Swing trading is a popular forex strategy that takes advantage of a market's natural tendency to trend. Swing trading involves bounces when a market is trending and breaks when a trend is broken.
Bounces
S/R (Support/Resistance) Bounce - when price touches a support or resistance trend line and appears to "bounce" off the line, continuing with the trend.
Example #1: Resistance Bounce
See how price appears to "bounce" off this
falling trend resistance 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?
Example #1: Result
200 pip "bounce"!
At least five "bounces" occured off of that single falling resistance line. One of the keys, of course, is drawing the correct support and resistance lines - anyone can draw a line on a chart but if price doesn't react to it then it is useless. More on drawing the correct lines later. Of course price doesn't continue bouncing forever, and when price stops bouncing an S/R Break occurs.
Breaks
S/R Break - when a support or resistance trend line is broken, commonly called a "breakout". In swing trading when an S/R break occurs a trade is taken in the direction of the break in anticipation of a trend reversal. So, for example, a break of falling resistance would result in a long position and a break of rising support would result in a short position.
Take a look back at example #1 - see all those yellow support and resistance lines? Those are old S/R lines that have already been broken. Notice how each one could have resulted in a nice breakout trade? Lets take a look at another S/R break:
Example #2: Support Break
The price has been bouncing along rising trend support for hours (each of which is tradeable as an "S/R Bounce" froma above) - the swing trading strategy tells us to take a short when the support is broken.
Example #2: Result
140 pip S/R "break"!
Setting TP and SL in Swing Trades
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.
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.
Why Swing Trading Works
Swing trading takes advantage of two very basic characteristics of any market - so basic many traders overlook them and "overcomplicate their trading" - the fact that markets tend to trend (bounces) and the fact that after markets trend corrections occur (breaks).
Best Markets for Swing Trading
Swing trading is most profitable in strongly trending markets - markets that provide lots of "bounces" - and least profitable in ranging markets or where price moves sidways. In trending markets "breaks" also tend to produce a much greater *pop* when an S/R line is broken.
Sounds pretty simple, right? Well it can be - if you do these two things:
- Draw Correct S/R lines - Anyone can draw support and resistance lines, but if price does not react to those lines because you draw them in the wrong place or incorrectly then you might as well flush your equity down the drain.
- Get in early enough to profit - some breaks and bounces occur for 40 pips, others for 100 pips. Many times the difference between whether your TP is hit or your SL is hit is how early you get in.
Swing Trading with PipHut is Drop-Dead Simple
PipHut has used swing trading in our signals since 2008, and in late 2011 we shook the forex world by developing several solutions that anyone take advantage of this powerful yet simple strategy:
- Hand-drawn Support and Resistance lines - PipHut hand draws accurate support and resistance lines on charts you can access 24 hours a day, 7 days a week. These charts are updated every 10 minutes so you can always see where the latest S/R lines are
- Email alerts for S/R Bounces and Breaks - When price gets within 10 pips of a support or resistance lines (bounce) or breaks an S/R line by 10 pips (break) we send you an email right away. Most members receive these emails within 20 seconds! Never have to sit in front of a computer for hours at a time and never miss out a swing trade again!
- Multiple Pairs - Select whether you want to receive bounce alerts, break alerts or both for up to five different pairs (EU, UJ, AU, GU and UChf). Increase the # of trading opportunities tou have each trading day
- Daily Guidance - Get daily analysis on all five pairs from our Chief Strategist, alerting you to which S/R lines we are watching closely and which lines we expect to be the most profitable.
- 24/7 Support - We offer all our members 24/7 priority email support. Official policy is a response with 12 business hours but most members receive a response within 10 minutes.
January 27, 2012 at 13:59
What time frame charts do you use?
January 27, 2012 at 14:46
We use 4h charts for swing trading. They are short term enough to provide several signals throughout the day, and large enough to be reliable.
We list in advance the trades we are looking for each day under the “Daily Analysis” tab of PRO Dashboard. We also include snapshots of our charts with arrows drawn on them to visualize the trade setups. Our 4h charts are also shown in the “Swing (S/R) Charts and Alerts” tab of PRO Dashboard and refreshed every 10 minutes so you can follow along.
February 2, 2012 at 20:58
When you see the 10 pips break you send an email. Will that be sent after the current candle close? Should I take the trade as soon as I get the email?
February 2, 2012 at 21:13
We take the swing trades immediately when the break occurs (and the emails are sent out). “Proximity Alert” emails are also sent out when the price is within 10 pips of the S/R line – either to let you know to be prepared or some traders trade these as “bounces”. The setups we take are spelled out, in advance, in the “Daily Analysis” tab of PRO Dashboard for each pair.
Here is a real life example:
On Tuesday, January 31st in our analysis for EURUSD we wrote:
And PRO users immediately received this email a few hours later when the break occurred:
Result: +80 pips
We start with a 50 pip SL and then move it according the the rules listed above in this article.
February 2, 2012 at 21:59
so are you saying that 4H frame is the optimal for swing trading? excuse me for my such questions i am just a rookie and very willing to become a good trader :)
February 2, 2012 at 22:29
We use and prefer 4h timeframes because a) they are large enough to eliminate many false signals associated with smaller timeframes and b) they produce a nice *pop* when S/R lines are broken. All of the charts and signals on our website are 4h charts.
February 7, 2012 at 09:59
When there is a break of an S/R line, price sometimes tends to move back to test the S/R line.How is one to be sure that this break isn’t a false break? Is it advisable to wait for a second candle to close beyond the S/R line?
