You might have heard investors throw around the term “swing trading” and wondered just exactly what it involves. After all, there are slight differences between day trading, swing trading and long-term trading styles. That’s why we figured it might just be time we got into the swing (trading) of things.

What is Swing Trading?

Okay, now the moment you’ve all been waiting for. To define swing trading let’s first consider what day trading is. A day trader is someone who buys and sells crypto within the same day. Sometimes, these trades even occur within the span of a couple of hours. This process requires actively watching crypto prices with the intention to profit off small micromovements. In comparison, a swing trader tends to hold their crypto for between 4-6 days. This is a more calculated way of trading than long term strategies. Additionally, it also often requires less time on the computer than a day trader. 

These trades are carried out over the short term. This means that careful analysis is a must to understand exactly what factors are at play when it comes to pricing. That said, a swing trade can last anywhere from a day or two, up to a few months. Typically these trades do not go much longer than that.

The goal of a swing trader isn’t to hold on for dear life (HODL) and wait for the stock to change positions again. Rather, the goal of a swing trade is to capture just a portion of the rises and falls.

When to Swing Trade 

Swing traders do not profit from longer uptrends or downtrends. This is because these trends often occur over long periods of time. But let’s face it, we kind of like having that time to watch prices correct themselves. Therefore, the best time to carry out a swing trade is when the prices of the crypto are relatively stable and the fluctuations are predictable. 

When prices are consistent it can be easier to execute short term trades and determine which trades to make next. As a result, swing trading does require some patience. This is evident as profits are earned at a slower pace since it takes a couple of days to experience a rise or fall in the market rather than a couple of hours.

We can’t argue that swing trading is better than day trading. Rather, there are a time and place for each. So swing traders, do not expect that you will make a higher percentage off your returns or that you won’t need as much practice to do so. These are both myths that need to be busted.

Determining the Market

Step one in swing trading is determining just what kind of market you are up against. This is where the bulls and the bears come in. Just to recap, a bearish market is when prices continue to fall, resulting in a negative economic situation. When the opposite occurs, we refer to the market as a bull market.

It’s actually easier than you think to determine this. For example, if your bullish trades are making you a profit you are likely trading in a bull market. However, if your bearish trades are doing well then it would be the opposite. These predictions can also be made through technical analysis (and yes we are getting to that). Knowing which market you are working in can help you to further determine which strategies should be used and when. 

Conducting a Technical Analysis

You’ve now settled on swing trading to make your next buck. Unfortunately, there is a little more to it. Any wise swing trader does not make any trades without a well thought out strategy. This type of consideration is also referred to as technical analysis and can be simplified through the use of trading charts.

When looking at the numbers, a swing trader will often consider external factors such as government policies restricting crypto trading, ICO listings or new tech in the cryptosphere. These events may trigger an increase or decrease in the price of the currency. As a result, hearing the announcement may help you to forecast the changes in price in the near future.

Technical analysts do receive some criticism and here is why. A technical trader believes that they can predict the prices of crypto and that certain patterns will continue to be repeated. Although we like to believe prices follow a pattern, there is also something to be said about the self-fulfilling prophecy. Consider, when the price of a stock goes down. Since many traders have been carefully analyzing these patterns, they also know when a stock hits a certain price it might be time to sell. The selling of so many stocks will continue to drive the price down, further reinforcing the low price that investors “predicted”.

Determining the Market

Step one in swing trading is determining just one kind of market you are up against. This is where the bulls and the bears come in. Just to recap a bearish market is when prices continue to fall, resulting in a negative economic situation. A bull market is exactly the opposite.

It’s actually easier than you think to determine this, for example, if your bullish trades are making you a profit you are likely trading in a bull market. However, if your bearish trades are doing well then you might just be trading in a bear market.

Build your swing trading chart

The key to any good training strategy is a good plan. This means a swing trading chart is also a must. But what exactly is involved? 

Some charts may be full of numbers, averages and a hundred other things you have never heard of or really understand. The clutter can be confusing. That’s why we suggest using only the necessary information on your charts. Your swing trading chart should be available to aid in your decision-making process. 

You will likely want access to some (if not all) of key indicators including; the chart pattern, moving averages, the crypto’s volatility, and average trading volume. While you might be tempted to include all of these indicators, remember you want to make your trades easier. So include only what will help you make a decision about your swing trades. If you can’t understand your chart, it is not serving its purpose.

Candlestick comparison 

Alright, we might have heard of traders referring to the good ol’ candlestick comparison and we thought this might be of help. Although the shapes can be daunting, they are easier to read than you might think. The top point on the candle is the highest price, while the bottom price is the lowest. The large rectangle pictured in the middle of each candle is the opening and closing price (the closing price will be the bottom of the rectangle in a bearish market and vice versa). 

