Swing trading is the practice of holding onto a position for a few days, weeks, or even months and targeting short to medium-term profits. Swing trading can be applied to all financial markets including the cryptocurrency market. Technical analysis plays a crucial role in finding adequate positions, but fundamental trading can also assist traders with predicting market movements. The moving averages indicator (MA) and the Relative Strength Index (RSI) are two of the most useful tools to assist swing traders with their investments.
The general strategy of a swing trader is to enter a position with high potential for long-term growth and exiting when enough profits are accumulated. Swing trading is a great strategy for people who want to dabble in technical analysis and achieve a better understanding of market movements.
The stop-loss and take-profit limits are very essential for swing traders to manage the accumulated losses and gains, especially in a market as volatile as the crypto market. If there is no stop-loss limit, you have to wait for the market to make a comeback every day, a comeback that might take a long time to happen, and your aim shifts from making profits to only minimizing your losses.
Many swing traders use the risk-to-reward ratio to make decisions about their trading strategy. For example, risking $1 for a potential $4 profit might seem reasonable for a swing trader but risking $1 for $0.5 is usually not a rational decision.
Swing Trading vs Day Trading
The main difference between day trading and swing trading is the time frame in which a position is held by a trader. Swing trading positions are held on for a few days, weeks, or even months, while day trading positions are usually held for just a single day. Day trading extracts more activity and monitoring from the trader since the positions are only held for one day. Swing trading, on the other hand, requires less frequent monitoring of the positions and if executed correctly, has the potential to reward traders with huge returns. As mentioned before, swing trading relies on both technical analysis and fundamental analysis, while day trading leans heavily towards technical analysis.
Swing trading positions face overnight and weekend risks on a routine basis. Since positions are held for at least a couple of days, they are susceptible to news about current events, natural disasters, new regulations on cryptocurrencies, exchange hacks, etc. The market might open the following session at a significantly different price, a risk associated with swing trading and not with day trading.
Swing Trading in the Cryptocurrency market
The long-term planning involved with swing trading brings a unique opportunity for beginner traders that want to dip their toes into technical and fundamental analysis and learn the market behaviors in a broader picture. But the journey can be exhausting and the financial careers of many will face some existential questions along the way. The cryptocurrency market is volatile and rather more unpredictable than other financial markets, so only invest if you can afford to lose. Make sure to check out our guides on how to become a successful trader and mistakes to avoid in technical analysis.
Swing trading can be applied to almost every major financial market, including the cryptocurrency market. With a firm grasp of technical and fundamental analysis, traders can find positions with short-to-middle term prospects and hold onto their positions and accumulate profits. The risks associated with day trading and swing trading have a difference of nature and traders must be aware of the potential risks and the risk-to-reward ratio of each strategy.