Swing trading crypto is a popular method of cryptocurrency exchange that both novice and experienced traders can use. The basic idea behind swing trading crypto is to hold the electronic asset until it increases in value before selling it.
While this may sound simple, it can be challenging to execute successfully without a solid plan and understanding of the market.
Swing Trading Crypto: What Is It?
Swing trading cryptocurrency is a strategy that entails holding onto a cryptocurrency for some time to profit from price changes or “swings.”
There are two types of swings that investors look for:
- Swing highs: These are the points where the price reaches a new peak after previously falling.
- Swing lows: These are the points where the price reaches a new low after previously rising.
Investors will buy at a swing low and sell at a swing high to make a profit.
Swing trading is a popular strategy because it doesn’t require constant monitoring like day trading. However, it still allows investors to profit from the volatile nature of the cryptocurrency market.
Swing trading crypto can be a lucrative strategy if done correctly. Bitcoin, Ethereum, Litecoin, and Ripple are the most beginner-friendly cryptos to swing trade.
These cryptos have large enough markets to provide liquidity and generate significant price swings that traders can exploit.
Swing trading is a speculative activity, and there are risks involved. To minimize this, successful traders use technical analysis to identify potential entry and exit points.
Research typically includes observing short to medium-time-frame charts and using indicators to identify patterns that indicate when a price is about to swing. This could be anything from a 15-minute chart up to a monthly chart.
How Do You Make Money from Swing Trading Crypto?
Swing traders make money by buying crypto at a low price and selling it at a higher one. This is done by either holding the crypto until it reaches the desired price or using stop-loss and take-profit orders.
Stop-loss orders are placed below the current market price, and take-profit orders are placed above it.
These orders automatically sell your crypto when it reaches the desired price, allowing you to take profits without constantly monitoring the market.
The most important thing for swing traders is to find trends. You can identify trends by using:
- Trend lines: Trend lines are used to identify the market’s direction. They are created by connecting two or more highs or lows.
- Moving Averages: Moving averages smooth out price action and can be used to identify the market’s direction.
- Fibonacci retracements: Fibonacci retracements are used to find support and resistance levels. They are created by drawing a line from the absolute high to the absolute low over a given period of time and then finding the Fibonacci ratio within that period.
Once a trader has identified a trend, they look for a point to enter the market, which is typically done at a swing high or swing low.
After the trader enters at a point, they’ll place a stop-loss order below the swing low (for long trades) or above the swing high (for short trades). They follow this by placing a take-profit order at a level they believe the market will reach.
Three Tested Swing Trading Crypto Strategies
With how difficult making certain trades can be, having strategies to help maximize outcomes is beneficial. Luckily for swing trading, there are three strategies that have been tested and proven to work.
Catch The Wave
Just like a surfer catches a wave, rides it, and then paddles back out to catch another wave, a swing trader looks for trends in the market and tries to “catch the wave” by entering into a trade and then riding the trend until it reverses.
The goal is to sell when the market is at its peak and buy again when it reaches its bottom. The key to successfully “catching the wave” is to find a good entry point and then get out before the trend reverses. It’s a tricky strategy, but it can get easier with practice.
A key factor in seeing a wave begin is when an asset increases in both buying interest and price momentum. A surge in buying could signal that the market is about to move higher, signaling the perfect entry point to for “riding the wave.”
On the other hand, when the price drops below the moving average, it signals that the market is about to turn bearish and is the optimal time to sell before the price drops any further.
Buy the Pullback
Another swing trading strategy is to “buy the pullback,” or buy when the price starts to come back down after a period of going up. The pullback is seen as a temporary dip in the price but with a quick turnaround to climb back up.
This creates an opportunity for swing traders to quickly buy at a lower price before seeing the market increase again.
To trade this strategy, you would first identify a market that is in an uptrend. Then, you would wait for the price to start pulling back from its highs. Once it comes down, you would buy and then hold until the price begins to trend higher again.
The key here is to make sure you buy at a reasonable price. You don’t want to buy too close to the previous high because there is a chance the market will continue going down.
Follow the Crowd
The last swing trading strategy is to “follow the crowd.” This is when an investor identifies the market’s support and resistance levels and trades in the direction of the masses.
A support level is a price where the market tends to find buyers and stop going down. A resistance level is a price where the market tends to find sellers and stops going up.
To trade with this strategy, it’s important to wait for the price to break out above a resistance level or below a support level. If the prices of a trade begin to increase as more buyers grab a share of the investment, that’s when it would be the best time to buy in. As soon as the numbers begin to trickle down, that would signify the best time to sell.
Following the crowd is essentially watching what other investors are doing in the market and following suit.
How To Swing Trading Effectively
With all the varying strategies available to trade, swing trading can become difficult and confusing. Below are a few tips to help swing trade effectively:
Have a Clear Plan
It’s best to have a clear plan geared towards a desired outcome as well as ways to achieve it. Without a plan, making mistakes and losing money is extremly easy.
Trading plans should include entry and exit points, stop losses, and targets. It should also be based on a trading timeframe and what indicators will be used.
Only Invest What You Can Afford to Lose
Never invest more money than you can afford to lose. Swing trading can be risky. There can be high highs and low lows, offering the ability to gain a lot of money while also putting traders at risk of losing a lot of money.
If you only invest what you can afford to lose, you’re less likely to make emotional decisions that could lead to extreme losses.
Stop-loss orders are essential for two reasons. They limit your losses, and they help remove emotions from the equation.
When there’s a stop-loss set in place, there’s a guarantee your investments will sell if the price falls to a certain level. Stop-losses add a level of comfort and security, knowing you’ll never lose more than you’re comfortable with.
Limit Risks Overnight
One of the risks of swing trading is that prices can move against you overnight. It’s crucial to close out your positions before the end of the day to avoid this risk.
Stop-losses can be particularly useful if you want to continue trading throughout the night. By placing a stop-loss at night, you mitigate the risk of an overnight loss and protect your funds as you rest.
Keep an Eye on Bitcoin
Bitcoin is the market leader in cryptocurrency and hugely impacts the rest of the market. When Bitcoin prices are volatile, the rest of the market tends to follow suit.
For this reason, keeping an eye on Bitcoin prices when you swing trade is essential.
If Bitcoin prices start to fall, there is a good chance that alternative coin prices will soon follow. You may consider selling your alternative coins and gain profits before prices fall below your comfort level.
Start Swing Trading Crypto Today
Due to its lower stress levels and time commitment, swing trading is an attractive proposition for many cryptocurrency traders.
However, as with any form of trading, success is not guaranteed. It is essential to have a clear plan, use stop-losses, limit risks overnight, and keep an eye on Bitcoin prices.
If you’re interested in starting to trade crypto, My Digital Money is an excellent place to get started. You can open a play account to practice your trades or even trade in a cryptocurrency IRA to save for retirement. Click here to get started today!