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Swing trading is a good technique if you are new to the scene. The general idea is whether you apply it to markets such as forex, stocks, or, as we are interested in: cryptocurrencies.
Here we will explore this trading technique in the context of cryptocurrency and how traders make money. Finally, we will look at some tips and tricks to help you get started!
What Is Swing Trading?
This strategy essentially aims to take advantage of cryptocurrency’s short/medium-term price moves on the markets. These moves are referred to as “price swings,” generally occurring over several days or a couple of weeks.
It is ideal for trending markets that exhibit strong trends in a higher time frame. It is much trickier in a consolidating market, where sideways price movements are much harder to take advantage of.
In cryptocurrency, swing trading refers to the buying and selling crypto in stages after a certain degree of price movement in the charts.
This strategy is perfect for crypto traders who cannot dedicate hours to chart monitoring.
How Do Traders Make Money?
Swing traders take advantage of crypto price movements using technical analysis and fundamental analysis trading strategies.
Technical analysis involves assessing the historical market data of your cryptocurrency of interest. Traders use historical market trends to extrapolate market behaviours in the future, i.e., technical analysis is used to predict price movements.
As a practice, Fundamental Analysis aims to determine if an asset is undervalued or overvalued at its current price. Fundamental analysis is when traders focus on the cryptocurrency’s actual value, referred to as its “fair market value.” The fair market value is determined using quantitative and qualitative factors, including market capitalisation.
Their Role In Swing Trading
The fundamental analysis becomes particularly useful if the swing trade plays out over a couple of weeks, as fundamental events often play out over a similar time frame. Technical analysis is more helpful in informing day-to-day decisions.
However, the most successful swing traders combine these strategies to time their moves optimally. This way, they can capture large price swings and avoid idle periods.
Typically, they will study medium-to-high time frame charts, as solid uptrends or downtrends are generally confirmed on these charts. When timing a trade exit or entrance, traders should study intraday time frames, e.g., the 1-hour, 4-hour, and 12-hour charts.
Traders should consider the price action, candlestick chart patterns, support and resistance levels, and other technical indicators when timing a trade. Useful indicators for swing traders include:
- Moving averages
- Relative Strength Index (RSI)
- Bollinger Bands
- Fibonacci Retracement Tool
Swing Trading Differs from Day Trading
At this point, you might think swing trading sounds a lot like day trading. While they use similar indicators, they are distinct from one another.
Day traders never leave positions open for longer than a day. They must actively monitor the markets throughout the day because they hope to capitalise exclusively on short-term (daily) price movements. These traders only use technical analysis to inform their decisions.
Swing traders can more passively monitor the markets because, generally, the swings in price that they hope to capitalise on occur over a longer period than a single day.
As mentioned above, swing traders use a combination of technical and fundamental analysis strategies, though sometimes more emphasis is placed on the technical indicators.
Swing Trading: Some Tips & Tricks
Plan, Plan, Plan
Make sure you have clear goals in mind when you begin. Your goals will help you create your plan, and your plan will help you achieve your goals!
A good plan should include the following:
- The entry prices you are willing to invest
- The rates at which you will take profits out
- Stop-loss rates
Take the time to write out your plan. Keep revisiting and revising it as you learn or as the trading environment changes.
Carefully Choose your Crypto
There are thousands of different cryptos to choose from, almost 9,000 to be exact. When deciding on a currency, you must consider which best suits your needs and skill sets.
As a general rule of thumb, your best bet is to go for cryptos with the largest market capitalisations. In other words, go for the most actively traded coins.
- Bitcoin (BTC)
- Ethereum (ETH)
- Binance Coin (BNB)
- Tether (USDT)
- Cardano (ADA)
Generally, the more active coins swing very high and very low. Traders can use this level of volatility to their advantage by switching from one side of the trade to the other as the price swings.
Use A Trustworthy Exchange
You want to choose an exchange platform that is secure and reliable. The most popular exchanges will be your best bets, so check out the number of users on each.
From there, look at user reviews and then consider security features, trade volumes, and transaction fees when deciding on the right platform.
Don’t Invest More Than You’re Willing To Lose
While it is always a good idea to go into a trade with a positive attitude, it would be silly not to consider the risks associated with swing trading.
If you want to profit big, you will have to take risks. These risks need to be calculated and never ruled by emotion. If your livelihood rests on the outcome of your trades, your emotions might cloud your judgment.
To stay clear-headed, only invest funds you can afford to lose, i.e., money left over once you have taken care of all your essential payments.
Utilise Those Stop-Losses Smartly
So, you’ve planned thoroughly, researched, and are confident in your trading abilities. Wonderful! But don’t get so confident that you get rid of that safety net!
Make sure you utilise the stop-loss tool built into your exchange platform. This will prevent any losses from getting out of hand and help mitigate some of the risks associated with swing trading.
Even the pros set stop-losses!
Don’t Sleep On Overnight Risks
Consider investing smaller amounts when you aren’t awake to monitor your trades. And be sure to set those stop losses while you sleep!
The markets can change drastically, so ensure you take every possible precaution.
Watch The Bitcoin Charts
This is irrespective of your cryptocurrency of choice. Bitcoin is the undisputed market leader, so the currency’s movements will influence what happens to the other currencies.
Keeping an eye on Bitcoin’s activity is valuable to stay on top of crypto trends and make well-informed trading decisions.
Stay Up To Date
The world of cryptocurrencies is constantly evolving. As such, trading strategies are continually being reconsidered and updated. Stay updated with trading trends and reports churned out by trading experts.
You are never too experienced in certain subject matter to learn something new; keep moving to reach your full trading potential.
For many, swing trading is the perfect way to get into the crypto game. The intermediate time horizons create an environment where trades can be made calmly and monitored easily.
Consider where your strengths lie when you question whether this type of trading is for you. Are you wanting a trade where you can get in and get out without worrying about the state of the markets when you are offline?
Or do you need more play time to better strategise on your next move? This is often the case for beginner traders, so swing trading might be the best first move if you are new to the scene.
Perhaps you don’t yet know where your strengths lie, so it might be a good idea to try paper trading. Paper trading is a feature offered by most exchange platforms through which you can participate in trades using fake money.
Use paper trading to switch up your trading strategies and see which you have the most success. This way, you can see if swing trading works for you without taking risks.
This trading technique perfectly balances fast-paced day-to-day trading and long-term buy-and-hold investors.
Traders need to familiarise themselves with technical and fundamental analysis strategies to time their trades to maximise profits.
Before you begin, plan well and consider which cryptocurrency or exchange platform works best for you. Ensure that each risk you take is carefully calculated, and stay on top of important trends!
Good luck and happy trading!