Swing trading cryptocurrencies is catching on with investors. It’s a way to seek profit from price movements over a time frame shorter than long-term investments in value stocks but longer than single-day trading.
Success in swing trading hinges on market and price volatility, and there’s plenty of that in crypto. However, many find swing trading less stressful compared to the always-hyper day-trading industry.
Are you the kind of investor who might profit from swing trading crypto? In this post, Gorilla Trades defines swing trading, explains how it works with crypto, and offers some strategies and rules of thumb that may guide your way. You’ll also learn of the risks and potential rewards of swing trading crypto.
What Is Swing Trading?
Swing trading is a little like day trading’s older, more patient sibling. In day trading, investors buy and sell various securities within a single day to capitalize on short-term price movements. It’s a high-risk strategy that requires quick actions and constant monitoring of the market.
Like day traders, swing traders also seek profits from price movements, but their actions are spread over several days or a few weeks. These traders hold onto commodities for a while instead of exiting all positions when the business day ends. Though swing trading is riskier than buy-and-hold investing, it’s less precarious than day trading.
Technical analysis and trend-spotting are big parts of swing trading. With a longer time frame, swing traders can look for relevant trends to develop.
What Is Cryptocurrency Trading?
Crypto traders buy and sell stakes in Bitcoin and other digital currencies to capitalize on their changes in value. The crypto marketplace runs 24 hours every day, so traders get real-time reports of market movement.
Crypto trading is driven by the highly fluctuating value the currencies are known for, which makes it perfect for short strategies like day trading and swing trading. But with its longer time tail, swing trading gives investors the chance to capitalize on profits in a more relaxed, far less stressful manner.
How Does Swing Trading Cryptocurrencies Work?
As with other investing strategies, effective swing trading involves analyzing data to look for profitable opportunities. With cryptocurrency, the trick is estimating where a coin’s price may be headed.
Technical indicators like support and resistance levels, momentum indicators, and trading patterns are some of the first things swing traders consider in crypto investment. Since swing trading profits are tied to price fluctuations, investors must take risk management seriously.
After entering into a crypto position, the investor uses their favored tools and strategies to predict price movement. Many use stop-loss orders to minimize losses from falling currencies and take-profit orders to sell when prices are high.
Like day traders, swing traders only hold onto positions for a limited time. When they exit the crypto position, they move on to the next investment.
Common Swing Trading Strategies and Indicators
To successfully trade cryptocurrencies for profit, investors use a few popular strategies that help them gauge where prices might go. Again, technical analysis is the motor of all these strategies, and swing traders have a little more time to incorporate them. Here are a few.
Support and Resistance Lines
Support and resistance lines depict the prices at which a security is about to reach a tipping point. Support lines indicate a point where the price should stop declining and is primed to bounce back up. Resistance lines are the opposite; they show where investors believe the price will stop rising.
Interpreting support and resistance lines may be the most important skill that swing traders in cryptocurrency can develop.
Bollinger Bands
Investors use Bollinger Bands for a more robust indication of how crypto value will move. Three components to each band indicate when a commodity is overbought and oversold, as well as how volatile price movement has become.
When there’s less price movement as shown by the middle band, this may be a good point to buy in — something big may be coming.
Trend-Spotting
Knowing where a trend is going is difficult in cryptocurrency, but certainly not impossible. Experienced traders use trends they’ve seen in the past to gauge where crypto is headed and where the price point will land, which helps them find optimal entry and exit points.
This is one advantage swing traders have over day traders: They have time to watch prices develop.
5 Rules for Swing Trading Cryptocurrencies
Many investors follow five rules of thumb when swing trading cryptocurrencies.
1. Analyze the Current Market Situation
Look for indicators related to the cryptocurrency you’re interested in: volatility, market share, value ratios, 20-day simple moving averages, and so forth. Buy bull-market dips and exit strategically in bearish conditions.
2. Enter Into Crypto Positions Incrementally
Don’t come roaring out of the gate in cryptocurrency. Make smaller investments to test your strategy. Cost-averaging is a strong tactic here. Take time to establish what your best entry point will be.
3. Get Out of Crypto Positions Incrementally
Working out of a position gradually rather than all at once is another risk mitigation technique that swing traders employ. When it’s a bull market, traders can cash in for profits and still have capital for other investments. But in bear markets, full cash-ins may be necessary to limit losses.
4. Drop a Strategy if It’s Failing
While patience is a virtue, if a strategy you’re following is producing results that wildly counter what you expected, stop using it. Especially if you anticipate further drops, it’s much better to cut your losses than wait for a resurgence that may never come.
5. Trade the Chart, Not the Media Headlines
Price charts are richly detailed and account for every price movement, no matter how small. These are called “leading indicators.”
Media reports, on the other hand, are lagging indicators; they describe events that have already happened. Before the news breaks, investors have already accounted for the latest events and pushed price gains. Play the hard data you have, not the info that’s already been watered down.
Why You Should — or Should Not — Swing Trade Cryptocurrency
Crypto values are volatile, and swing traders earn their keep by jumping on certain price movements. The best type of swing trader is calm, rational, and stable. They live by technical and fundamental analyses and are comfortable with moderate risk. They also don’t have to stay on top of everything going on to be successful since they have a little more time to work with.
Someone nervous about market volatility may not be right for swing trading. Trades are held overnight, and crypto assets are subject to breaking news and unexpected value changes. With the longer time frame of a swing trade, investors may not know how they’ve fared for days or weeks after the transaction, which can make some skittish.
Best Trading Platforms for Cryptocurrencies
While more brokerage platforms are handling crypto trading, consider starting with one that has a strong focus on cryptocurrency and alternative investments. Coinbase focuses exclusively on crypto and is an especially good platform for beginners. Kraken and Gemini have features that appeal to experienced investors.
Mobile apps oriented to some form of cryptocurrency trading include Robinhood, Interactive Brokers, Crypto.com, and KuCoin.
Ready to Take a Swing?
By swing trading cryptocurrencies, an investor could realize profits from market volatility without the constant pressure that’s a big part of day trading. Be thoughtful and disciplined about your research and motivation to reap the rewards.
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