22 November 2022 • 9 min read
Given the many ways to buy and sell cryptocurrencies, you might be wondering whether swing trading crypto is profitable. Or perhaps you’re interested in the best cryptocurrency for swing trading. Or maybe you’re just curious about swing trading itself—what it is and how to do it.
The good news is that swing trading is popular with investors of all skill levels, meaning that beginners often find significant success when experimenting with it and even adding it to their trading strategy toolkit, while seasoned veterans might benefit from approaching swing trading with fresh eyes.
In fact, pairing swing trading with automated algorithmic trading bots can be an excellent way to leverage the power of artificial intelligence and machine learning for short- and long-term trading gains. As regular readers of our blog will know already, manual trading is guaranteed to result in losses, which is especially true with trading strategies with shorter time frames, making crypto trading bots absolutely essential tools.
In the following article, we’ll explore the basics of swing trading crypto before delving into some of the finer points, such as the benefits and drawbacks, how to get started, common swing trading strategies, swing trading risks, how it compares to day trading, and whether it’s a profitable approach to trading in general.
A basic truism is that markets move in cycles, fluctuating up and down based on a variety of factors. Now let’s say that, as a trader, you’d like to benefit from some of those short- and medium-term fluctuations or “swings” in an asset’s price. In this case, we’re talking about fluctuations that occur over a few days to a few weeks.
Anything shorter is referred to as day trading, which we’ll cover in more detail later in this article. Anything longer is a buy-and-hold strategy otherwise known as HODLing or position trading, which by definition isn’t actually trading. Swing trading, then, occupies something of a middle ground between day trading and a buy-and-hold strategy.
Since swing trading is a shorter-term strategy, traders often combine technical analysis with fundamental analysis in order to gauge the best trade entries and exits. The key is to know how to combine technical analysis and many of its indicators with fundamental analysis in order to identify and predict price movements for optimal trade entries and exits.
We’d be remiss if we didn’t first describe some of the ways in which traders can benefit from swing trading as well as some of the strategy’s possible pitfalls. After all, a simple tally of pros and cons can inject your decision-making process with a healthy dose of objectivity, making it easier to reach a more informed decision.
Time: Day trading takes time, and time is money. Swing trading, on the other hand, doesn’t necessitate you spending hours glued to your screen since positions are held for longer than a day.
Stress: You already know that stress kills, and day trading is stressful work. By entering a position and establishing a stop-loss order, swing trading allows you to concentrate on other important things in life. Serenity now.
Simplicity: Rather than spending time on fundamental analysis and establishing intrinsic value, technical analysis indicators allow you to focus strictly on price and volume.
Agility: Unlike position trading in which you are committed to longer periods of time, swing trading allows for fleet-of-foot traders to buy or sell for small gains or small losses in order to optimize their strategy at any given time.
After-hours risk: Traders need to deal with overnight and weekend market risks.
Seesawing: More generally, given their inherently volatile nature, crypto needs to be watched consistently in order to ride trends or avoid abrupt market reversals, which can result in unexpected losses.
Missed opportunities: Making moves is all well and good, but short-term market moves can sometimes mean that swing traders miss long-term opportunities.
Now that you know some of the strengths and weaknesses of swing trading, let’s take a look at some of the next steps in terms of getting started.
In order to get started with crypto swing trading, one of the most important steps is to select an exchange on which you wish to trade. The best overall choice for a majority of traders is clear in this respect: Binance.
Since it’s the largest and arguably most popular centralized crypto exchange in the world, Binance offers an array of options as well as considerable flexibility for beginners and intermediate traders. Users can take advantage of a large number of market pairs (in this case hundreds), futures, margin trading, and leverage, among many other features, which are often ideal for swing trading.
And since Binance and Trality are completely free to use, traders can open accounts quickly and easily in order to create an automated Binance crypto trading bot, which ensures consistent, reliable, and profitable trading, even during the most challenging of market conditions.
There are a number of tools in a swing trader’s toolbox. Chief among them are technical indicators, which can either be leading or lagging (momentum indicators, trend indicators, and volatility indicators, among others). The consensus among crypto traders is that indicators such as Exponential Moving Average (EMA), Bollinger Bands, Relative Strength Index (RSI), and the Fibonacci retracement tool are the most popular and useful when swing trading crypto.
Swing traders are particularly interested in support and resistance levels, which makes the ability to read and interpret candlestick patterns and crypto charts especially important. Generally speaking, crypto swing traders can employ a number of different approaches, from trying to catch and ride an uptrend to buying the pullback (or retracement or consolidation).
Curious beginners along with more advanced traders interested in some of the best indicators and trading strategies for swing trading crypto should consult our dedicated article on the subject.
As with everything in the crypto space, there are no one-size-fits-all solutions, and so it’s virtually impossible to say whether any one particular crypto is the best one for swing trading. Ultimately, there are many different reasons that a trader may choose to swing trade, with a number of additional variables. The simple fact is that some coins may be a better fit than others given those reasons, which will obviously vary.
