One’s success in crypto trading relies on choosing the right strategy. If you consider investing in crypto but get overwhelmed by constantly tracking the market price, cryptocurrency swing trading is the best trading strategy for you.
In this article we will discuss what crypto swing trading is, how it works, and whether it suits everyone.
Defining Crypto Swing Trading
In the traditional sense, crypto 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.
Pros and Cons of Crypto Swing Trading
Pros
Swing trading can be an excellent strategy to master and is ultimately not as demanding as other crypto investing strategies. In addition, there are other benefits:
- Longer term strategy — Compared to other forms of investing, there is no need to spend hours monitoring positions because trades can last days or weeks.
- Lower intensity — Many traders consider swing trading cryptos less stressful than day trading because of the longer timescales and lower frequency of investments.
- Trade part-time — Because of the above, it is possible to trade around your lifestyle and maintain a full-time job.
- Volatility — Due to the nature of swing trading cryptos such as Bitcoin, volatility is key. The cryptocurrency market is highly volatile, which can lead to substantial profits.
Cons
Unsurprisingly, swing trading cryptocurrencies can also present challenges both for the inexperienced and the professional investor:
- Overnight risk — Swing trading can lead to large losses because you are holding positions for longer than day traders. You also need to take into account any overnight swap fees.
- Price gaps — Some investors may experience price gaps when holding positions overnight or over the weekend. This can happen when developments and reports occur during the after-hours market.
- Market timing — Timing market swings can be tricky, even for the experienced investor, especially in the notoriously volatile cryptocurrency space.
How does Crypto Swing Trading work?
Crypto swing traders trade by concentrating more on the 1-hour to daily price charts. They often use the 4-hour to 24-hour charts to check the market trends and switch to smaller time frames to execute at the best possible price. The daily chart is also useful for the summary of intraday price movement. For example, if a crypto coin rises from its low till the end of the day, a bullish candlestick will reveal that the market was on an uptrend all day.
The lower timeframes show various market activities, while the larger ones, like the daily and weekly charts, provide a clear picture of the market’s overall trend; they filter out the noise. Thus, the higher the timeframe, the clearer the market information. The information you get will determine how you execute the trade.
Furthermore, you can employ both fundamental and technical analysis. Crypto fundamental analysis involves having broad information about a financial asset. In contrast, technical analysis involves using indicators to predict price direction in the cryptocurrency market.
Swing trading also requires employing both fundamental and technical analyses. Carrying out a fundamental analysis will help you gather broad information about the asset, like news and what people think of a coin at a given time. From this, you can judge a crypto asset’s market sentiment and medium and long-term potential.
Similarly, technical analysis can help you spot crypto trading opportunities. You can use technical indicators and tools to get more market information, previous trading activities, and significant price points. This will help to predict future market possibilities. A combination of fundamental and technical analyses often gives the best results when carrying out your analyses.
Tips before starting Crypto Swing Trading
If you’re completely new to swing trading, here are some tips you can try to get started.
1. Look for the right crypto to trade
Currently, there are over 7,000 cryptocurrencies on the market, according to Coin Market Cap. This means that you can pick from thousands of coins to trade. But how can you choose the most suitable coin for your trading needs?
In swing trading, cryptocurrencies with the largest market capitalization are considered the best options. These are often the most actively traded coins on cryptocurrency exchanges and marketplaces, like Bitcoin (BTC), Ethereum (ETH), and Tether (USDT), for example.
Swing traders witness these coins in active markets swinging either extremely high or low. They make the most out of these volatile cryptocurrencies by going on one side of the trade for a few days or weeks and then switching to the other when the price swings in the opposite direction.
2. Find a safe and reputable crypto exchange
After carefully choosing which cryptocurrency to use, pick an online exchange or marketplace that is secure and reliable. It would be better to check out its security features, number of users, trade volume, transaction fees or other charges, and other critical information that you need to know. This can help you decide whether a platform is right for your trading needs or not.
3. Choose the right moment
Since cryptocurrencies’ prices move unpredictably, it’s essential to be careful and wary of choosing the best time to trade. Because of the volatility in crypto markets, it’s not always easy to predict the next possible movements. A crypto’s price may be soaring right now, but no one can be sure if the momentum can be sustained after a few hours, days, weeks, or even months. Swing traders can take advantage of this “waiting period” to catch more opportunities for either short or long-term up or down movements.
4. Keep yourself updated on the latest crypto news and trading trends
Like any other innovation and business strategy, cryptocurrencies and trading approaches are evolving. That’s why it’s important to stay connected and updated about the latest trends and reports in the crypto sphere. Remember, learning never stops! And this can eventually help you level up your trading game in the years to come.
Final Thoughts
While it started in the stock market, swing trading has become one of the most common trading strategies in the crypto world. Swing traders typically stay in positions for a few days or weeks, depending on the individual trade setup.
Should you start swing trading or day trading? The easiest way to find out is to try them out both and see which one fits your trading style best. It could also be helpful to learn about risk management principles before you start, such as using a stop loss and proper position sizing methods.
