4 Best Swing Trading Strategies That Work (2022)
Swing trading is gaining popularity among intermediate, advanced, and even seasonal traders. Traders who apply swing trading strategies tend to spot the ideal entry and exit positions of a trade. Since swing trading combines fundamentbolal and technical analysis, traders must critically catch the epoch-making price movement.
Of course, swing trading has its perks and limitations. Still, to correctly execute the swing strategies for optimal results, traders must expect to enter a trade with higher capital. And to expect the commissions and volatility in the process. Generally, swing traders tend to deal with the smaller price movements within a longer trend. So, even the market swings can offer ample opportunities when the swing trading indicators are correctly used.
What Is Swing Trading?
Swing trading is a commonly appreciated trading method, often called a strategy in professional texts and reviews. This method is based on the principle that price movements are hardly ever linear. The balance between bears and bulls is continuously shifting, and swing traders spot these shifts as opportunities to benefit from them.
The positions are usually retained from one to six days, though these time limits are not strict, and some of them may last for a few weeks if the trade remains advantageous.
The Daily Routine of A Swing Trader
On a typical day, swing traders would perform market and sector sentiment analysis mainly through news analytics before entering a trade. It’s essential as the market sentiment gives a holistic view of the investors’ overall attitude toward a specific asset on the financial market.
Next, a trader tends to create a watchlist of definite assets by analyzing its potential trading opportunities. Generally, when a swing trader monitors the list, specific requirements such as the asset’s trading volume, trading trends, market movement, rallies, support and resistance, and more. Once the conditions take place, the trader can decide whether to enter or exit a trade.
Since the methodology comes from traditional stock markets with limited working hours, it’s also worth noting that there’ll be changes in the market liquidity throughout the day. On the stock markets, liquidity tends to decrease after 4 pm Eastern time as the exchanges get closed. However, this does not apply to the crypto market since it is active 24/7.
Is Swing Trading Better Than Day Trading?
It depends on the trader’s purposes and preferences. One significant difference between swing trading and day trading is traders do not hold a position overnight during day trade. Hence, swing trading may incur higher risks of losses. However, swing trading is considered suitable for beginners as it does not burn out a trader due to stress and is generally more relaxed than day trading. Nevertheless, trading with different strategies is risky and it also depends on the market like stocks or crypto you’re in. Hence, the results may differ based on your trading rationale.
What Is a Swing Trading Strategy?
The purpose of swing trading is to catch the trend and take advantage of pullbacks and rallies. A trader enters a trade at the pullback and exits at the rally. However, the main trader’s problem is distinguishing the price action that will most likely go on from the actual trend reversal. Such trading is possible only within the frame of the clear-cut trend. A calm market or periods of high volatility are rather improper.
Traders can choose different strategies for mastering this style, but in any case, they will be based on various combinations of the technical analysis methods. Traders should mind that it is necessary to avoid opening positions before the news can influence the current trend. Swing trading excludes the struggle against the movement. It is more resultative to trade the basic currency pairs and use minimal leverage.
The Fundamentals of Swing Trading Strategies
To be successful in swing trading, traders need to focus on technical and fundamental analysis. By understanding these crypto 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 take profits.
The purpose of using technical indicators is to help traders make a more logical investment decision. Since these indicators are mathematical calculations based, they give traders a more critical view of the asset’s price and/or trading volume. For instance, traders would compare the crypto value before and after an event or news and then critically identify the crypto offer and demand before investing it.
Some of the popular indicators include:
Relative Strength Index (RSI)
This indicator defines the strength of the trend and the potential for its change. By identifying the relationship between the crypto’s price and demands, a trader can spot where the coins are at the peak of their strength and bottom.
For example, the market is signaling overbought (sell signal) when the RSI line crosses 70. And it signals oversold (buy signal) when the RSI line crosses 30. However, these RSI lines are not absolute and are subject to change, depending on a trader’s preference.
Hence, swing traders favor the RSI indicator because it can critically detect the oversold and overbought conditions. When applied correctly, traders can buy at oversold levels and sell at overbought levels for a maximum profit from a trade.
Moving Average (MA)
This is a standard swing-trading moving average indicators traders would prefer to determine the support and resistance levels during short-term price fluctuations. The MAs calculate the average price of an asset for a set period, smoothing the short-term volatility that may confuse inexperienced traders. While the simple moving average (SMA) and Exponential moving average (EMA) are the main types of MAs.
Bollinger Bands (BB)
There have been debates about Bollinger Bands being the only indicator that a swing trader really needs. To successfully apply a swing trading strategy, a trader needs to rely on the Bollinger bands to indicate the probable price turnaround. In most cases, BB is used to define the price position concerning its standard trading amplitude. Typically, the three curves include the moving average in a middle band, where the upper and lower bands are the standard deviations of the middle band.
For example, when there’s an underlying move outside beyond the upper Bollinger band, a swing trader needs to note it indicates overbought and vice versa.
Daily Chart Analysis
A daily chart is a graphic representation of data points, demonstrating a definite trading day’s price movement. It clearly illustrates the daily price movements of the asset within a specified period.
