Swing Trading – Everything You Need to Know
Swing trading has been making the headlines recently. It is a popular trading method with considerable profit potential. It is also a great stepping stone for beginner traders. So, would you like to learn more about it? Well, you’re in luck! We put together a comprehensive guide on swing trading.
Swing Trading – the Basics
Let’s rewind for a second. As a beginner, you need a solid foundation before getting into the details of swing trading. So, what is trading?
What is Trading?
Trading means buying and selling assets with the aim of making a profit. Institutional trading looks at buying and selling stock, shares and currencies. Trading cryptocurrencies means buying and selling digital assets. Although the tradable assets differ, the purpose remains the same in both worlds. In conclusion, trading aims at returning a profit.
Trading has many different types and strategies. Let’s have a look at the most popular ones.
What is Day Trading?
The main difference between trading practices comes from time. A simple concept, right? Day trading means buying and selling assets within a very short timeframe. This could be anything from a few seconds to a few hours. It qualifies as long as the asset trades within the same day. Therefore, being called day trading.
What About Long Term Trading?
Long term trading is another widely known practice. As the name suggests, it differs from day trading. This practice focuses on holding a crypto asset for a long time. Day trading connects to expectations of a steady price increase. Long term trading usually does not bring quick returns. Yet, the gains are higher than with day trading.
And this brings us to HODLing. Have you ever heard of this term? It refers to holding a digital asset for a long time with an expectation for long term profit. Fun fact – the word “hold” was once misspelled on the Bitcoin Forum and has stuck around ever since. It is also sometimes explained with the acronym “hold on for dear life”.
What Is Swing Trading?
Now that you know the basics of trading, let’s get more specific.
Swing trading is the practice of buying and selling crypto after a certain degree of movement in the charts. It is often done in stages. Swing trading might be a good fit for those who don’t want to spend hours on monitoring their trades.
Swing Trading vs Day Trading
By now you understand that swing trading is fast paced. But so is day trading. So, what is the difference between the two? Well, swing trades are slightly longer than day trades. Swing trading has a slower pace and gives traders more time to understand the process. This means more opportunities for research before executing trades.
It is a popular gateway for beginners. Why? Because swing trading will help you get used to a fast paced trading environment. Traders can build on their skills during this process. So, after spending some time swing trading, you can move on to day trading.
How to Start Swing Trading?
There are a few things you need to know before you start swing trading. These recommendations are rather universal for all top trading strategies. Namely, you need a basic understanding of technical and fundamental analysis. If you’ve dabbled in crypto before, this won’t come as a surprise to you.
Swing trading takes place over a period of several hours, days, or even weeks. So, it is important to know what you’re buying. You don’t want to buy assets blindly and without some prior research. This helps you determine price movements, trends and red flags preventing you from unsuccessful trades.
And this is where technical analysis comes in. Technical analysis focuses on internal market events. It involves studying price charts and diving into data. So, traders analyze the historic price movements of assets. In particular, they mark price upticks and decreases. Ultimately, they make trading decisions based on the analysis.
Yes, we get it. This might sound overwhelming for a beginner trader. But don’t worry – this is why there are trading indicators!
Trading indicators are tools used for increasing trading efficiency. They are a huge help in analyzing the price direction of an asset. Indicators are often used for both long and short term price analysis. So, you can look at technical trading indicators as calculations. They signal the events that are about to happen in the trading market.
Trading indicators and technical analysis often go hand in hand. Technical analysis covers a lot of data. Having automated indicators help out in analysing this. You can find proof of how efficient these indicators are by looking at their wide area of use. So, trading indicators are not exclusive to cryptocurrency trading. They are also used in analyzing the price of other assets. For instance, stock, securities, currencies or commodities.
So, what exactly do trading indicators measure? Basically anything that is relevant to crypto movements. For example volume, price movement, momentum and other factors. As with many topics in trading, this is individual. Traders have different views on which signals to rely on. Some prefer historical price over profit and vice versa.
