What is swing trading crypto?

What is swing trading crypto?

Robert McDougall 

January 9, 2024

Cryptocurrency

As a popular trading strategy, swing trading allows you to take advantage of an asset's price swings over a short time frame. Now, trading in general has both ups and downs. But at times, even small-scale activities in the trading world can expose you to great investment returns, especially in the highly volatile and unpredictable cryptocurrency market. 

Now, here's where swing trading crypto helps! By making quicker decisions, you can gain profits through short and medium-term trading activities. 

The major question now is — how does swing trading in cryptocurrency work? To help you, this detailed article will thoroughly take you through all the ins and outs of swing trading in the crypto market.

What is Swing Trading in Crypto? 

Swing trading focuses on purchasing and selling crypto relatively quickly, ranging from days to weeks. The profits in swing trading lie in the price shifts or 'swings.' Using technical analysis, you can decide when to buy or sell a cryptocurrency to make quick returns from these price swings.  

However, swing trading, like any other sort of trading, has risks, particularly the risk of overnight price changes. While you switch off your screen at night, with plans to resume your trading the next day, the value of your assets could take a sharp dive overnight. 

How Is Swing Trading Different From Long-Term Investment?

Long-term crypto investments are different from swing trading. You can refer to the table below to explore some basic differences between the two:

Header

Swing Trading

Long-Term Investments

Holding Duration

Cryptocurrencies are held for days or weeks.

Cryptocurrencies are held for months.

Trading Opportunities

You ignore long-term profit potential to make quick money.

You miss short-term profit opportunities and must wait a long period to generate larger profit from your investments.

Market and Crypto Asset Understanding

Swing trading crypto assets requires only the analysis of real-time hourly or daily price movements and market activity.

Understanding the crypto asset's history, development potential, and risks is essential to making wise, profitable long-term investments.

Profit Flow

You can seek profits by trading crypto frequently and in smaller amounts.

The profits in long-term investment can be slow and steady.

Time Required

Swing trading requires a lot more time dedicated to watching the charts. However, this is more thrilling as you stay engaged, looking for opportunities to buy and sell crypto.

Long-term investment doesn’t require much time at all, although some may find this boring. It allows you to invest and ride out the volatility while waiting for long-term profitability from your coins.

Participation in the Market

This trading approach requires you to watch every little movement of crypto assets to make the right decision at the right time before the next price movement begins.

You don’t have to be active in the crypto market at all times and monitor every little movement of your crypto asset.

Considering the table above, long-term investments in cryptocurrency involve keeping your holdings for months to years. While it is less risky — since you don't have to make instant trading decisions — long-term investments aren’t perfect either.

The biggest downside is you have to wait for quite a while to trade your cryptocurrencies. It also comes with the drawback of missing out on great investment opportunities while holding a certain cryptocurrency for the long run.

Furthermore, understanding a cryptocurrency's market worth and long-term growth potential is essential for profiting from long-term investments. Without it, you risk investing in a sinking ship. 

Swing trading crypto, on the other hand, allows you to make profitable trading decisions by assessing a crypto asset's short-term potential and movements on that specific day.

Pros of Swing Trading Cryptocurrency 

According to our research, some potential benefits you can explore through swing trading in the crypto market include the following: 

  • Swing trading can be done successfully in an hour or two per day, giving you enough time to work on other things without being glued to the screen all day. This eliminates the stress of chasing pips — the smallest possible value change based on the market activities — an acronym for percentage in point.
  • Once mastered, you can use technical analysis in swing trading to accurately predict price movements.
  • You can enter and exit from a particular trading position as soon as the market begins to turn.
  • Swing trading limits your monthly trading activities, allowing you to select and invest in only the best crypto trading opportunities.

Cons of Swing Trading

Some risks and drawbacks that come along with swing trading in the crypto market include: 

  • Because of the volatile nature of cryptocurrencies, if not careful, you can quickly lose money.
  • Swing traders often lose long-term trading and profit-generating opportunities in favor of short-term market movements.

Key Strategies for Swing Trading Crypto

Below are some strategies implemented by the best swing traders in the crypto world: 

Reversal Strategy

The reversal swing trading strategy emphasizes looking for changes in price momentum to anticipate a change in market trends. For instance, assume Ether (ETH) has been on an upward trend until it shows reversal signals. In this regard, swing traders can sell their ETH assets if the price falls below the support level. 