However, as a general rule, Bitcoin (BTC) is often seen as an ideal entry into swing trading, with Ethereum coming in a close second. Of course, traders can also try their hand at swing trading altcoins, but they should bear in mind that the risk is far greater, particularly when smaller coins are involved.
As with so many things in life, timing is everything and the same can be said for swing trading (or any type of trading, for that matter).
Generally speaking, swing traders work with four-hour charts (4H) and daily charts (D1), but can obviously employ weekly charts, too. One of the benefits of using daily charts is that it avoids the possibility of curve fitting your strategy, which is to say tailoring your strategy based on historical data rather than actual market conditions. Lower time frames will result in the increased randomization of data, which can lead to more difficulty with regard to making reliable price predictions.
The simple fact is that there is no “best” time frame, or anything else within the crypto space, since so much depends on a trader’s individual needs, aptitude, goals, experience levels, etc.
With millions of people actively swing trading crypto daily, the answer is obvious (otherwise why would they continue doing it). But that’s not to say that it’s easy or a quick way to turn a profit.
Given its many moving parts, swing trading requires a sound understanding of fundamental analysis, technical analysis, market dynamics, and tokenomics as well as a more advanced knowledge of swing trading indicators and strategies.
But this shouldn’t dissuade new traders from exploring swing trading. The underlying principles are easy to grasp, but the mechanics of swing trading profitably can (and often does) require a fair bit of knowledge, experience, and, to be perfectly honest, trial and error.
While practice might not necessarily make you a perfect swing trader, it will make you a more profitable one, which is why backtesting and paper trading are so important when getting started.
Since positions are held for a shorter period of time, the level of risk is mitigated to an extent. Nevertheless, there are risks of which traders should be aware when swing trading. The biggest concern is well-timed trade entries and exits. Too soon or too late can mean the difference between a profitable trade and a significant loss, which is why it’s imperative to use technical indicators to your advantage when determining optimal trade buy and sell points.
A stop-loss order is an especially important tool for managing risk when swing trading. As its name suggests, it stops a trader’s losses when a coin’s price reaches a certain level. Think of it as an emergency brake. As a trader, you know exactly how much of your capital is on the line and the precise limit of each position. Incidentally, Caroline Ellison, the former CEO of Alameda Research, bragged about not being a fan of stop-loss orders. ‘Nuff said.
In a word? Stress. Day trading—whether crypto or otherwise—is extremely stressful. If you prefer to look older than your years, then day trading just might be for you. In all seriousness, though, day trading requires a great deal of skill and experience and can certainly be profitable, which is one of the reasons why many traders are in fact day traders.
As mentioned earlier in the article, day traders try to capitalize on intraday movements, typically based on momentum and market news. Market monitoring throughout the day is a must, especially in a market as volatile as crypto, but it’s also time consuming. Casual traders or those new to trading simply won’t have the time, tools, or expertise to trade efficiently and effectively as day traders.
What happens, say, when a new day trader encounters short-term momentum, which then triggers positions against the larger overall trend? Losses can mount up fairly quickly for the uninitiated, which is why, under such circumstances, day trading is best left to the professionals. In other words, one of the main differences between day trading and swing trading is risk, with day trading being the far riskier strategy of the two.
Swing trading, on the other hand, will be (and is) inherently less risky precisely because positions are held for a longer period of time (but not too long). Along with reduced risk comes reduced exposure of a trader’s money, which can be used for larger moves. A 8% increase on intraday trading is far more difficult to achieve than a 8% increase averaged out over a two-week period, for example. And less exposure and less capital committed mean that the swing trader can concentrate on longer-term profits without the inherent risks and worries of day trading.
However, it’s also important to note that day trading and swing trading are not mutually exclusive. A day trader can take an intraday position, but the trader may then need to maintain it for an additional day or more in order to make a profit. Alternatively, a day trader can stay in a position for too long in an attempt to reverse losses, effectively becoming a swing trader or even a position trader.
There are many benefits to be had from swing trading, making it a popular trading strategy for traders of all levels.
Unlike intraday trading, for example, you don’t have to be glued to your computer throughout the day watching positions and price movements. One of the knock on effects is that you’ll have lower stress levels as a trader. Also, when using technical analysis indicators, you can focus your efforts on price and volume rather than some of the more challenging aspects of fundamental analysis. And since swing trading occupies a middle ground, you’re not committed to long positions, offering more flexibility than HODLing.
Still, swing traders share a common set of characteristics. They know markets inside-out; they are skilled in technical analysis and fundamental analysis; they keep an eye on stop loss; and they don’t over complicate matters.
If you do decide to add swing trading to your trading strategy, always remember the golden rules: never risk more than you can afford to lose and always do your own research.