Swing trading is a common type of trading technique that can be a good starting point for beginners in the world of trading. It’s a reasonably convenient option to learn and share opinions about market trends due to the flexible and more manageable timelines involved. The majority of swing traders are active in a diverse range of financial markets, such as cryptocurrency, stocks, and forex.
Do you want to venture into swing trading? In this guide, we’ll describe everything you need to know regarding swing trading cryptocurrencies and help you identify whether it’s the perfect trading technique for you.
Definition of Swing Trading
As mentioned, swing trading is a trading technique that involves trying to hold a price position for an extended period. Hence, it can either be held within a short to medium time frame specifically a few days to a couple of weeks. The concept behind swing trading is to capture market “swings” within a given time frame.
That said, swing trading techniques perform best in trending markets. If a strong trend on a longer time frame exists, swing trading opportunities are abundant. As a result, swing traders can take advantage of better and bigger price swings. On the contrary, swing trading may be more challenging in a consolidating market. Lastly, if the market trend is moving sideways, it’s more challenging to hold large price fluctuations.
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Pros and Cons of Swing Trading
In a nutshell, swing trading techniques are typically driven by technical analysis. Swing traders apply their techniques in trending markets and even changing market conditions. As a start, a swing trader’s focus must be on a short time frame when identifying their swing trading rewards and risks.
Before anything else, beginners must evaluate if swing trading is suitable for them. That said, we highlight the pros and cons of swing trading relative to day trading.
- Swing traders can focus on technical analysis.
- Swing trading can capture the extreme upward and downward swings in price action.
- Swing traders aren’t required to devote more time to trading.
- Swing trading doesn’t have similar leverage to day trading.
- Swing traders can experience sharp market reversals that result in big losses.
- Swing traders increase their risk by holding price positions for extended periods.
Now that you already have a brief overview of what swing trading is, let’s discuss some of the concepts you want to learn so you can jumpstart your venture as a swing trader.
How Do Swing Traders Earn Money?
As described, swing traders capture price swings that occur from a specific number of days to a few weeks. That said, swing traders hold positions for an extended period of time compared to day traders; however, less than buy and hold investors.
Swing traders often use technical analysis for generating trade ideas; however, it’s not entirely the same range as day traders. While fundamental occurrences exist for weeks, swing traders can also utilize fundamental analysis in their trading structure.
In addition, technical indicators, support and resistance levels, candlestick chart patterns, and price action are some of the frequently used identifiers for the trade setup. Speaking of trade indicators, the Fibonacci retracement tool, Bollinger Bands, Relative Strength Index, and moving averages are some of the commonly used indicators by swing traders.
Swing traders generally look at medium to high time frame charts. The reason? A strong downtrend or uptrend has to be established on a higher timeframe. However, swing traders can also look at intraday time frames, including 12-hour, 4-hour, and 1-hour charts, for identifying particular entry and exit points. For example, the triggers can either result in a breakout or a pullback on a lower timeframe.
Lastly, the most crucial time frame for swing trading is the daily chart. However, investment and trading strategies can differ significantly between one swing trader from the other.
Swing trading strategies are a short-term trading style that makes the most out of an asset’s ebbs and flows. Using filters like ZigZag, swing traders can identify if an asset’s profit can accumulate 10%, 5%, 3%, or 1% moves.
In addition, a diverse range of trading strategies can work best with swing trading. Some of these trading strategies include:
- Mean Reversion
- Trend Following
Before starting, beginners must test out their swing trading strategy using a demonstration account method or paper trading technique. Once your specific strategy yields better results, you can start trading using real capital or assets. In addition, a demo account or paper trading account helps swing traders identify if the market liquidity or bid-offer spread lets you implement your strategy effectively. The majority of swing traders use technical analysis. Also, you can use a discretionary overlay.
Swing trading techniques are similar to day trading. The sole difference is that, with swing trading, you can hold your position between a few days to several weeks. The greatest advantage of swing trading is that traders don’t have to monitor the markets 24/7 for every trading day since your time horizon might not culminate in that specific trading day.
On the contrary, the biggest drawback of swing trading is that swing traders will encounter additional risks, including overnight reverses and market gaps that might result in bigger losses.
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Also, the influence that you can have when swing trading is less compared to day trading’s purchasing power.
Lastly, the easiest method to find out whether you should venture into day trading vs. swing trading is to try them out for yourself. Hence, firsthand experience provides the clearest results regarding which trading style suits you best. In addition, it’s essential to explore the different risk management principles before starting your venture. As such, you can learn more about proper position sizing methods, and stop-loss techniques.