The rectangle portion of the candle (AKA the real body) will often be shaded to reflect if it is a bullish or bearish market. A candle that is filled in suggests the close was lower than the open and an outline suggests the close was higher.  

Yes, you can get the same information from a bar chart. But a daily candlestick shows you just a little bit more information about the opening and closing prices in addition to the highs and lows, as well as the range of prices in each day’s trading.

Each of these candles represents a single day in price fluctuations of a certain currency. Therefore, a chart with 10 candles would represent 10 days. When conducting a trade, a swing trader would look for a pattern of either higher highs and higher lows or lower highs and lower lows. These observations coupled with an in-depth external analysis will help you to identify what causes each pattern and therefore, where and when you should be trading. One common pattern to look at is the flag breakout. This is characterized by increased prices followed by sideways prices (making a flag shape). When you see the flag in this candlestick pattern, you can conclude that this is the highest price of the coin. This continues to be one of the most commonly used strategies. 

Let this be a reminder that no pattern works every time. Each candlestick pattern is just that, a pattern. It is not a sure-fire strategy to make money quick.

Placing a stop loss

A good swing trader will likely spend a lot of time looking at candlestick patterns and charts that span a couple of days. For those who have not made swing trading their full-time job, you might place certain stop-losses in place. A stop loss is a command that when crypto hits a certain price, there will be an automatic reaction to execute a purchase or sale of the coin. If you predict that the price of your crypto is going down you would select a lower price (based on your careful planning and strategizing) to buy back crypto after shorting (selling) the coin. 

It is inevitable that markets do move, sometimes more unpredictable than others. Regardless, do not just select a range a set distance from your buying price and assume that this counts as a smart plan. It doesn’t. Each crypto is different and will have different fluctuations in price. If you are not an active trader and have stop losses in place that are causing you to lose money. You might consider implementing a wider (or longer) stop-loss to ensure you are not losing more money than necessary.

How to be a successful swing trader

To ensure you are making trades based on strategy, it is important to have a solid plan and stick to it. A good crypto trader knows what price is a good price to buy at and when they should accept their losses. Outlining this plan ahead of time will ensure you are making the most of your trades and letting your brain make the call, not your heart.

Swing trading can be successful if you follow a couple of key strategies. First, remember that the crypto market continues to change overnight. Therefore, only trade a portion of your trades in a swing trade strategy. Why? Because holding a significant amount of your trading portfolio overnight leaves your portfolio up to chance.

A second strategy that will help you to be successful is something we previously referred to as a stop-loss strategy. This will ensure that you make the most in your winning trades and lose the least on crypto trades that do not go your way.

Only make trades with money that you are okay to lose. If your emotions are at play in your financial decisions there is less of a chance you’ll make wise decisions. A rule of thumb that many investors live by, never invest more than 1% of your total income. This will keep your savings safe in the long run.

Don’t get greedy

The price of crypto can’t be predicted perfectly. We get that. One strategy to mitigate the less consistent changes in price is to sell a portion of your coins at each price change. For example, if your coin begins going up as you predicted but you aren’t sure if it will continue to go up or go back down, sell a fraction of your coins. This way you still earn a profit but still have some crypto available to whether the unknowns.

Remember to also make good use of your stop-loss prices. This option is currently available on platforms such as Binance. You might want to get greedy and continue to experience more profits. But using your stop-loss provisions will ensure that you are trading as safely as possible.

Consider the Risks

Trading can be scary but don’t stress. Like anything rewarding, there will be some risk. But knowing what risks lie ahead can help you to enter each trade knowing exactly what is expected.

Making a poor trade can result in emotional distress, but do not act on it. Remember you put together a plan based on careful research and strategy. Allowing your emotions to get the best of you would just be foolish. 

Professional traders may make trading look easy. This isn’t always the case. For every winner, there is a loser. This means that even with all the planning in the world you may still lose money trading crypto. Additionally, swing traders often lose out on profits from long term trends in favor of short dips in the market. Don’t let this be a deterrent. Remember this is the nature of your trade.

Finally, we urge you to remember that swing trading is an active trading technique. While you don’t need the same focus as a day trader, you will also need to continue to check in with the prices of your investments. This means sufficient time will be necessary to ensure you are making smart trades. This is not an activity that can be brushed aside and reconsidered after a couple of days.

Trade with peace of mind

Now that we know exactly what we are up against, what should YOU (the investor) do? Our word of advice, don’t let one bad trade get you down. While it can be disheartening to see your income being lost in a matter of days remember that swing trading is all about practice. If you don’t succeed at first, try again. Start by making smaller trades initially so you are putting less of your hard-earned wages at risk. This way you won’t be as focussed on the losses you incur and you will have a chance to better understand what you are up against.