Swing trading
Holding trades for a few days to a few weeks to catch one swing in price. It needs less screen time than day trading, but positions stay open overnight.
What swing trading is.
Trades that last from a few days to a few weeks.
Markets rarely move in a straight line. They rise and fall in waves, or swings. A swing trader tries to catch one of those swings, then step aside.
Trades usually last from a few days to a few weeks. That means fewer trades than day trading, with wider stops and larger targets.
Because positions are held overnight, swing traders pay or receive swap. They also face gaps, when price opens well away from the last close.
How a swing trade is built.
Five steps most swing traders follow, in one form or another.
Find the bigger trend.
Start on the daily or weekly chart. Many swing traders only trade in the direction of that trend.
Wait for a pullback.
In an uptrend, price often dips before rising again. Swing traders watch for the dip to reach support or a moving average.
Look for a sign the swing is turning.
This might be a reversal candle, a higher low, or a momentum indicator turning back up.
Set the stop and the target.
Place the stop beyond the swing low, where the idea is wrong. Set the target near the last high or the next resistance.
Size it, then let it run.
Size the position from the stop distance. Then check the trade once or twice a day, not every few minutes.
A worked example.
Suppose GBP/USD is in an uptrend on the daily chart and pulls back to support at 1.2600. Your account is $10,000, in US dollars.
You plan to buy at 1.2600, with a stop below the swing low at 1.2480. That is 120 pips. Your target is the last high, 240 pips away at 1.2840.
You risk 1% of the account, or $100. Over 120 pips, that is about $0.83 a pip. One standard lot of GBP/USD is worth $10 a pip, so you round down to 0.08 lots.
| Amount | |
|---|---|
| Risk on this trade (1%) | $100 |
| Entry and stop | 1.2600 and 1.2480, 120 pips apart |
| Position size | $100 ÷ 120 ≈ $0.83 a pip, rounded down to 0.08 lots ($0.80 a pip) |
| Loss if the stop is hit | 120 × $0.80 = $96 |
| Gain if the target is hit | 240 × $0.80 = $192, before costs |
| Swap, if it were −$0.50 a night for 14 nights | 14 × −$0.50 = −$7.00 |
The swap figure is made up for the example. Real rates change with interest rates, and you can check them in MT5 before you trade.
Now suppose bad news lands over a weekend and the market opens on Monday at 1.2450. The stop fills at or near that price, not at 1.2480.
The loss is then about 150 pips, or $120, not the $96 you planned. That gap risk is part of holding trades overnight.
Tools swing traders use.
Most of them read the trend, and the turns within it.
Moving averages.
A 20-period or 50-period average on the daily chart shows the trend, and where pullbacks may pause.
Support and resistance.
Earlier highs and lows mark where a swing may stop or turn. They also give natural places for stops and targets.
Fibonacci retracement.
Some traders use Fibonacci levels, such as 38.2%, 50% and 61.8%, to judge how deep a pullback has gone.
Momentum indicators.
The RSI or the stochastic oscillator can show when a pullback is losing pace.
Common mistakes.
Where traders new to swing trading most often go wrong.
Leaving swap out of the plan. It is charged for every night a position is open, and it adds up over weeks.
Using a day trader’s stop on a daily chart. Normal daily swings can hit a stop that is too tight.
Ignoring weekend and news gaps. A stop limits a loss in normal trading, but a gap can jump past it.
Watching every tick. Short-term noise can push you out of a trade planned for days.
Letting a trade drift past its plan. If the swing low breaks, the idea was wrong, so close it.
Swing trading on MetaTrader 5.
Everything a swing trader needs is built into MT5. Some steps below are on the desktop app.
Use the higher timeframes.
Switch to H4, D1 or W1 from the toolbar to see the swings, and the trend behind them.
Check the swap before you trade.
In Market Watch, right-click the instrument and choose Specification. It shows the swap for long and short positions.
Set alerts instead of watching.
Open the Alerts tab in the Toolbox, right-click and choose Create. MT5 can then tell you when price reaches a level.
Attach a stop and a target to every trade.
Enter a Stop Loss and Take Profit in the order window, so the trade is managed while you are away.
Questions, answered.
What traders ask most about swing trading.
01How long does a swing trade last?
02Is swing trading better than day trading?
03What is swap, and why does it matter here?
04Can I swing trade around a full-time job?
05Can I practise swing trading first?
Practise it on a demo.
Plan and hold a few swing trades on a free MT5 demo, swap and all, before you trade with real money.
Trading CFDs on a live account puts your capital at risk and you can lose money. A demo does not.