There are many ways to play the markets. Some HODL, others prefer day trading, some even do scalping. And then there are the swing traders.
Understanding how to swing trading crypto, or any financial market, is a great way to profit from market movements without the need to stay glued to the charts. Technically you can carry a swing trade for a few days, to a week, even a month or more.
As such, this form of investing is very popular with casual crypto or FX traders. You can identify a stock or coin that you think will gain, place your order and go about your life.
So how does swing trading work? And is it the right approach for you?
What is swing trading?
Swing Trading is a broad term that merely means holding a trade for a longer period of time than a day as price increases or decreases from one point to another.
When swing trading crypto, you might identify a potential move and you want to capitalise on this. But, it might take a week, maybe even a month to play out.
So, once you’ve set your buy order, you then identify where to place your sell and sit back and wait.
That’s the theory anyways. So how do you do successful swing trading in crypto?
How to identity swing trading opportunities
Often traders will swing trade within a range. This means that they will have done their analysis and identified that the price is going to move between clearly defined resistance and support levels over a certain period of time.
The trader will typically enter when price holds a support level. This means that the price has either gone up and is holding above a certain price or has gone down and stopped, held and reversed at a certain price.
They will then enter the trade and ride the price action upwards until the potential resistance that they have identified. This is known as going long.
Alternatively traders will enter on the rejection of a resistance (a price high point) and ride the downward momentum until the next support. This is a practice known as shorting.
Another swing trading tactic would be to enter a position after the start of a new macro (higher time frame such as daily or weekly) trend. Whether that is an upward or downward trend it doesn’t matter. The object is to ride the trend until it’s invalidated.
We’ll discuss how to define a trend and it’s invalidation in another article.
As a swing trader you could also be identifying patterns such as cup and handles, flags, falling wedges and many more. Each of these patterns have clear triggers to buy or sell (depending whether you’re long or short) and have easily calculable targets.
The higher the time frame the patterns occur in, the longer they take to form which generally gives them a higher reliability of playing out. However, the trick is to wait for the clearly defined triggers which confirm the likelihood of the move.
Successful swing trading techniques
A successful swing trader’s greatest attribute is patience.
Rather than jumping into a position because the pattern looks like it will complete, you wait for confirmation. If you don’t get confirmation you don’t take the trade.
Being disciplined and setting out clear criteria for each trade’s entry and exit is what makes for a consistently successful swing trading strategy.
Whether you prefer swing trading ranges, trends, patterns or a combination of them all you will never be successful without proper risk management and clear invalidation points.
If you can’t protect your initial capital you will soon run out of money to trade with.
If price reaches your invalidation point or stop loss then take the loss and walk away. There are plenty more trades to take.
The last thing you want to be doing is holding a trade deep into loss territory in the hopes it reverses. This is why you define a clear point where the trade idea is invalidated and you cut it for a small loss.
The invalidation point is defined by support or resistance levels being lost and the price moving in the other direction to your plan.
Practice makes perfect (or better at least)
When it comes to understanding how to swing trade crypto, practice is key. You can do this in a number of ways, such as with a dummy account, with small amounts of money or on paper.
A good practice to get into is to keep a journal of your potential and actual trades.
Write down what you’re seeing, what a good entry trigger would be, where the invalidation would be. You can also work out what the potential risk to reward of the trade is and then watch it play out.
Paper trading even for advanced traders is a good way of outlining the potential trade and whether it’s even worth taking. Even if you don’t take the trade it’s good practice and a way of further developing your overall strategy.
Swing trading examples
Let’s take a look at some examples of how to swing trade crypto movements, their entries, targets and invalidations.
Example one – short price movement
Our first swing trade example is a short trade between the range high and low with BTC/USD on the 4hr time frame.
As you can see price had been in an uptrend towards the range high area. However, upon reaching that region the movement stalled, eventually falling below the 39630.86 support it was trying to consolidate along.
Even though the support was lost it still didn’t provide confirmation for a short entry.
The confirmation for the trade came when price rebounded towards what was the previous support (the higher green line) and rejected.
This confirmed that area as resistance.
You could now comfortably enter a short position with invalidation above the range high region. In this instance your first target would be the middle of the range (middle green line) where you may take some profits.
Even if you didn’t take profits you would certainly move your stop loss down to the 37950 region to secure a 4.24% profit regardless of what happens.
Your main target in this trade would be the top of the range low region at 30113.37 (bottom green line) which would give you a 24% profit over the space of 5 days.
Example 2 – long trade
Let’s look at another example.
This is a long trade and an example of the start of a new macro trend. Pictured we have BTC/USD on the 1 day time frame.
As you can see, the price had gained, stayed above the support then crashed and technically lost the daily bullish structure.
The price then tries to come back above the resistance on the yellow line, which looks like it might be a short opportunity.
But rather than collapsing further, the price created a higher low and consolidated. It then reclaimed the yellow line resistance as support (circled area).
It’s at this point you could comfortably open a long position with your stop loss below the 10865 level (purple line).
The first target for this swing trade would be the top of the next resistance or white line at 12473 which would give you an 11.54% gain.
However, seeing the strength of the move upwards, rather than take profits, you would move your stop loss up to just below the 12473 area taking advantage of the momentum.
In this case that move ran up to just below the previous all-time high, around 19400 depending on the exchange, before invalidating. If you had let the trade run to 19400 then you would have enjoyed a 73.48% profit over the course of 39 days.
Is swing trading right for you?
As you can see swing trading in volatile assets such as cryptocurrency can be a highly lucrative practice.
The important things to remember is to identify clear triggers for the trade and keep clear invalidation levels to minimise loss in the event the trade doesn’t go to plan.
There’s a saying ‘plan your trade and trade your plan’. In other words you’ve made a plan with confirmation triggers and invalidation, so stick with it.
Above all patience is absolutely key to being a successful swing trader.
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