Here are some of the samples:
Triangle Trading Patterns
Triangle pattern belongs to the group of continuation patterns. And swing traders would use them to gauge the possibilities for decreasing market volatility to break the trends and go in reversal. There are three types of this pattern, including the Symmetrical Triangle, Ascending Triangle, and the Descending Triangle. These triangles aim to provide analytical insights into the current, forthcoming conditions and help traders formulate better breakout strategies when swing trading.
Ideally, the triangles trading patterns are used in day trading. Still, it’s applicable in swing trading as it involves position size adjusting and risk managing for optimal trading opportunities in the stock or crypto market.
A flag is another type of continuation patterns. It can be observed when the crypto price pulls back, making several small ups and downs along the way. Then the price returns to the last move.
Head and Shoulders
This is a price reversal pattern that helps traders recognize a possible trend reversal. It is formed by three tops with the highest one in the middle.
Swing Trading Strategies
A successful trade must be built from a solid foundation that involves research, analysis, and formulating the perfect strategies. Though a trading style may differ from one another, the fundamental remains.
Here are the top five swing trading strategies every trader should know.
1. Trend Catching Strategy
Trend traders tend to hold their position until the trend changes, while swing traders exit a position whenever a target profit is reached. Though it’s contradictory, swing traders can adopt the trend trading concept to identify a trend’s direction for potential gains in short-term trades.
For example, a trader can rely on price momentum changes and profit via trends. Let’s say the price of BTC is rallying. However, the uptrend is signaling a shortcoming; traders can seize the opportunity to enter with a short position when the price is below the support level.
Since the crypto market is very unlikely to move in a straight line. And the reversal can either be bullish or bearish. So when a swing trader applies this strategy, he’s ready to enter a market where the trend persists after a deep pullback has ended. As a rule of thumb, a trader should always use a few technical analysis indicators, including RSI and MA, to make the most logical decision. For example, if a pullback indicates more than 50 MA, a trader should enter when the price need is bullish and set a stop loss before the trend swings high.
On the graph above, there is a daily chart where a bearish trend transitions to a bullish uptrend. But a middle section in a red circle identifies the period of pullback though there is a return to the broader trend afterward. The goal of swing traders is to identify the trend and enter a sustainable market correctly.
- Catching the wave from the beginning.
- More entry and exit rooms, even when there are minor fluctuations.
- Risks of having a false breakout.
- Can get emotional easily, and emotions take over your logical thinking.
2. Breakout Swing Strategy
Breakouts take place when the price moves beyond a defined price range (break above resistance levels.) Traders keen on this strategy would look out for price breakout and ideally open long positions at the beginning of an uptrend.
With 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 will be helpful for those who are experienced in trading and well-versed in the industry.
- When momentum took off, the profits are substantial.
- Trend frequently happens, especially in a volatile market.
- Get caught in a false breakout.
- Must be discipline to enter a trader against the logic.
- Rely highly on the support and resistance levels.
3. Breakdown Swing Strategy
Breakdown swing is the opposite variant of the previously mentioned breakout strategy. In such cases, a trader is trading against the momentum. A trader tends to open 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 is recommended to check on the moving averages and oscillators. Ultimately, when a position is set, this trader will take profits just before it swings low. Breakouts and breakdowns share very similar pros and cons as they both rely on the same concept.
4. Fading Trading Strategy
This strategy implies trading against momentum (counter-trend). 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 profit from corrections potentially. Since cryptocurrency is notoriously volatile and the price fluctuations vigorously, traders who trade against the trend tend to capitalize on the majority of the initial turn-in market. Most of the time, these traders benefit through key statistics, public interest rates, trade disputes, and human psychology.
A fading strategy can be useful when the crypto market is significantly volatile as there will be frequent, potentially profitable corrections. Though short-term gains are possible with this strategy, it engages a high risk if the trend goes against your way or the trend capitalized in an inevitable reversal. Generally, this strategy is ideal for institutional investors rather than beginners, as it requires a trained eye and involves many risks.
- Profitable when there’s a correction.
- Effective on a volatile market like crypto.
- Only suitable for advanced traders and seasonal traders.
- Hard to manage and rely heavily on self-discipline.
- Requires to absorb overnight risks.
What Are the Best Swing Trading Strategies for Beginners?
There is no perfect strategy that will suit any newcomer. But beginners should better start with the strategies that don’t involve deep knowledge in 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 the chosen strategy in several ways. First of all, you can apply different techniques simultaneously, and if you see yourself gaining sustainable gains in short-term trends and cutting losses quickly, you’re method is should be working. Of course, the result can fluctuate according to the market’s reaction. The best way to ensure you’re well-versed with the techniques is to create a demo account and do some test runs until you’ve consistently gained ideal returns. The key here is to diversify your portfolio to test out the market, adhere to your portfolio management rules, and set a realistic goal.
Swing trading strategies are numerous, and all of them can be both successful and unsuccessful. They are applicable in many financial markets, as they are equally suitable for stock, forex, and cryptocurrency trading. Volatile markets are the best to try swing trading and create your technique for making profits.
If you feel that this style is right for you, have a try with a demo account. Use technical analysis and don’t neglect daily charts, and you are on the way to become an excellent swing trader.