4 Best Cryptocurrency Swing Trading Strategies That Work (2023)

Swing trading is gaining popularity among intermediate, advanced and even seasonal traders. It allows traders who apply swing strategies to spot the ideal entry and exit positions of a trade. Swing trading combines fundamental and technical analysis to help traders catch big price movements.

Let’s explore what swing trading is and the best swing trading strategies.

Key Takeaways:

• Swing trading is based on profiting from price movements that occur during bear and bull markets. 

• Swing trading positions last more than a day, but usually less than a couple of weeks.

• If used correctly, swing trading strategies can bring traders significant profits.

What Is Swing Trading?

Swing trading is a popular way to trade that’s based on the principle that price movements are rarely linear, as the balance between bears and bulls is continuously shifting. Swing traders spot these shifts as opportunities to profit from them. Thus, even regular market swings can offer ample opportunities when swing trading indicators are correctly used.

Unlike scalping or day trading, swing trading positions last more than a day but usually less than a couple of weeks. However, these time limits aren’t strict, as some positions may even last a month if the trade remains advantageous.

Swing trading has its perks and limitations. However, to achieve optimal trading results, traders are usually required to enter a trade with higher capital, due to the commissions and volatility within the process. 

The Daily Routine of a Swing Trader

On a typical day, a swing trader performs market and sector sentiment analysis, mainly through news and social media analytics, before entering a trade. This is essential, as market sentiment gives a holistic view of investors’ overall attitude toward a specific cryptocurrency. 

A trader can then perform research on the cryptocurrency and see if there’s any interesting news or events coming out that the broader public may not be aware of. For instance, the trader may go through governance forums or social media channels to search for information. If the trader finds something interesting, it will help with the fundamental analysis of the token, giving the trader greater conviction in their trade. 

Next, they can create a watchlist of definite assets by analyzing potential trading opportunities. Generally, when a swing trader monitors this list, they note specific requirements, such as the asset’s trading volume, trading trends, market movement, rallies, and support and resistance. Once the conditions are in place, the trader can decide whether to enter or exit a trade based on appropriate indicators (see below).

Is Swing Trading Better Than Day Trading?

This depends on the trader’s purposes and preferences. One significant difference between swing trading and day trading is that day traders don’t hold a position overnight. Hence, swing trading may incur higher risk of losses, given that the position is typically held over a longer period of time. 

However, swing trading is considered suitable for beginners, as traders don’t burn out from stress and are generally less pressured than day traders. Nevertheless, different trading strategies each carry inherent risk. Depending upon the type of market you’re in, your results will differ based on your trading rationale.

What Is a Swing Trading Strategy?

The purpose of swing trading is to catch a trend and take advantage of pullbacks and rallies. A trader enters a trade at the pullback and exits at the rally. However, the main problem faced by traders is distinguishing the price action that will most likely go according to the trend reversal. Such trading is possible only within the frame of a clear-cut trend. A calm market or periods of high volatility aren’t generally conducive to swing trading strategies.

Traders can choose different strategies for mastering swing trading, any of which will be based on various combinations of fundamental and technical analysis methods. 

Traders should avoid opening positions if they’re aware of major upcoming news that can influence the current trend. This is because such news tends to affect the market and result in relatively large movement in prices.

Fundamentals of Swing Trading Strategies

To be successful in swing trading, traders need to focus not only on fundamental analysis, which helps determine a cryptocurrency’s intrinsic value, but on technical analysis. By understanding these cryptocurrency technical indicators and daily charts, traders can better spot opportunities in a short-term trade by precisely entering a trade, setting a stop loss, and taking profits.

Technical Indicators

The purpose of using technical indicators is to help traders make more logical investment decisions. Since these indicators are mathematically based, they give traders a more critical view of the asset’s price and/or trading volume. For instance, traders can compare a crypto’s value before and after an event or news, and then critically identify potential trading opportunities.

Some of the most commonly used indicators include the following.

Relative Strength Index (RSI)

RSI defines the strength of the trend and the potential for its change. By identifying the relationship between a cryptocurrency’s price and demand, a trader can spot whether the cryptocurrency is overbought or oversold. 

When the RSI crosses above 70, the RSI index is signaling that the cryptocurrency has been overbought, giving traders a sell signal. On the other hand, when the RSI falls below 30, it indicates that the cryptocurrency has been oversold, signaling to traders that there’s a potential buy opportunity. However, these RSI parameters aren’t absolute and are subject to change, depending on a trader’s preference. 

Hence, swing traders tend to favor the RSI indicator because it can critically detect oversold and overbought conditions. When applied correctly, traders can buy and sell accordingly in order to derive maximum profit from a trade.

Moving Average (MA)

Moving average (MA) is a standard swing-trading indicator traders use to determine support and resistance levels during short-term price fluctuations. MAs calculate the average price of an asset for a set period, smoothing the short-term volatility that may confuse inexperienced traders. The primary types are simple moving average (SMA) and exponential moving average (EMA). Beginning swing traders typically use 10-, 30-, 50-, 100- and 200-day moving averages.

Bollinger Bands (BB)

A swing trader can use Bollinger Bands® to indicate the probable price turnaround of a cryptocurrency. Typically, the moving average is displayed in a middle band, of which the upper and lower bands are the standard deviations. 

An underlying move toward the upper Bollinger band indicates an overbought zone, and vice versa. For conservative swing traders, it’s also best to wait until the Bollinger Bands begin to move sideways, as countertrading a breakout candle with the Bollinger Bands pointing upward can result in consecutive losses.

Daily Chart Analysis

A daily chart is a graphic representation of data points, clearly illustrating a trading day’s price movements for an asset within a specified period. 

