Swing trading Bitcoin or other crypto has been a popular way to profit from the crypto boom over the last few years. However, if you do not understand the key benefits and disadvantages, you may not be able to understand the best way to go about it. Swing trading crypto is a strategy where traders buy and hold crypto to benefit from expected price movements. This type of trading uses technical analysis to determine entry and exit points, which can be days or weeks apart.
Swing trading slows down the entire process compared to day trading, which is often fast-paced. This form of trading tries to capture the bulk of the trading action from peak highs to peak lows. They are trying to capture each “swing” in the market.
Depending on the trader and type of system, the gains can be smaller than a simple “buy-and-hold” strategy if a coin goes straight up. However, by mitigating drawdowns or even selling when the market falls, the gains can be much more significant – if the trader is successful. You can either trade in one direction – the more important trend, or back and forth. Think of it this way: If a cryptocurrency rises 11% for the year, it doesn’t do it in one move. There are times that the coin will rise and fall, and the swing trader is trying to either take advantage of each swing higher and lower or exit the markets when that coin increases too much and buy it when it dips. In theory, the returns should be higher than the original 11%.
How does Swing Trading Cryptocurrency work?
A swing trader will analyze patterns on a trading chart to determine when to buy or sell a coin to capitalize on price momentum and movements. Trends and indicators are closely followed as well to maximize profit. Like with any other trading style, there are some risks, but one of the biggest reasons to swing trade is to “slow the game down” and place more thoughtful trades, hoping to catch significant moves.
Is Swing Trading Crypto Right for You? To understand whether swing trading is for you, it is necessary to understand the pros and cons of the method. Swing trading is wildly popular but isn’t necessarily for everyone.
Advantages of Swing Trading Crypto
There are several advantages to swing trading crypto. The most crucial aspect that makes it attractive is that you are not “glued to your screen.” After all, it would be best if you traded to live, not live to trade. This frees up much time for other activities and responsibilities to be taken care of. The markets are easier to read on higher timeframes, as there is more time to analyze the market. The swing trader is trying to take advantage of more significant market swings, so the entries and exits do not have to be as precise as they may need for a very short-term trade. It is more about the overall direction of the market than anything else.
Another significant advantage of swing trading is that you can, in theory, benefit from moves in both directions and therefore increase your potential profit in a market.
Disadvantages of Swing Trading Crypto
As with any other type of trading, swing trading has disadvantages. The biggest thing is that you are jumping in and out of the markets, giving you more opportunities to make a mistake or misread the markets. A swing trader may miss long-term trading patterns in favor of shorter moves than longer-term traders. The markets can have sudden reversals, triggering stop-loss orders that you may not have in a longer-term “buy and hold” strategy.
Day trading vs. Swing trading vs. Trend Trading
The different types of trading available are generally labeled as “day trading,” “swing trading,” and “trend trading.” Certain situations overlap, and the following information should be considered a general guideline.
Day trading
- Traders are quickly in and out of trades, sometimes in as few seconds.
- Traders are entirely out of the market at the end of the trading day.
- Involves smaller time frames.
Swing trading
- Traders are focused more on technical analysis.
- Catching “swings” in the market for days or even weeks.
- Can be larger time frames.
- Doesn’t need to be monitored all the time.
- Can go back and forth in both directions.
Trend trading
- Trade with the longer-term trend only.
- Takes minimal effort after the initial analysis.
- Requires very little in the way of attention when the trade is active.
- Best thought of as “buy-and-hold.”
- Trades can last weeks, months, or even years.
How to Get Started with Swing Trading Cryptocurrency
To take advantage of swing trading opportunities, you will need to do a few things to make this type of trading available.
- Step 1. Sign up with a broker. The most important thing to keep in mind is what your goals are. If you are looking to benefit from price fluctuations, you are better off going through a CFD (contract-for-difference) broker. This is because you will be looking for opportunities, not transferring coins from one wallet to another, and worrying about custody. Also, keep in mind that with the typical wallet/exchange combination, you will have the lag time of confirming on the blockchain any transactions, which can cause you the ability to make a profit. Furthermore, you can “short” or bet on a price drop in the CFD markets.
