There are many types of trading strategies and styles that investors can select. This article discusses swing trading in detail and sheds light on how investors can use it to improve their trading potential.
What is Swing Trading?
Swing trading is a type of short-term trading strategy that intends to take advantage of the smallest price movements for a given cryptocurrency. A swing trading position can last from a few days to weeks. Traders usually aim to make around 5% to 10% profits on their swing trading positions.
Rather than options for longer durations, swing traders aim to cash out on the smallest price movements. This method allows them to book profits at a faster pace and start new positions that can get them ahead of long-term earning potential.
How does Swing Trading Work?
Here are some simple and easy steps to perform swing trading operations:
It is important to note that the first step in swing trading is selecting a suitable cryptocurrency. The token should have solid fundamentals and at the same time, it should be based on a reliable blockchain or issuer to avoid scams or other issues.
The selection process is important because unreliable tokens will always lead to losses for the investors.
The next step in this case is to conduct a market analysis of the selected token. All short-term traders heavily rely on technical analysis in addition to market analysis for the investors.
However, the traders who are only getting started may rely on basic and important metrics such as the Relative Strength Index, Moving Average Convergence Divergence, Bollinger Bands, Elliot Wave, and others.
Entry and Exit
The benefit of swing trading is that investors can place an upper and lower price limit threshold. The upper limit indicates the maximum intended trading position and the lower limit is added to prevent losses if the price falls below the purchase point.
Swing traders can take reference from the support and resistance price levels to decide their cashing out or stop-loss limits.
It is possible to perform shorting with swing trading as well. Shorting is done by borrowing funds from other investors for a lower price and selling it in the market when the price falls lower than the borrowing prices.
Now traders can sell the borrowed amount back to the lender and make a profit on their trade. Swing traders can also take advantage of the smallest price declines in the shorter term.
Swing Trading Vs Day Trading
Day trading is another popular form of short-term trading strategy that sounds like swing trading. However, there are some visible differences between both trading ventures. Day trading positions cannot last longer than 24 hours as a rule.
On the other hand, swing trading positions can last for more than a day and can expand to weeks at length as well. Day traders usually perform margin or leveraged trading is usually four times higher than the investment position.
On the other hand, swing traders use twofold leverage positions. Day trading is done at dedicated financial firms and trained brokers but in contrast swing trading is done on a part-time basis.
Day traders usually make multiple trades within a day and some positions last for as little time as a few seconds. On the other hand, swing trading position frequency is lower. Swing traders tend to stick with a few cryptocurrencies that they presume to be the most profitable ventures.
Advantages of Swing Trading
Here are some visible advantages of swing trading:
- Swing traders make smaller profits but they can get ahead of long-term investors by increasing the frequency of their short-term trades.
- Swing traders can maximize their earning potential by adopting this trading strategy as a part-time trading option.
- Swing trading can reduce the average loss potential for long terms from 7-8% to 3-4%.
- Swing traders can start by picking some of the top-performing stocks or cryptocurrencies that make it suitable for beginners.
- Swing traders can take advantage of the short-selling method and combine their market knowledge to take advantage of the smallest price changes.
- Swing traders can perform less risky margin or leveraged trading in comparison to day traders but generate considerable profits.
Swing trading is one of the short-term and easier methods to increase trading potential for the given investor. Rather than depending on a single trading strategy, investors can make a bank by employing various types of trading strategies such as swing trading in their arsenal.