Are you looking for an in-depth introduction into trading indicators? Check out our blog post for a detailed overview!
Which Indicators to Use?
So, you are almost ready to start swing trading. Take a look at the recommendations for the best swing trading indicators.
Volume is a basic yet efficient trading indicator. It is often missing from the list of best trading indicators for swing trading due to its simplicity. But it is easy to use for beginners and can bring noticeable gains. Volume is particularly important when analyzing trends.
Volume patterns help traders understand the strengths behind price movements. For instance, rising markets with increasing volume are usually strong. But when volumes decrease, trends are also facing a downturn. In conclusion, volume is one of the key indicators in technical analysis.
Moving averages are a popular category of trading indicators. This includes many variations. In general, moving averages derive from historic prices. They filter out unnecessary information from short-term price fluctuations. This helps to smooth out price action and get a better overview.
Moving averages focus on trend-following. Also, they help determine support and resistance levels. As mentioned before, there are many variations available. Simple Moving Average (SMA) takes the arithmetic mean of a set of prices over a given time. Exponential moving averages (EMA) use a weighted average. This gives higher importance to more recent days. Moving Average Convergence Divergence (MACD) monitors the relationship between two moving averages. A common MACD calculation subtracts a 26-day EMA from a 12-day EMA.
Relative Strength Index
Have you ever heard of the term RSI? Yes, it refers to the Relative Strength Index. This indicator aims to quantify the gains and losses of an asset over a fixed period of time. The relative strength index fits both beginners and pro traders. Its use cases are quite universal.
RSI is a good fit for swing trading. It provides you with the information for timing your market entry. So, it is beneficial for investigating short signals. The RSI gives better insights for this than other indicators. It can tell traders if an asset is overbought or oversold.
Don’t mind the difficult name this indicator has. Stochastic Oscillator is quite reputable in the crypto world. Basically, it is a two line momentum indicator. It measures the difference between the closing price and the range of prices over a time period. Usually, it calculates a score based on 14 day’s prices.
In more detail, a score above 80 means that an asset is overbought. On the opposite end, a score below 20 means it is oversold. Similarly to the Relative Strength index, the scale runs from 0 to 100.
Swing Trading – Benefits vs Risks
Now that you understand swing trading, it’s time to get more serious. You’re probably wondering if it’s a good fit for you and whether you should start trading. Let’s compare the pros and cons.
Advantages of Swing Trading
Easy to Learn
Swing trading is not overly complicated. For most people, it takes only a short time to get a hang of this. You can benefit from trading tools that help you make decisions. Also, this allows you to automate part of the process. However, remember to start small. Trading always has some risk.
Swing trading has quite an easy process. You can close and open positions swiftly. The process is logical and doesn’t require as much time as trading on the traditional markets.
Great Intro to Crypto Trading
As mentioned, swing trading is a good fit for beginners. It allows you to get used to crypto trading. The relatively easy trading practice lets you get a feel for the market. Mastering swing trading will prepare you for more complex and profitable trading practices.
Disadvantages of Swing Trading
Risk of Losing Money
Trading is a financial activity, So, we have to cover the risks. Before starting, you need to understand the basic concept. Namely, you are most likely going to make money as well as lose money. Always keep that in mind. Avoid putting in large amounts of assets you can’t afford to lose.
While swing trading is not as fast paced as day trading, it is still live trading. Therefore, you need to keep an eye on the markets and act fast. Sure, it is not the most time consuming trading method but you still need to recognize the time commitment. Keeping a close eye on the market lets you cut losses or make profit because of the cryptocurrency market’s high volatility.
Considering the pros and cons, swing trading is still an attractive practice for many. The main risks arise from the threat of losing funds. However, this goes for almost all trading strategies.
Congratulations! You are now aware of the basics of swing trading. Why not try it out in practice? Head over to the CoinMetro crypto exchange! In case you have any questions, our support team is here to help 24/7.