Most investors and traders want to maximise their return on investment (ROI) as much as possible. One of the best known ways to do so is by using a technique called swing trading.
As described by Investopedia: “Swing trading is a style of trading that attempts to capture gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities. These traders may utilise fundamental analysis in addition to analysing price trends and patterns.”
Swing trading involves holding a position either long or short for more than one trading session, but usually not longer than several weeks or a couple of months. This is a general time frame, as some trades may last longer than a couple of months, yet the trader may still consider them swing trades.
The goal of swing trading is to capture a chunk of a potential price move. While some traders seek out volatile cryptos with lots of movement, others may prefer more sedate ones. In either case, swing trading is the process of identifying where an asset’s price is likely to move next, entering a position, and then capturing a chunk of the profit from that move.
Successful swing traders are only looking to capture a chunk of the expected price move and then move on to the next opportunity.
In this guide, I will discuss two main topics:
- How to choose a cryptocurrency to swing trade
- How to choose the right moment to strike
After all, the most important factor in swing trading is perfect timing!
Choosing the right cryptocurrency
The first key to successful swing trading is picking the right coin. The best candidates are large-cap coins, such as the top 100 cryptocurrencies by market cap, which are among the most actively traded on major exchanges. In an active market, these coins will swing between broadly defined high and low extremes, and the swing trader will ride the wave in one direction for a couple of days or weeks only to switch to the opposite side of the trade when the crypto price reverses direction.
Choosing the right moment
In either of the two market extremes – the bear market environment or raging bull market – swing trading proves to be rather difficult. In these extremes, even the most active cryptocurrencies will not exhibit the same up-and-down oscillations as when indexes are relatively stable for a few weeks or months. In a bear market or bull market, momentum will generally carry coins for a long period of time in one direction only, thereby confirming that the best strategy is to trade on the basis of the longer-term directional trend.
The swing trader, therefore, is best positioned when markets are going nowhere – when indexes rise for a couple of days, then decline for the next few days, only to repeat the same general pattern again and again. A couple of months might pass with major cryptocurrencies roughly at the same place as their original levels, but the swing trader has had many opportunities to catch the short-term movements up and down (sometimes within a channel).
The best moment to pick a swing strategy seems to be during quiet consolidation periods – just like the past couple of months, at least for Bitcoin and Ethereum.
Hopefully this guide has helped you understand how this strategy works and the most important variables you need to care about.