- Step 2. Determine the markets you wish to trade. The markets you are looking to trade should be “paper traded” or practiced in a demo account to determine the best strategy. In this phase, you will be learning about technical analysis and the system that performs best overall.
- Step 3. Place your trade(s). This is where you put to work your strategies and hopefully benefit from your hard work. If it doesn’t pan out, you go back to step 2 to perfect things. Make sure you also practice money management, as you are now trading with “real money.”
Swing Trading Crypto Strategies and Tips
While the number of trading strategies out there is essentially unlimited, there are a handful of basic trading strategies people will employ when swing trading. Below are just a couple of the more common ones.
Catching the Momentum (Breakouts)
“Catching the Momentum,” or momentum/breakout trading is widespread. It is when a market breaks pronounced support or resistance level and starts to see momentum building in one direction. On the chart just below, you can see that Avalanche had been trading in a consolidation area marked by the pink rectangle for a couple of weeks. The market eventually broke and closed above there on the daily candlestick, opening up a move to the $125 level.
The trader will typically take a trade in the breakout direction, with a stop loss in the middle of the previous consolidation area. That means you would’ve had a stop loss at the $85 region and aimed for the next major resistance barrier, which is right about where it stopped.
Pullback and Continuation
One of the best ways to play an existing trend is to take advantage of value. While it’s easy to make that argument, very few traders seem to have the confidence to do so. While there are many different ways to measure this, simple candlestick analysis or Fibonacci tools can be used to see when a pullback from a previous trend may have ended, allowing the trader to enter the market with the overall pervasive direction backing them up.
On the chart below, The Sandbox fell significantly from a price of $7.00 down to the $2.50 area before bouncing. You will notice a Fibonacci tool drawn on the chart, with a pink circle showing the entry at the 50% Fibonacci level. In this scenario, you have let the market come back to show value, shorting this pair when you get not only to the 50% Fibonacci level but also, if you look to the left on the chart, it’s an area that was previously supported, thereby should be resistance. This began a run down to the $0.80 region.
Conclusion
Swing trading cryptocurrency is one of the favorite ways traders have learned to profit from the latest moves in the crypto markets. The trader will often employ technical analysis to determine when to enter and exit. The idea is to catch as much of each swing in the market as possible. Some traders will only swing trade in the same direction as the longer-term trend, so they are essentially looking for buying opportunities when markets dip and look to exit when they get overbought. (Or vice versa in a downtrend.)
There are many benefits to swing trading, not the least of which will be the ability to walk away from the computer and get on with life. The swing trader isn’t looking for just a few ticks in profit; they are looking for multi-day moves. Because of this, the trader will determine the stop loss level and the profit target. After that, the market does whatever it will do, leaving the trader to go on with their life.
Swing trading does take away the longer-term move, but if the trader can time the trades appropriately, they can often outperform the longer-term trend. However, if the timing is off, the trader might suffer significant losses, as they could constantly find themselves on the “wrong side of the market.” Swing trading is also easier to do due to the CFD market offered. This allows traders to speculate on the crypto markets without taking custody. This means you can do things quicker, with just a few button clicks.
FAQ: Frequently Asked Questions
- Is swing trading possible in crypto? Yes, it is. Swing trading is possible in almost every market.
- What crypto is best for swing trading? Any crypto that has a reasonable amount of history makes it possible. This is because most swing traders need to see potential support, resistance levels, and historical supply and demand zones to trade off from.
- Is crypto swing trading profitable? It can be. Swing trading is a great way to earn, assuming you can do it correctly and with skill.
- Which strategy is best for swing trading? The proper strategy is essential, but there is no “one size fits all” plan. Not only does it have to have a positive rate of expectancy, but a strategy also must be one that the user is comfortable using and, therefore, will be able to stick with it over the long haul.
- Is it better to swing trade or day trade crypto? For most traders, swing trading is better than day trading because it takes less time to monitor the markets. It is a much more efficient way of trading in that sense. Also, day trading has much noisy trading that may or may not be important. This tends to simplify the entire trading process.
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