If swing trading has been suggested to you by experienced traders then it is likely that you are considering whether to utilise it or not. In order to make a proper decision, you have to make sure that you have dissected swing trading in terms of its advantages and disadvantages.
Here are some pros and cons of swing trading which should help you make a choice as a foreign exchange trader.
Risk to Reward Ratio vs. Market Exposure
Swing trading is mainly about foreign exchange trading in a smart manner. This means that swing traders always try to maximise their returns while evading as much risk as possible. For this, swing traders tend to use risk to reward ratios.
Established wisdom about swing trading is that no trader should open a trade that does not, at least, have a risk to reward ratio of 1 to 2. This means that if there is a risk of losing 70 pips then there should be a chance to make 140 pips.
In fact, the higher the chance to make profits above 140 pips, the more attractive the foreign exchange trade should be for the swing trader. This dependence on risk to reward ratio is important because trades are left open through multiple days by swing traders. This means that there is always the danger that while the trader is sleeping, the position takes a turn for the worse.
Learning Curve vs. Spreads
Because a swing trader does not place many trades in the foreign exchange market, the chances to learn are less. Thus, the learning curve for a swing trader is usually extremely steep.
However, one thing that goes in favour of the swing trader is that even though he has to work hard to learn about his style, he does not have to focus on spread fluctuations that much because his large targets and loose stop loss placements make foreign exchange spreads redundant.
Logistics vs. Discipline
One of the best parts about swing trading is that the foreign exchange trader does not have to spend the whole day in front of his or her computer. Instead, he can spend two hours every day to analyse the market and place his trades or manage his active trades.
However, as these two hours every day are extremely crucial a certain level of discipline is required to maintain them. Many swing traders, unfortunately, fail to instil this level of discipline which is why they end up failing.
Stress vs. Emotional Control
Swing trading is much better than scalping because it is not as stressful. Because a swing trader does not have to spend hours in front of his computer and is under no pressure to place multiple trades on the foreign exchange within a small period of time, stress is a factor that is not relevant for him.
However, emotional control is still relevant for a swing trader because the forex market can still spring some surprises that require the trader to be balanced, moderate, and objective to make the right decision.