Following are some samples.

Triangle Trading Patterns

Triangles belong to the category of continuation patterns. Swing traders use them to gauge the possibilities of decreasing market volatility that will break trends, leading to reversals. There are three types of triangle patterns: Symmetrical Triangle, Ascending Triangle and Descending Triangle. These patterns provide analytical insights into current and forthcoming conditions, and help traders formulate better breakout strategies when swing trading. 

Ideally, triangle trading patterns are used in day trading. Still, they’re applicable to swing trading, as they involve adjusting position size and managing risk for optimal trading opportunities in the cryptocurrency market.

Flags and Pennants

Flags and pennants are also continuation patterns. A flag or pennant can be observed when a cryptocurrency’s price pulls back, making several small ups and downs along the way before continuing in its original direction.

Head and Shoulders

Head and shoulders is a price reversal pattern that helps traders recognize a possible trend reversal. It’s formed by three tops, with the highest one in the middle.

Swing Trading Strategies

A successful swing trade must be built from a solid foundation that involves research, analysis and formulation of strategies. While one trading style may differ from another, the fundamentals remain. 

Here are the top four swing trading strategies every trader should know. 

1. Trend-Catching Strategy

Trend traders tend to hold their position until a trend changes, while swing traders exit a position whenever a target profit is reached. Though it may seem counterintuitive, swing traders can adopt the trend-catching concept to identify a trend’s direction for potential gains in short-term trades. 

When a swing trader is ready to apply this strategy, they enter a market in which the trend persists after a deep pullback has ended. As a rule of thumb, always use a few technical analysis indicators, including RSI and MA, to make the most logical decision. For example, if a pullback occurs and touches the 50 MA, a trader should enter if the price has been bullish around the 50 MA, and set a stop-loss below 50 MA in case the trend changes.

The goal of swing traders is to identify the trend, as well as the support and resistance levels or indicators, then enter the market at support and exit at resistance . 

Pros: 

• More flexibility for traders to take advantage of short-term price movements without committing to long-term positions.

• More opportunities for entries and exits, due to crypto volatility.

Limitations: 

• Higher transaction costs, as swing traders make more frequent trades; and possibly more fees, bid-ask spreads and slippage.

• Requires monitoring, although not as often as day trading, and can be time-consuming and stressful for some traders who have busy lives.

2. Breakout Swing Strategy

Breakouts take place when the price moves beyond a defined range (breaks above resistance levels.) Traders keen on this strategy watch for price breakouts, and ideally open long positions at the beginning of an uptrend. 

Using this strategy, a swing trader attempts to take a position early in a potential uptrend. Traders need to enter a trade when they see the desired level of volatility. This strategy is helpful for those who are experienced in trading and well-versed in the industry.

Pros:

• When momentum takes off, profits can be substantial.

• Many opportunities for trades, as breakouts frequently occur, especially in a volatile market.

Limitations:

• Risk of getting caught in a false breakout.

• Traders must be disciplined if required to enter a trade against logic.

• Need to rely on support and resistance levels.

3. Breakdown Swing Strategy

A breakdown swing is the opposite variant of the previously mentioned breakout strategy: the trader opens a short position when an asset’s price breaks below a defined support level on the early side of a downtrend. To effectively use this strategy, a trader needs to check on moving averages and oscillators. Breakouts and breakdowns share similar pros and cons, as they rely on the same concept.

4. Fading Trading Strategy

This strategy implies trading against momentum (countertrend). In other words, a trader buys when the market is selling, and sells when the market is buying. 

The idea of the fade strategy is to bet on reversal and to potentially profit from corrections. Since cryptocurrency is notoriously volatile, with vigorously fluctuating prices, traders who go against the trend tend to capitalize on the majority of initial market reversals. Most of the time, these traders benefit through key statistics, such as public interest rates, technical indicators and human psychology.

A fading strategy can be useful when the cryptocurrency market is significantly volatile, as there will be frequent, potentially profitable corrections. Though short-term gains are possible with this strategy, it entails high risk if the trend goes against you or reverses. Generally, this strategy is ideal for experienced traders rather than beginners, as it requires a trained eye and involves various risks.

Pros:

• Profitable when there’s a correction.

• Effective in a volatile market like cryptocurrency.

Limitations:

• Only suitable for advanced and seasoned traders.

• Hard to manage and relies heavily on self-discipline, as it’s psychologically difficult to go against the trend.

What Are the Best Swing Trading Strategies for Beginners?

There is no perfect strategy that will suit every newcomer. Beginning traders are best off starting with strategies that don’t involve deep knowledge of technical analysis. Try the trend-trading strategy, and learn to recognize popular swing trading indicators.

How to Know If a Swing Trading Strategy Is Working

You can test your chosen strategy in several ways. First of all, you can apply different techniques simultaneously, and if you see yourself making sustainable gains in short-term trends and cutting losses quickly, your method is working. Of course, the result can fluctuate according to the market’s reaction. 

The best way to ensure you’re well-versed with these techniques is to create a demo or paper trading account, and do some test runs until you’ve consistently gained ideal returns. The keys here are to diversify your portfolio in order to test out different trading strategies, adhere to your portfolio management rules, and set a realistic goal.

Final Thoughts

Swing trading strategies are numerous, and any one of them can be both successful or unsuccessful. They’re applicable in many financial markets, as they’re equally suited to stock, forex and cryptocurrency trading. Volatile markets are the best in which to try swing trading and create your own technique for making profits. 

If you feel that this style is right for you, try Bybit’s risk-free paper trading account. Use technical analysis and don’t neglect daily charts, and you’re on the way to becoming an excellent swing trader.

#Bybit #TheCryptoArk