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What Is Swing Trading?

Read 6 min
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— Swing trading in crypto is a trading technique for traders to profit from short to medium-term price volatility of crypto assets.

— Swing trading is not for beginners; it’s a trading strategy that involves significant risk and should only be attempted by seasoned traders.

— While there are benefits of swing trading, there are risks such as; market timing risks, price manipulation impact, and avoiding long-term gains.

— Swing traders can aim to mitigate these risks with detailed research, defining their risk appetite, and setting up security checks like stop-loss orders.

Cryptocurrency markets can be highly volatile and prices can surge or plummet in the blink of an eye. 

While this unpredictability may deter some, traders recognize that this volatility also brings opportunities. Some digital assets exhibit clear patterns of upswings and downswings, offering traders a chance to profit from these fluctuations. 

One crypto trading strategy that capitalizes on these movements in the short to mid-term is called swing trading. 

Traders use swing trading strategies to analyze market trends and leverage price swings to generate returns during both bull and bear cycles. 

In this article, Ledger Academy breaks down the concept of swing trading, explains how it’s different from day trading, and helps you better understand how to trade crypto.

Let’s dive in.

What Is Swing Trading?

Swing trading is a trading technique used to cash in on short-term to medium-term price volatility in the cryptocurrency market. Traders buy in and hold their positions typically from a couple of days to a few weeks. There are also swing trades where traders hold their positions for a couple of months.

This technique revolves around the revered ‘volatility’ of the crypto market. This can be courtesy of a plethora of factors ranging from a simple tweet to blanket bans.

Swing traders aim to identify price movements in advance based on multiple macro and microeconomic factors. They then buy in and wait for the market volatility to play out in their favor.

Day Trading vs. Swing Trading: What’s The Difference?

Day trading refers to placing multiple trades in a single day to capitalize on the same-day price actions. That means traders enter and exit the day trades on the same day. Generally speaking, day traders make money from the number of winning trades rather than the margin of wins. 

Contrarily, swing trading is a more long-term approach to generating sizable returns from a price swing that can take weeks or months to play out.

3 Key Differences

Day Trading

Swing Trading

Time Frame: 

Trades last between a few hours to a day

Trades last between a few days to a few weeks or months

Analysis Type

Uses technical analysis with its charts and indicators to dictate day trading strategies

Uses both fundamental analysis (for the direction of price action) and technical analysis (for trade setup specifics)

Risk Factors

Crypto price volatility makes it harder and riskier to predict short-term price actions.

Price volatility is slightly easier to predict based on macro and microeconomic factors.

Crypto Swing Trading Strategies: How Traders Work?

There are four common strategies that crypto swing traders employ to execute their trades. Let’s check them out.

Riding Market Trends

This is a simple strategy that involves placing trades in the direction of the existing trends in the market. Essentially, swing traders will analyze trading volume to determine the strength of a trend. This dictates the price action potential and the timeframe needed to turn a profit.  

Buy the Dip 

Buying the pullback, or ‘buying the dip’ is a strategy that involves entering a trade after a temporary price decline within an established price movement direction. Put simply, if an asset is still increasing in value over a longer period of time, a swing trader will buy in when the price drops marginally. This helps traders maximize profitability in a prevailing trend.

Mirror the Market

As part of this strategy, traders try to follow where the money is in the market. This means they spot what assets short-term investors are trying to bet their money on to make profits. It’s easy to spot these instances in the money flowing in and out of altcoins.

Market Reversal Trading

This is a trading strategy that relies on trend reversals after an extended period of price movement in a single direction. One of the most common ways traders spot a trend reversal is when an asset’s candlestick price chart forms a Doji pattern.

Best Tools for Crypto Swing Traders

Swing traders employ a range of crypto trading tools to plan and strategize their trade setups. Apart from finding a reliable and safe crypto exchange to trade on, here are the tools that traders use.

Charting Tools

Trading charts represent the price movement of crypto assets over a period of time. Thus, charting tools are the  most basic requirement for swing trading. 

There are many types of trading charts, ranging from line and bar charts to candlestick charts. For complex price analysis, however, most traders prefer to use candlestick charts.

Technical Indicators

Beyond basic chart essentials, traders also use a wide range of technical indicators to analyze price movements and set up trades. These indicators act as visual representations of various aspects that affect the price movement of a crypto asset.

For instance, the support and resistance indicator shows the price range at which the buying and selling pressure is high. Then, an accumulation and distribution line indicates the volume of money flowing in and out of a cryptocurrency.

Market Data

Swing traders rely on both micro and macroeconomic factors to place their trades. Hence, alongside technical data, swing traders also use market data to build their strategies. This aggregates all relevant information like tokenomics, market capitalization, and trading volume of a crypto asset along with key industry news, policy developments, and more.

These 3 tools are prerequisites for any swing trader. Apart from the tools, it is also imperative for traders to know the risks of swing trading too.

Risks of Crypto Swing Trading

Nobody ever said trading was easy. The volatility of crypto market can be overwhelming, and there are some risks involved with swing trading. . Here are some risks you should be aware of:

Timing the market is risky: Crypto markets are infamous for major fluctuations within hours or even minutes. This may turn a winning trade into a loss-making one in no time. Besides, timing the market comes at the cost of having to be in front of the charts at all times. 

Market manipulation: Artificial money movements and coordinated pump and dumps can take a significant toll on a swing trader’s capital. Similarly, large capital players or whales can completely disorganize the market price of a small altcoin with a few trades.

Opportunity cost: Active trading runs a cost of avoiding long-term gains in favor of shorter price movements. Also, actively swing trading crypto requires holistic knowledge and experience in both technical and fundamental analysis.

You may, however, mitigate these risks by following some basic precautions such as; setting a stop-loss to limit losses, journaling trades to reflect on trading performance and avoiding emotional trades.

How to Start Swing Trading Crypto?

Understanding swing trading can help traders excel in the crypto market. However, it doesn’t end there. Traders should remain diligent by continuously studying, testing, and reviewing their strategies to enhance their trading performance.

Swing trading is not a one-size-fits-all solution, emphasizing the significance of conducting thorough research and comprehending the ins and outs of the approach. Traders need to personalize their swing trading strategies to align with their expectations, timeframe, risk appetite, and other relevant factors.

Additionally, when dealing with cryptocurrencies, self-custody plays a vital role. The principle of “not your keys, not your coins” holds true, highlighting the importance of having genuine ownership and control over private keys.

Luckily, maintaining complete custody of private keys doesn’t have to mean sacrificing convenience. If you’re an experienced trader looking to explore crypto leverage trading, swing trading, or crypto arbitrage, Ledger Live offers multiple tools and apps to help. However, it’s important to note that while this all-inclusive application can help you implement various trading strategies, that doesn’t mean it’s devoid of all risk. Crypto trading, by nature, is risky and trying to take advantage of an asset’s volatility may not always work in your favor. 

That said, with Ledger Live, experienced traders can confidently pursue their trading goals without compromising on security or ease of use. And all of this is possible while retaining custody of their private keys.

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