A Beginner's Guide to Swing Trading Cryptocurrency
Introduction
There are many different trading strategies that may be used by beginner traders, but swing trading is a common one to use. Due to the manageable time horizons on which it's based, it is a convenient way of expressing opinions about the market. A swing trader is an investor who participates in most financial markets, including forex, stocks, and cryptocurrency. However, is swing trading the right strategy for you? Would it be better to start day trading or swing trading?
We will explain swing trading cryptocurrency in this article and help you decide if it is the right choice for you.
What is swing trading?
Trading swings is a trading strategy in which the trader tries to capture price changes that are happening on a short-term or mid-term basis. Swing trading is the process of catching market "swings" as they unfold over a period of several days to a few weeks. Trending markets are most conducive to swing trading strategies. If a trend is strong on a longer time frame, swing trading opportunities can be plentiful, allowing swing traders to take advantage of larger price swings.
Compared to swing trading, it can be more difficult to engage in swing trading at a time when markets are consolidating. Moreover, if the price changes are small in a sideways market, it is harder to capture significant price changes.
How do swing traders make money?
It has already been stated that swing traders aim to take advantage of price swings that can last a short time to several weeks. Thus, swing traders will hold positions for a longer period of time than day traders, but for a shorter period of time than investors who buy and hold.
swing traders rely on technical indicators to generate trade ideas in order to make their decisions, although they might not rely on it as much as day traders. Swing traders can also use fundamental analysis as part of their trading framework in order to take advantage of fundamental events that can play out over weeks.
It is still very common to identify trade setups by looking at price action, candlestick patterns in charts, support and resistance levels, and technical indicators. The most popular swing trading indicators are moving averages, the Relative Strength Index (RSI), Bollinger Bands, and the Fibonacci retracement tool.
The swing trader will typically be looking at charts of medium to high time frames. Why is it? An uptrend or downtrend must be confirmed on a longer timeframe in order to be considered a strong trend. Nevertheless, they may also look at intraday time frames, such as the 1-hour, 4-hour, 12-hour chart, to see if they have any good entry and exit points. As an example, a breakout or a pullback on a lower time frame can be one of these triggers.
For swing trading to be successful, however, it is probably best to use the daily chart. However, trading and investment strategies may differ significantly across traders.
Day trading vs. swing trading – what's the difference?
Day traders are primarily concerned with short-term price movements, while swing traders are interested in long-term price movement. There are actually several elements that make day trading a more active strategy. To start, traders have to monitor the market constantly, and they don't leave positions open for any longer than a single day.
Meanwhile, swing trading can be referred to as the opposite of day trading. Swing traders are generally more passive. As long as they have the goal of profiting from price movements that are viewed as taking longer to play out the way they want, they can monitor their positions less often. Since swing traders tend to make larger moves, they have a good chance of bringing in sizable amounts of money from even just a handful of successful trades.
Most day traders will seek to use technical analysis almost exclusively in their trading decisions. A swing trader typically combines technical analysis with fundamental analysis, but tends to stress the technical analysis more than the fundamental analysis. In the other end of the spectrum, there are investors who make all their investments based solely on fundamentals and do not consider technicals at all.
Is swing trading or day trading better for you? Well, how would you describe your position on this spectrum of shorter to longer time frames, and technicals versus fundamentals? By answering these questions, you will be able to discover what type of trading strategy works best for your personality, trading style, and investment objectives.
The best way to decide your trading style is to think about your strengths and select the one that enhances those strengths the most. Many people prefer to be able to get into and out of their positioning quickly so that they will not have to worry about open positions as they sleep. Other traders make better decisions when they have more time to think about all possible outcomes and to elaborate on their trading plans.
Naturally, you could switch between different strategies in order to determine which one is the most effective. It is possible to perform paper trading (i.e., trading with fake money) before you implement the strategies into your actual trading plan.