If you have been trading forex for a long time, you certainly have learned that prices on the forex market never move in a perfect straight line. There are always corrections where the price moves back against the direction of the trend, although often the correction does not change the direction of the trend. These corrections are often referred to as “swing”. Well, this time we will discuss the strategy of utilizing the swing to optimize opportunities in the forex market.
If you can identify the swing correctly, then you can find out where the right level is to place stop-loss to minimize risk. If you already know how much risk you will face, you will be calmer even if the decision that you take leads to loss. This calm will help you not to become emotional, because if you become emotional then almost certainly every decision you take will be wrong.
To place a stop-loss is usually around 70-150 pips (for a price with 5 decimal places) below the lowest price of a bullish swing for a Buy position, and above the highest price of a bearish swing for a Sell position. Always remember: there is never a forex strategy that is 100% accurate; that’s the reality in forex trading . For this reason you must learn to apply risk restrictions with stop loss every time you “fight” on the forex market.
There is another advantage in understanding swing, which is that you will be able to draw or use Fibonacci retracement correctly, so you can find out where the target or the risk limit is reasonable.
One strategy to utilize this swing is to use counter trend techniques. With this technique, we take advantage of opportunities when prices are corrected or rebound from the formed trend.
So, when the price pulls back when the trend is down or downtrend, that’s when we look for SELL opportunities. Conversely, if the price trend is rising or an uptrend, we will look for BUY opportunities when prices are corrected.