PipHut's Daily Analysis and our SwingPRO system are both based on the trading technique known as swing trading. This article will cover both what swing trading is and how you can swing trade with PipHut.
Swing trading is a powerful forex strategy built upon the market's natural tendency to trend. Our SwingPRO product, designed as an easy to follow swing trading system, involves what we call bounces and breaks.
Lets take a closer look at the two components that make up our SwingPRO system: bounces and breaks.
Break - A break is when price moves above a falling resistance ("resistance break") or below a rising support ("support break"). Price may bounce along that support or resistance for some time before a break occurs, resulting in a trend, but when that line is broken it signals the start of a new trend and price tends to *pop* in the direction of the break. This *pop* is also called a "breakout" or "breakout trade" and is the foundation of our SwingPRO system.
In SwingPRO a resistance break is our long entry and a support break is our short entry. We give our TP and SL for each entry in our Daily Analysis and break signals are sent to your email or SMS instantly for you to act on. When price moves 10 pips above our resistance line (a "resistance break"), or 10 pips below our support line (a "support break") SwingPRO sends out an entry alert.
Lets take a look at an example together.
Swing Trade Example #1: Support Break
Setup Chart: The price has been bouncing along rising trend support for hours - when price finally moves below that support line it is considered a "support break" and a signal is generated in SwingPRO for a short trade:
Result: 140 pips!
Bounce - A "bounce" is when price touches a support or resistance trend line and "bounces" off the line, continuing with that trend. Bounces ALWAYS occur to form the trending support or resistance line in the first place. Breaks do not always occur. We don't trade bounces in our Daily Analysis much because bounces are best traded for very short time periods (such as scalping) and our daily trades are meant to be more set and forget and last for up to several hours.
SwingPRO again sends you an alert if a bounce occurs (we call them a "proximity alert" as price gets close to a support or resistance line) so that you can take advantage of this normal market tendency, with the support and resistance lines hand-drawn by our PipHut Chief Strategist.
Swing Trade Example #2: Resistance Bounce
See how price "bounces" off this falling trend resistance (blue line)? If you had entered on any of these bearish "bounces" circled in red above you could have profited. So what happens if we enter short when price reaches our resistance again?
Result: 200 pip bounce
At least five "bounces" occurred off of that single falling resistance line. The trouble for most is drawing the correct support/resistance line and then being able to enter a break in a timely manner. PipHut's SwingPRO offers solutions to both of these problems by providing you hand-drawn charts (no cheap and error-prone automated software here) and then alerting you when these breaks and bounces occur.
Swing Trading Patterns and Formations
There are several high-probability patterns that can be formed between a support and resistance line. Below are the four most popular patterns that we use quite frequently within our own swing trading:
- Ascending triangle - bullish continuation pattern
- Descending triangle - bearish continuation pattern
- Pennant formation - continuation pattern
- Flag pattern - continuation pattern
Setting TP and SL in Swing Trades
With SwingPRO we detail out the setups we are watching for each day along with our TP and SL for each setup. Below are some of the general guidelines we use when setting our TP and SL for swing trading:
For bounces we generally start with a 25 pip SL and target 25 and then 50 pips (two targets). When the first target is hit we move the SL to break even and let the trade run its course. If we are sitting in front of the trade terminal then we will let the trade run past 50 pips in the profit. If the price does not bounce and breaks the support or resistance then it becomes a break and, unless there is a reason not to, we open a breakout trade.
Of course many traders use bounces to assist with their scalping strategies and so the numbers above are much too large. A common scalping strategy is to collect 5-15 pips per bounce.
We use a single lot for our trades and tighten our SL as the trade progresses to lock in profit and reduce risk. How much we tighten the SL depends on how strong the trend is, how solid the S/R line is and how clean the break was. For example if the trade is with the trend and the S/R was solid we will keep the SL loose to give the trade room to breath (e.g. move to break even after the second target is hit). If the trade is against the trend or the S/R was uneven then we will tighten often to lock in profit and reduce the risk of the trade (e.g. move to break even after first target, tigten on each subsequent target).
The only reason we close a trade early is if the price is obviously beginning to turn back (has stalled out for several candles or a fundamental news event occurs) and we want to lock in profit or if a strong candlestick appears in the opposite direction of our trade. Read more here.
We always close our positions before the weekend. The weekend gap is a 50/50 coin toss and we like to take trades with a greater than 50% success rate :).
Why swing trading works:
Swing trading takes advantage of two very basic characteristics of any market - so basic that many traders overlook them and "overcomplicate their trading" - the fact that markets tend to trend (bounces) and the fact that trends change direction (breaks).
Two reasons traders fail at swing trading:
- They draw bad support / resistance lines - the entire system hinges on being able to correctly identify trends and correctly place the trend lines. A trend line drawn even 10 pips in the wrong direction can make the difference between your SL being hit or your TP being hit.
- They miss trades - Even if you can draw the correct line many traders, especially those just starting out, can't sit in front of their computers all day so they miss most of these break and bounce opportunities.