The fundamental trading strategy can potentially generate a lot of profit and works with a multitude of asset types. Cryptocurrencies are the kind of assets you can swing-trade.
In this guide, we have explained the basics of swing trading in the context of the crypto ecosystem. We hope this helps you get the required jump-start in the domain.
What Is Swing Trading?
In the traditional sense, swing trading is a speculative trading strategy used by traders in different markets and various assets. The trader will hold the tradeable asset for anywhere between a few days to up to a few weeks.
That is different from day trading, where the assets are held for not more than a day, and trend trading, where a trader could have the assets for weeks, months, or years based on the market trends.
Because of the place swing trading occupies on the spectrum, it poses quite a few benefits and drawbacks. Understanding these benefits/limitations is important regardless of the asset you choose for swing trading. Considering how volatile and unpredictable crypto assets are, you should be extra diligent while planning to swing-trade a cryptocurrency or another investment.
Advantages of Swing Trading
Some of the reasons why traders prefer swing trading to intraday trading and trend trading are:
- Unlike intraday trading, swing trading does not require constant attention from the trader. While an average day trader may spend several hours per day in front of the desk, going through numbers, the swing-trader does not have to do that. Provided that the trader has done sufficient research before investing in the asset, swing trading requires a few hours of work every week.
- The amount of effort required for swing trading is also comparatively lower than day-trading. In most cases, traders will depend on Technical Analysis, using historical data and price charts to determine asset-management actions. That is a more comfortable option and does not require a massive amount of work from the trader.
- Swing trading any asset proposes better short-term profit potential. That is, when focusing on a well-curated set of assets, swing trading can generate a good amount of profit within a relatively smaller time-period. That is why swing trading is preferred by those who want to develop a monthly income from trading.
- Compared to intraday trading and long-term trading, swing trading provides better control over the market risks. We should also consider that swing trading wants you to check only fewer stocks instead of a couple of hundreds. As a result, the trader can use Technical Analysis and Fundamental Analysis to focus on the investments and make the right decisions.
Disadvantages of Swing Trading
These are some areas where swing trading requires a little more attention or discretion from the trader.
- Because of the extended holding period, assets involved in swing trading are subject to other market risks. For instance, the trade positions may drastically change overnight or during a weekend. That does not happen in intraday trading since the trader does not keep the asset overnight.
- Another limitation of swing trading is that it sometimes fails to notice the more prominent market trends. Since swing trading’s core idea is to hold the asset for a couple of weeks and get the maximum profit, the strategy does not consider potential long-term gains.
- While swing trading does not require as much time as day-trading, the trader needs to have a deeper understanding of the market. They would also need sufficient experience with Technical Analysis and Fundamental Analysis.
Now that we have seen the pros and cons of swing trading, shall we check out the different aspects of swing trading crypto assets?
Swing Trading Crypto
Swing trading tries to capture value differences in a medium-sized period and generate a profit out of it. When we bring this idea to the context of crypto assets, however, there are a few issues. The problems occur mostly because of the volatile nature of the crypto market as a whole. Bitcoin, the most popular crypto asset, is the best example of this.
For years, traders have tried to predict the Bitcoin asset’s growth patterns and generate some profit. However, almost every time, an unprecedented factor affects the price of BTC, causing the value to change drastically. Sure, there are stablecoins. However, the core idea remains more or less the same.
Therefore, you should pay attention to a few factors before Swing Trading crypto.
- Comprehensive Focus: In the world of crypto, you cannot focus on a single asset and gain profit. You may, after all, trade a single asset, but you should have a comprehensive understanding of the market at any time. Only then will you understand how the asset you have invested in interacts with other investments, including Bitcoin.
- Higher Risk: When you plan to swing trading crypto, you should be ready to lose what you invested. In other words, traders are often advised not to invest more than they can afford to lose.
How do swing traders make money?
As mentioned, swing traders aim to capture price swings that happen from a few days to several weeks. As such, swing traders will hold positions for more time than day traders, but less than buy and hold investors.
Swing traders will typically use technical analysis to generate trade ideas, though not necessarily to the same extent as day traders would do. As fundamental events can play out over weeks, swing traders may also use fundamental analysis in their trading framework.
Even so, price action, candlestick chart patterns, support and resistance levels, and technical indicators are very commonly used to identify trade setups. Some of the most common indicators used by swing traders are moving averages, the Relative Strength Index (RSI), Bollinger Bands, and the Fibonacci retracement tool.
Swing traders will typically look at medium to high time frame charts. Why? A strong uptrend or downtrend has to be confirmed on a higher time frame. But, they may also look at intraday time frames, such as the 1-hour, 4-hour, 12-hour chart, to look for specific entry and exit points. These triggers can be a breakout or a pullback on a lower time frame, for example.
However, the most important time frame for swing trading is likely the daily chart. Even so, trading and investment strategies can differ substantially between different traders. Note that what weve discussed here arent strict rules, but just common examples.
Day trading vs. swing trading – whats the difference?
Day traders aim to capitalize on short-term price moves, while swing traders look for larger moves. In effect, day trading is a more active strategy, where traders need to frequently monitor the market, and they dont leave positions open for more than a single day.
In contrast, swing traders can take a more passive approach. They can monitor their positions less frequently, as their goal is to profit from price movements that take longer to play out. Since these moves tend to be larger, swing traders can bring in sizable returns from even just a few winning trades.
Day traders will almost exclusively use technical analysis. Swing traders will typically use a combination of technical analysis and fundamental analysis, usually with a stronger emphasis on the technicals. On the other end of the spectrum, investors may not consider technicals at all and invest only based on fundamentals.
Which one is better for you, day trading or swing trading? Well, where do you see yourself on this spectrum of smaller to larger time frames, and technicals and fundamentals? Answering these questions will help you find what trading strategy suits your personality, trading style, and investment goals the best.
You could consider what your strengths are and choose the trading style that best magnifies those strengths. Some prefer to get in and out of positions fast and not having to worry about open positions when theyre asleep. Others make better decisions when they have more time to consider all possible outcomes and elaborate on their trading plans.
Naturally, you could switch between different strategies to see which one produces the best results. You could also do paper trading (i.e., trading with fake money) before implementing the strategies into your actual trading plan.
If you understand these aspects, you can think about the best ways to swing trade crypto. Make sure you choose a trading platform that offers on-time support and documentation to help you get started with swing trading other crypto trading strategies. You should also see if the platform allows you to choose between a decent variety of crypto assets from the market.
After all, diversifying your crypto portfolio is an effective way to keep things under control. But, then again, you need to spend more time on analytics. We hope we could help you learn the comprehensive concept of swing trading in the cryptocurrency context.