If you engage in forex trading, or trading in foreign exchange or currency, you must know how to maximize your profits and minimize your losses. Forex swing traders must figure out a price range fast, then capitalize on any price movement within that range by buying low and selling high. Swing trading is considered an easy to master entrance strategy for new traders. The price movement along a range typically occurs over a long window of time, and you don't need to identify precise entry and exit points.
Your goal as a forex swing trader is to profit from periods of market indecision, or consolidation. The support lines on a currency price chart identify the lowest price level a currency reaches before the price goes up. Selling stops and buying starts at this support line. The low end of a price range is determined through a currency’s support level. These levels constantly change based on supply and demand.
Resistance levels represent the high end of a currency‘s price range and the highest price level it reached before the price dropped. Resistance is the approximate price point where buyers stop buying and currency selling and profit taking starts. Just like support levels, resistance levels change based on supply and demand. Some currencies may have more than one resistance level.
Price Trend Lines
You will find reading trend lines is a priceless activity. Trend lines provide information on the price movements of a currency. You can identify an up trending currency when its price reaches higher highs and higher lows, forcing the price to move up. A trend line can also move in a downward direction, when lower highs and lower lows force a drop in the price. Price trends tend to be contained within various support and resistance levels. Successful forex swing traders identify trends and always trade in the direction of the trend.
When you identify an uptrend, you can draw a top channel line just above the peaks of the trend line and a bottom channel line just below the valleys of the trend line. The same principle applies if the trend goes south, except the channel slopes downward. Price changes above or below a channel line indicate a change in the trend may be taking place. Watch for signs that your currency trade could be ready for a breakout, which occurs when the price suddenly heads in a particular direction. As part of your strategy, plan your currency trade entry and exit points to profit from these price movements.
Eileen Rojas holds a bachelor's and master's degree in accounting from Florida International University. She has more than 10 years of combined experience in auditing, accounting, financial analysis and business writing.