Traditional short-term trading methods, like Day Trading, involve a mandatory closing at the end of the trading session, which, on the one hand, minimizes risk, but at the same time reduces potential profit. However, there is a trading style that is called Swing Trading. Swing Trading is a cross between intraday trading and positional trading. It is considered one of the optimal trading styles for novice traders since the trend is relatively accurately predictable and the risk is minimal.
In this article, we will discuss all the noteworthy aspects of swing trading to help you decide if this style is right for you. Swing trading has been borrowed from the traditional market and works the same with cryptocurrencies.
What is Swing Trading?
Swing trading is a trading strategy that focuses on profiting of changing trends in price action over relatively short timeframes. The purpose of swing trading trades is to capture the price swing of the dominant trend. However, a profitable position can be held for several days, while the risk is quickly suppressed. Any trend consists of a movement phase in its direction and correction. The swing trader tries to enter a position in the direction of the trend after the completion of the correction when the momentum phase along the trend begins to develop. The target of the movement is usually the opposite trend line.
Classical swing trading is based on Technical Analysis, including graphical analysis, and analysis of the trading volume. Also, swing traders sometimes use indicator analysis, and also Fundamental Analysis since the news background and statistics may be the drivers that trigger the price momentum.
- Swing Trading activities are carried out by investors over a longer period (from 2 days to 2 weeks).
- Depending on the volatility of the asset, swing traders can make larger profits.
- A trader has significantly fewer risks against a long-term strategy.
- It is not necessary to use a large set of indicators.
A good strategy can determine your profitability, so it’s crucial to choose one that suits your trading style. Here are some of the most popular swing trading strategies and approaches:
- Breakout strategy. This strategy requires the use of indicators such as volume data and moving averages to identify a sudden uptrend signal in the market. A trader can enter a position as soon as the price overcomes the key resistance level and reaches its peak.
- Breakdown strategy. A breakout strategy involves exiting or opening a short position just before prices fall. This is essentially the opposite of a breakout strategy.
- Recovery strategy. A correction strategy looks for moments when the price is about to temporarily reverse. The RSI is a good indicator for this strategy as it can show the point at which prices begin to reverse.
- Reversal trading. A reversal trading strategy is used when a series of higher highs and higher lows revers into a downtrend consisting of lower lows and lower highs (or vice versa).
Swing trading tips
Each trader's mistake can bring a serious loss. Therefore, we recommend you familiarize yourself with some safety rules.
- Use the scaling method. It provides for an increase in the volume of open positions if the price goes in the right direction, and a decrease in volume, if the price goes in the opposite direction to the forecast.
- Follow the rule of risk/reward ratio. In theory, take profit should be equal to three distances to stop loss. You can change this ratio following your strategy and goals. But try to stick to your action plan.
- Adhere to the classic rules of risk management in terms of the level of risk per trade and the total risk. The level of risk depends on the ratio of the trade volume to the stop loss length.
- Be flexible. If the price goes in the wrong direction, and there is reason to believe that the forecast is wrong, do not be afraid to close your position without waiting for the stop loss to trigger.
- Control your emotions. Swing strategies are suitable for those who have patience and are not inclined to panic, without closing deals ahead of schedule, and who are not fond of aggressive trading and do not set a goal of multiplying deposits in a short time.
Swing trading cryptocurrency is quite profitable, but only if you are well versed in its concept and execution. It requires more patience and a less proactive approach, which is ideal for those who cannot devote their entire time to trading. However, for those who prefer a faster approach, day trading or scalping may be the best strategy. The volatile nature of cryptocurrencies requires swing traders to thoroughly analyze the market before taking any position. To achieve high trading performance, one will need a more in-depth market study and practice.