Which Form of Retail Trading Is the Most Successful?

All of us know that feeling, that feeling when you first hear about the financial market or finally make the decision to get involved in trading. There was a world of opportunity at the doorstep and we only saw an optimistically bright future ahead. More often than not however, we are welcomed into the world of trading rather rudely and abruptly. There are many reasons for this but the most likely answer is that you fell for the hype, didn’t have enough information and didn’t approach the market methodically.

Our view at Green Box Markets is that in order for any retail trader, like you or us, to be consistently successful on the market, you have to approach the market with the correct methodology. If that is not the case you will never be consistently profitable, even if you have mastered everything else. A defined plan, correct psychological approach and strict money management are imperative to your success as a trader.

This Is Why We Believe That Swing Trading Is the Only Option

You may at some point in the beginning of your trading journey come across someone who suggests that we as retail traders have the ability to move the market, especially if we are a number of traders who trade together. With more than 5 Trillion US Dollars in trade volume moving through the Forex market every single day, I can tell you that this is simply not possible. The sooner you understand that you are really on your own in the trading world and that the big players like banks and hedge funds know exactly where the majority of retail traders place their orders, the sooner you will realise that you need to be able to “ride the wave” in order to survive.

A general problem is the inability that traders have to withstand greed. Big lot sizes and tight stops will inevitably lead to your stops being triggered with normal daily price movements. The more you trade with small stop levels, the more likely you will be to lose more trades than you win. Brokers charge fees for trading which means that they are quite content with you focusing on intraday trading. Not only will there be a good chance that you will lose more than you win but you will also generate a good amount of fees through your trading activity. Greed is a natural human emotion and our desire to “get rich quick” is always the reason we don’t.

The guys with large sums of money are more often than not very aware of this and play the market from exactly the opposite point of view. These guys are what we call long term traders, position traders or investors. They look to capitalise on long term trends and often only realise their profits ten or twenty years down the line and in some cases only when they retire. This is not really an option for traders like you and us who want to make a living from trading the markets and don’t have that kind of capital available.

What Is Swing Trading?

Here at Green Box Markets, we are positioned exactly in the middle of the two types of traders mentioned above. Swing trading is an approach to the market that allows us to see strong directional movements and medium term trends. These trends can last anything from a couple of days to a couple of weeks. As swing traders we aim to take advantage of the short term price fluctuations that occur due to large institutional trades. These institutions, like banks and hedge funds, aren’t as liquid as we are and therefore they are slower to get into and out of the market.

Price movements never happen in a straight line. There are always swing points in the movement that create highs and lows on a chart. The basic concept is to understand that when the price is moving in an upward trend, there will be a pull back at some point which will create both a swing high and then when the trend resumes, swing low. Have a look at the illustration on the chart below.

 

Here we can see that the price movement is in a general up trend but that there are significant pull backs which create highs and lows. Our job as swing traders is to identify and predict the trend and then to wait for the pullback areas in order to look for entries in the trend direction. The same applies to a downward trend where we would wait for the price to move upwards against the trend and then sell when our trade setup is confirmed. There are of course rules, formations and confirmations that take place before the trade setup is confirmed.

The chart above is based on the daily time frame. Now if you have spent much time looking at charts, you will see that there is far less “noise” on this chart than what you would see on a five minute chart for example. The price movements are clear and the highs and lows are easy to spot. This is another advantage to swing trading. When you look at higher time frame setups, you tend to see things more clearly and you will also have a much larger stop loss allowance than on a five or fifteen minute chart. Brokers love all those traders who believe that success lies in scalping a five minute chart because their stop loss levels are tight and very easily knocked out by small price movements.

When you trade on higher time frames, you give yourself the opportunity to piggy back off the smart money and the price movements that they cause. Doing this will allow you to place your stop loss at a level that is too far for a normal “spike” or move to reach which in turn means that you are able to “ride the wave” and have a far greater chance of hitching a ride on a big price movement.

The Psychology of Swing Trading

One of the most important advantages to swing trading is the psychological advantage you have. It is stressful to sit and stare at a five minute chart all day, hoping to grab some quick money off the table. Remember what we said about the fact that the more you trade, the more likely you are to lose more than you win? There are so many forces at play here, not the least of which is psychology. Over trading will always have a negative impact on your trading and will leave you stressed to the max. Being that stressed is not only bad for your health but it’s bad for your head which is bad for your trading, it’s a vicious circle. Swing trading allows you to minimise the amount of trading you do and maximise the profitability of each trade. This has a good effect on your head and on your trading. Not to mention that it also gives you time away from the screen and a much better nights rest.

Let’s Sum That All Up

In conclusion, it is quite easy for you to understand why we are suggesting that swing trading is the only real solution to being successful on the market. Short time frames are just too risky and brokers love it when you trade there. Position trading or investing is a very long term approach and you can’t really earn a living from that without a large sum of money to invest. Playing in the middle of those two types of trading means that you can earn a living from trading while keeping yourself at a safe stop level as well, out of reach. You will also be in a far better position to make informed decisions because you will not be as stressed out as the guy staring at five minute charts.

Steer clear of all those systems and schemes that sound too good to be true because you will likely burn your fingers. Don’t fall for the hype and allow someone to talk you into doing something because it will make you rich fast. It doesn’t work that way and the sooner you understand that, the sooner you will be in a position to start building real financial intellect and wealth.

Our Forex trading course is designed to help you identify the swing points in the market and to assist you in finding those critical trigger points where everything lines up. These are the same methods and techniques that we use and have been using successfully for quite some time. Simple, easy to understand and easy to implement, techniques that you will be able to use for a very long time.