You most probably already know that the volatility of the foreign exchange market is both your biggest ally and your biggest enemy. This duality is something that permeates through everything in the forex market. For instance, whichever forex trading strategy you consider, you will find that it has its good and bad points.
This means that when it comes to deciding which strategy to use, you need to focus on the negatives as much as you study the positives. This measured consideration will allow you to understand the limitations of all types of strategies and thus prepare yourself to counter them.
Therefore, if you are thinking about becoming a swing trader then here are some downsides of swing trading in the forex market that you should be prepared for.
Your Learning Curve Will Be Flatter
The biggest problem with swing trading in the foreign exchange market is that your trades will be infrequent. Even the time you spend analysing the market will be limited.
The result of this will be that your learning curve in the forex market will become much flatter. Therefore, in a way, swing trading can keep you from realising your true potential in the forex market.
Accuracy Is Always Suspect with These Strategies
Swing trading will require you to place a few trades in the foreign exchange market spanning multiple days. There are two problems with this. The first is that your success in the forex market with these strategies depends on your experience of trading because you will have to recognise trades with high potential.
In addition to this, because your trades will span multiple days, regardless of how thorough your analysis is, there will always be that element of uncertainty brought about by the dynamic nature of the market. Therefore, accuracy of such trades is always suspect in the forex market.
A Single Mistake Can Lead to Massive Losses
The stakes always tend to be high with swing trading. This means that while you stand to gain a lot in the foreign exchange market through swing trading, you also stand to lose a lot. A single mistake, no matter how insignificant, can result in a large part of your account being decimated.
Being Patient Can Be Particularly Difficult
If you choose swing trading then you will have to exercise a lot of patience in the foreign exchange market. The reason for this is that your trades will not be big on quantity and will only last for around two to five days. Many traders can find it very difficult to wait for the right opportunities which results in very damaging losses.
Overnight Risks Can Be Quite Substantial
Most swing trading positions are left open overnight on the foreign exchange market. This means that they are at risk from unpredictable market movements. You can place positions in the market one day and wake up the next to find them stopped out because trends changed drastically through the night. This is something that you should take into account if you choose swing trading.