From what we found, some common technical analysis tools and indicators that help traders better implement the reversal strategy include: 

  • Moving Averages: Moving Average shows a crypto asset’s average price over a time period, allowing you to identify a trend’s direction and strength, along with potential reversal points.
  • Support and Resistance Levels: This indicator consists of horizontal lines that show where a crypto asset’s price is likely to bounce or break through. These lines help determine where you should place their entry and exit orders. It also helps determine your stop-loss and take-profit levels.
  • Candlestick Patterns: These patterns represent a crypto asset’s price action, revealing the market’s sentiments. You can analyze this price action to spot reverse signals.
  • The Relative Strength Index: Used to measure the momentum of a crypto asset’s price changes, enabling you to evaluate whether a cryptocurrency is overbought or oversold based on its RSI value. Here, an RSI value of 70 or above refers to an asset being overbought, whereas a value below 70 indicates oversold conditions.
  • Moving Average Convergence & Divergence (MACD): Helps explore the difference between two moving averages of prices, making it easier to identify when bullish or bearish momentum is high.
  • Bollinger Bands: These are technical indicators that measure volatility and market trend while allowing you to determine overbought and oversold market conditions through its upper, lower, and middle bands.

Trend Trading

This swing trading method focuses on capitalizing on the market trend, which can be upward, downward, or sideways. For instance, consider an uptrend in Bitcoin’s price. If this uptrend stays for several weeks, trend traders will observe this trend and purchase Bitcoin during this upward movement to capitalize on the gains before the trend ends. 

To profit from this trend — traders use tools like trendlines and rectangles that show the trend in a cryptocurrency’s price. Additional technical analysis indicators that can help you make better trend trading decisions include:

  • Technical Analysis Tools: They help you analyze a crypto asset’s price movements, trends, patterns, and indicators. TradingView and CoinGecko are some examples of technical analysis tools.
  • Fundamental Analysis Tools: These tools allow you to evaluate a cryptocurrency’s intrinsic value, potential, and quality by considering the asset’s technology, adoption, news, etc. Some examples of these tools include CoinMarketCap, CryptoCompare, etc.
  • Risk Management Tools: These tools help limit crypto trading losses and protect profits. It includes tools like stop-loss orders, trailing stop orders, and take-profit orders.

Counter-Trend Trading

Counter-trend trading or trading against the trend entails entering a trade when the price is through a slight correction or decline. As an example, consider the uptrend of ETH price for several days. In counter-trend trading, traders spot the signs of a slight pullback in ETH price and use tools to find support levels where its price could bounce back. The traders will buy ETH on this level, expecting a temporary reversal. 

For this, swing traders use the Fibonacci retracement tool,  a popular tool — and a personal favorite — among technical traders that helps identify strategic places for transactions, target prices, and stop losses. This tool is used with other trading indicators in counter-trend trading, including moving indicators, RSI, MACD, and Bollinger Bands.

Technical Analysis

Technical analysis uses market news and updates to predict market direction. What makes this swing trading strategy impactful is how it lets you use the market direction to determine the precise points at which to join and exit crypto trades. So, for example, a swing trader analyzes Bitcoin’s price chart and notices a strong uptrend amidst the news of BTC’s integration into a major online platform. 

This is where the trader analyzes BTC's price patterns, candlestick patterns, indicators, and chart data to determine their entry point in a trade. They look for a retracement to a key support level, anticipating further price rise. 

Likewise, when BTC’s price rises to a resistance level, the trader will exit the trade and secure their profits during this upward trend.

Tips for Successful Swing Trading in Crypto

Now that we've covered the fundamentals,  let's look at some key techniques — according to our research — for successful swing trading:

  • Have a Well-Defined Strategy: We found that most successful swing traders use a pre-planned trading strategy to manage their transactions and actions. This plan may include the pricing they desire to enter the market and the rates at which they’ll exit. Such detailed strategies help you to stay on track with your crypto asset’s market position and trade more efficiently.
  • Invest Only What You Can Afford to Lose: When swing trading, losing money is a real possibility. So make sure you only trade with money you can afford to lose. This doesn’t mean you shouldn’t take risks, but don't trade with money you can’t bear to lose, like your rent.
  • Use Stop-Losses: From personal experience, we recommend employing stop-loss tools to limit your trading losses. These tools assist in mitigating potential losses by automatically selling a cryptocurrency when its price hits a specified level that indicates loss on that crypto.
  • Stay Updated with Bitcoin and the Overall Crypto Market: Undeniably, BTC is the cryptocurrency market leader. Hence, its movements have a significant impact on all other cryptocurrencies. So staying updated with bitcoin activity, as well as the market activity of other cryptos, will enable you to make better trading decisions.

Conclusion 

Swing trading in the crypto market can be a smart way to bag instant returns. However – despite the short-term benefits – we suggest you carefully analyze the crypto market and the potential risks of trading due to the inherent volatility of cryptocurrencies. 

Proper risk management strategies like stop-loss orders, implementing a well-defined trading strategy, and keeping an eye on BTC and other crypto market movements can help you prevent potential losses during swing trading. To further strengthen your trading game and ensure long-term sustainability in swing trading, we suggest you go through our free crypto trading course. If you are looking for a crypto exchange to start swing trading, we suggest looking at this article of the best trading platforms.

We hope this detailed article answers all your questions about swing trading crypto, and prepares you to make some great trades, and large profits.


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