February 7, 2012 at 16:53
Our strategy is to enter immediately on the break (when the alerts are sent out). This works well for us because a) we use 4h charts so the moves tend to be bigger and produce a *pop* when broken and b) our S/R lines are hand drawn by our Chief Strategist and he seems to know what he is doing :). Only if the candle does retreat and CLOSE below the S/R line will we close the position.
February 14, 2012 at 15:07
In that article mentioned above SL is set to b/e when second target is hit or tight s/l is mentioned. In this section sl is set to 20/25 pips from b/e when first target is hit. I am confused:)
February 14, 2012 at 17:13
Hi @jmblom – please see the article “Trading with PipHut” for information on our trading style:
http://piphut.com/trading-with-piphut
This is more of a general article on Swing Trading but we could see where you would get confused. We are updating this article to help eliminate confusion, thanks.
February 20, 2012 at 09:06
“Only if the candle does retreat and CLOSE below the S/R line will we close the position.”
dear Piphut, does this mean, that during swing trading (and following the daily analisys signals which are essentially based on the same thing as I understand), if the candle in the 4h charts close ABOVE the support (in case of a support break signal), or BELOW the resistance (in case of a resistance break scenario) we should close the position?
So please correct me if I’m wrong, but should we follow the following procedure:
wait for s/r break alert, then open a position in the right direction, set a SL of 50 pips, and then lock in some profits as we go, but if the 4h candle closes like I wrote above, should we close the position nevertheless?
Thanks for clarification in advance!
February 20, 2012 at 12:38
Yes, that is exactly how we trade. If the candle does not sustain the break we treat it as a “false break”, close the position and look to re-enter on another break.
February 20, 2012 at 09:25
Hi ,Just i got the signal i.e (Pair: GBPUSD
Type: Support break
S/R Level: 1.5873
Alert Price: 1.5863
Alert Time: 2012-02-20 09:11:55
so shall i wait the price to reach 1.5873 on GU to short or i have to wait to break 1.5873 to go for long
February 20, 2012 at 12:40
On your example we enter short on the alert price (which is the current price). We wait for price to move past S/R by 10 pips before considering it a “break” to filter out false breaks.
February 20, 2012 at 09:42
Dear Piphut,
what @guna wrote is also another question for me, as it is a bit confusing. Shouldn’t a support break be always “from above”, and a resistance break always be “from below”? I’m just asking because today we’ve got two alerts already, a GU and an EU support break, but both triggered with the actual price below the support…
Can you also clarify this for us? Thanks!
February 20, 2012 at 12:41
The alert price is always our entry price, and a support break is always a short and a resistance break is always a long. We wait for price to move past S/R by 10 pips before considering it a “break” to filter out false breaks which is why there is an “alert price” and an S/R price.
March 22, 2012 at 15:10
Dear piphut,
what i understand is that a support break is a sign of a bearish price movement. Now if the Alert price is the point of entry then for the signal to be false the price should move above the alert price (Which is the opposite direction) and beyond the S/R price that lies 10 pips above the Alert Price. Now if the price goes beyond 1.5873, we are faced with three options a)Wait expectantly for the price to reverse till the SL closes the trade which would be at 1.5913 or, b) Wait for the fourth candle to appear before closing the trade even if the price is below the S/R price or c) close the trade after it crosses the S/R price which I think is a sound decision as it proves that it was a false break-away signal. please confirm or correct accordingly.
March 22, 2012 at 15:39
Great question. How WE treat false breaks is to wait for the 4h candle to close. If the 4h candle closes above/below the S/R then we consider it a false break and close out. If the trade hits our SL before the candle close then we obviously take the loss.
Your reasoning is sound and that is definitely one way to handle false breaks – the reason we don’t treat them that way is two-fold: 1) it takes a more hands-on approach, as you would then need to re-enter the trade if it went back below the alert price, and 2) If you do re-enter you are paying your broker the spread multiple times.
The upside is that you will never take more than a 10 pip loss on any false breakout.
March 24, 2012 at 20:14
mark from ur comment on 22nd march,you mean for a support break like gdpusd support break at 1.5810 given at 9.30am utc on 22nd march if at d close of d 4h candle,we assume gdpusd is at 1.5820 or 1.5830 then one shld close d sell trade since it is above d alert entry price.is that what u mean abt false break.just one to get it clear.
secondly if at d close of the 4h candle price is at say 1.5790{below d alert entry price} does it mean we shld allow d trade to run,that is if it has not taken its profit?
finally does it mean that at d close of 4h candle we shld close d trade even if it is on a profit or loss
please put me thru with my questions.
less i 4get mark u are one of best trader have ever come across
March 25, 2012 at 01:09
Hi @ricky, if a support break occurs at 1.5810 that means the support line itself is at 1.5820 (break alerts are sent out after 10 pips) – this number is also in the alert email so you don’t have to remember that. If the 4h candle closes above 1.5820 then yes we do close our position. That doesn’t mean you have to, of course, but that is how we handle it.
If the 4h candle has closed below the support then we let it run and leave it open.
Thanks for your kind words!
May 12, 2012 at 09:10
Since a break of S/R line with 10 pips signals a trade in the trend direction, can i enter a position in advance? E.g. a buy stop @ 1.5830, given that the RESISTANCE line is at 1.5820. This trade can be entered in advance of an S/R break alert. What is the risk, if any? I like to place a trade like that because sometimes before you get the alert, the price may have gone beyond the preferred entry level. Please advise me. Thanks.
May 12, 2012 at 14:13
The reason we wait 10 pips to signal a break is to help filter out false breaks. So yes you can enter early but the risk is that it will turn out to be a false break