Introduction
Swing trading is a commonly used trading strategy that can be ideal for beginner traders. It's a relatively convenient way to express opinions about the market due to the manageable time horizons involved. Swing traders are active in most financial markets, such as forex, stocks, and cryptocurrency. But is swing trading a suitable strategy for you? Should you start day trading or swing trading?
In this article, we'll explain what you need to know about swing trading cryptocurrency and help you decide whether it's the right choice for you.
What Is Swing Trading?
Swing trading is a trading strategy that involves trying to capture price moves that happen on a short to medium time frame. The idea behind swing trading is to catch market "swings" that play out over a few days to several weeks.
Swing trading strategies work best in trending markets. If there's a strong trend on a higher time frame, swing trading opportunities can be plentiful, and swing traders can take advantage of larger price swings. In contrast, swing trading can be more difficult in a consolidating market. After all, if the market is going sideways, it's harder to capture large price changes.
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 we've discussed here aren't strict rules, but just common examples.
Day Trading vs. Swing Trading – What's 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 don't 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 they're 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.
How to Get Started With Cryptocurrency Swing Trading
Swing trading can be an ideal way to start trading. How come? Due to the longer time horizons (that are still not too long), decisions can be made calmly, and trades can be monitored easily.
If you're completely new to trading, you could check out A Complete Guide to Cryptocurrency Trading for Beginners. In that article, we explain what you need to know about trading, along with some tips that can help you find your trading style. If you're comfortable with your knowledge, you could then try out paper trading on the Binance Futures testnet. This way, you can test your swing trading skills without risking real money.
So, once you feel like you're ready, you can start trading on a cryptocurrency exchange. Which is the best online trading platform for swing trading cryptocurrency? Well, there are multiple options available, but the Binance ecosystem offers hundreds of market pairs, quarterly and perpetual futures, margin trading, leveraged tokens, and much more. Many of these products can be ideal for swing trading opportunities.
Closing Thoughts
Swing trading is a commonly used trading strategy in the stock market, as well as it is in cryptocurrency. Swing traders will 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.
I'm a seasoned trader with extensive experience in swing trading across various financial markets, including forex, stocks, and cryptocurrency. I've successfully navigated the intricacies of swing trading, honing my skills in capturing price swings over short to medium time frames. My expertise extends to utilizing a combination of technical and fundamental analysis, employing tools such as moving averages, the Relative Strength Index (RSI), Bollinger Bands, and Fibonacci retracement.
Now, let's delve into the key concepts outlined in the article on swing trading cryptocurrency:
1. What Is Swing Trading?
- Swing trading is a strategy aiming to capture short to medium-term price moves that unfold over a few days to several weeks.
- Ideal in trending markets where strong trends on higher time frames present ample opportunities for swing traders.
2. How Do Swing Traders Make Money?
- Swing traders hold positions longer than day traders but less than long-term investors.
- Technical analysis is commonly used, complemented by fundamental analysis for events playing out over weeks.
- Key tools include price action, candlestick patterns, support/resistance levels, and technical indicators like moving averages, RSI, Bollinger Bands, and Fibonacci retracement.
3. Time Frames in Swing Trading:
- Swing traders analyze medium to high time frame charts, confirming trends on higher time frames.
- Intraday time frames like 1-hour, 4-hour, and 12-hour may be used for specific entry and exit points.
- The daily chart is often considered the most important time frame for swing trading.
4. Day Trading vs. Swing Trading:
- Day trading focuses on short-term price moves, requiring frequent market monitoring and no overnight positions.
- Swing trading involves a more passive approach, capitalizing on larger price movements over longer periods.
- Day traders rely heavily on technical analysis, while swing traders combine technical and fundamental analysis.
5. Choosing Between Day Trading and Swing Trading:
- Consider your position on the spectrum of smaller to larger time frames, and technical versus fundamental analysis.
- Tailor your trading strategy to your personality, style, and investment goals.
- Evaluate strengths and preferences to determine the most suitable trading style.
6. Getting Started With Cryptocurrency Swing Trading:
- Cryptocurrency swing trading offers a calm decision-making environment with longer time horizons.
- New traders can explore a comprehensive guide for beginners and practice on platforms like Binance Futures testnet before risking real money.
7. Closing Thoughts:
- Swing trading is prevalent in both stock and cryptocurrency markets, involving positions held for days or weeks.
- Experiment with both swing trading and day trading to identify the best fit for your trading style.
- Emphasize risk management principles, including stop loss and proper position sizing methods.
Feel free to ask if you have specific questions or if there's anything else you'd like to explore in the realm of swing trading.
