is an easy-to-understand trend on the chart, there is no basis for trading unless the cause of the trend is known.
Therefore, when choosing a currency pair for swing trading, let’s add the perspective of “is sufficient information available?”
Recommended Currency Pairs for Swing Trading
From the above two points of view, we will introduce two currency pairs normally suitable for swing trading.
They are AUD/JPY and AUD/USD.
Australia and Japan are familiar with each other due to regional ties so that they may be in the same group in the Asian qualifying of the World Cup.
In addition, the Australian dollar was once popular as a high interest rate currency, so there is a wealth of information available.
Due to the strength of its ties with the Chinese economy, the Australian dollar may be traded as the “alternative currency” of the renminbi, and the theme is that it is likely to be in season.
It is the usual practice in the foreign exchange market that a big trend will occur after the outliers have stagnated from the season.
Don’t be afraid to wait for a swing trading opportunity.
Appropriate Market Analysis for Swing Trading
Don’t assume at the forest by looking at the trees, this is a proverb you should not forget in swing trading.
When looking at charts, it is easy to open short time-frames such as 5-minute and 1-hour bars.
However, what is important in swing trading aiming for big trends is a chart that shows the “forest” such as daily, weekly, and monthly.
Make sure you look at the big trends on the long timeline chart and look at the short timeline chart showing “trees” when considering where to place your order.
Also, fundamental analysis is much more important in swing trading than in day trading.
Don’t forget to keep an eye on the information and reports from the currency experts you are aiming for.
Merit of Swing Trading
The characteristic of swing trading is “aiming for a large price range with a long holding period”.
Once you start trading, there is not much to do until you settle.
The time spent checking news is about 10 minutes to 20 minutes a day, so it can be said that even people who are busy with work or people who are busy with housework can work easily.
Although the time to tackle is short, the expected profit margin increases as the holding period increases.
It can be said that the efficiency of swing trading is a merit of swing trading because it can aim for a large profit margin in a short time.
In FX, swap points are generated due to the difference in policy interest rates between the two countries.
If you hold a swing trading position in the direction of receiving swap points, you will be a strong ally to increase profitability.
Demerit of Swing Trading
The disadvantage of swing trading is the difficulty of mental management.
There are not many opportunities for swing trading.
Even if you check the exchange rate, you will often decide that you are not seeing it.
Looking at a moving chart, it’s the nature of people that makes themselves want to trade, so whether or not they can manage the mentality so that they can endure an opportunity is one of the points that make a difference.
In addition, less chances mean less frequent transactions.
It can be said that it is a disadvantage of swing trading that it is difficult to accumulate experience values.
Are you new to Forex? Then open a Demo trading account with XM to practice trading Forex.
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