The concept of swing trading is very common among beginner traders, as well as those who don’t like to spend their days in front of the screen. This type of trading is popular among most financial markets but seems to be most beneficial when it comes to stocks and crypto trading.

That being said, with so many different trading methods, it’s hard to understand whether this one is right for you. Therefore, we created this value-packed guide to introduce you to the concept of cryptocurrency swing trading. After going through this post you will have everything you need to get started.

What is cryptocurrency swing trading?

Just like a regular swing goes back and forth with a certain momentum, swing traders use positive or negative market dynamics to setup their short to mid-term trades.

In more technical terms, cryptocurrency swing trading is an investment method that aims to capture price movements (swings) based on:

  • Sentiment analysis (trends, feelings, etc.)
  • Technical analysis on larger timeframes (e.g. weekly)

The reason swing trading works so well with crypto is the ever-growing market participation and demand buildup. With more market participants, the direction of the market will naturally experience larger swings. It is also easier to spot an upcoming swing when looking at the overall feeling of the market.

The same is not true for less liquid investment markets (like specific collectibles) or markets that are going through a long-term downtrend. These are better tackled using different trading methods.

How do swing traders make money?

Similar to all trading methodologies, making money is all about taking a position in the market based on calculated predictions. There is always an element of risk, but swing trading tends to be more predictable than other methods.

As aforementioned, the way swing traders capture market swings is focused on short to mid timeframes (days to months). Therefore, they will need to hold onto their position longer than day traders but less than long-term HODLers.

Using TA for trend spotting

In the context of cryptocurrency swing trading, technical analysis and price indicators are mainly used to spot upcoming or ending trends. For example, if an RSI indicator approaches really high levels or Bollinger Bands are too far away from one another, a trader may predict a price reversal.

Additionally, the use of TA is limited to larger timeframes, since these indicate stronger trend confirmations. For example, when looking at Bitcoin’s past month, you may see a somewhat stagnant market. However, when zooming out at a 6-month timeframe you will notice a positive growth.

Trends-spotting

For most traders, the 12-hr and 24-hr chart offers the most useful mid-term information, but that of course will depend on the individual trader.

Using SA to control the “swing”

Swing trading Bitcoin and other cryptocurrencies require a good overview of the market sentiment. If you were hoping for a “set it and forget it” trading setup, think again. While you won’t be looking at charts and indicators every waking hour, you will need to keep track of the way the public feels about a certain coin.

Is there fear, uncertainty, and doubt (FOMO)? Or maybe extreme levels of euphoria? Try to remember what happened the last time such a sentiment occurred and make an educated decision. Sentiment is all about understanding behavioral dynamics and comparing them with past historical patterns.

We will further analyze who to perform sentiment analysis in the following chapters.

How does an actual swing trade look like?

For all new investors reading this, you might get a better understanding of swing trading through the following example:

In March 2020, the Coronavirus pandemic caused a large selloff in all investment markets. The cryptocurrency markets lost nearly 60% of their value in a matter of days.

For those that have been observing the markets from both a technical and a sentimental viewpoint, the following information can be derived:

  • The markets have been recovering for more than a year prior to this crash and the much-expected Bitcoin halving was just 2 months away. Historically, the halving causes growth in demand.
  • The mainstream media caused a lot of fear to the public, which in turn led to emotional decisions from retail traders. They would rather sit in cash, expecting a potential apocalypse while stacking toilet paper.
  • Bitcoin’s fundamentals did not change, and the popular cryptocurrency is more important than ever in unstable economic conditions.
  • Historically, when short-term crashes occur in bull markets, there is a lot of buying power that causes an equally sharp price recovery.

By all means, the bottom of this crash would be the ideal position to enter a trade (buy Bitcoin). This could be extended until (at least) the halving that occurred 2 months later driving a lot of retail interest in hopes of quick profit. 

Those who bought Bitcoin at $4800, when everyone was panic-selling, would now have 4x the value of their funds. Selling at this point would indicate a very successful swing trade. It is important to remember that your sale should occur before the opposite “swing” occurs once again.

Crypto swing trading – Getting started

To start with swing trading, you will first need to understand (and train) your ability to tolerate risk. The more you need the money you invest, the less likely you can tolerate the volatile price swings of the cryptocurrency markets. The best way to train yourself in that aspect is through market observation and experience. Start trading with small amounts and work your way up.

Secondly, you will need to become an expert in sentiment analysis and market observation. We have written extensively on the topic, so you can start by reading the following articles:

Third, it is important to understand how to read chart patterns, to help you discover trend buildups. For this, you can check the following instructional video and guide yourself from there:

Additionally, you can also explore the following resources:

Keep in mind that swing trading is not set in stone. Your investment strategy will be significantly different than that of others, and these resources are only meant to offer a kickstart to your theoretical and practical knowledge. Your trading style will build up over time, just like any other skill you choose to explore.

Swing trading strategies

After learning the basics of swing trading, it might be a good idea to check some of the most common strategies that are often used by experienced traders. These setups tend to be easier to spot, and are a good way to start experimenting with your newly acquired knowledge.

Strategy #1 – Buy the rumor, sell the news

If you’ve been around for a while you will most likely hear this quote being used often. The process is quite simple: After carefully observing the market and the upcoming events, you might come across a very positive (bullish) announcement that will play out over the next few days to weeks. Examples can include a hard fork, an airdrop to certain coin holders, a reward halving, or a large partnership.

In all cases, these announcements usually lead to a short increase in demand from retail traders. These will bet on the assumption of growth in price due to the event. Now, at this point, no one really knows if the event in question will lead to a growth in price. Traders are aware of this, which is why they would rather bank on the rumors of such news rather than the news themselves.

A very popular example is that of John McAffee’s predictions during the latest bull market. The following tweet helped many people earn a lot of money in a short amount of time.

After John McAffee posted this tweet, the market sentiment switched to (extremely) bullish, causing surges of people to purchase the cryptocurrencies mentioned in it. The result? Verge (XVG) increased nearly 100-fold within a week’s timeframe.

Strategy #2 – Stuck in a range

The core idea here is that the price of an asset is stuck within a range (certain top and bottom) and your goal is to buy low and sell high. When the price rejects the bottom range and goes under it, you make a purchase (go long). Note: To improve your risk to reward ratio, it is best to set a stop loss at the next support level, which you can observe by looking at past patterns of your selected candlestick chart.

On first consideration, this strategy is more focused on technical analysis. However, using that as your sole guide will quickly lead to losses and stress. You want to follow the market sentiment to understand at which point to exit, and whether you can hold just a little big longer than the resistance range point.

Strategy #3 – Catch the swing

This strategy plays out when looking at Elliott waves (check resources of the prior chapter). What you want to do is catch the move that is in line with the trend. To start off, zoom out to the 12-24 hr candle chart and try to spot the current sentiment. If we are cruizing through a bullish period, the stronger move (in line with the trend) will go upwards. In a bearish market, the stronger moves go downwards.

Here’s an example of how a bullish period looks like in terms of Elliott waves

The goal is to enter during the short-lived downtrend (which can be observed by looking at the 25MA and 50MA), catch the uptrend, and sell before the next downtrend occurs. 

Once again, it may seem like a matter of technical analysis, but sentiment analysis acts as the foundation of your efforts. This is because you need to make sure that the long-term uptrend continues for the duration of your trade.

Wrapping up

Most people tend to confuse swing trading for short-term-only trading activity. While it can be useful in shorter time-periods, it is mostly aimed towards mid-term traders, who want to benefit from larger price movements and are willing to wait for it.

Swing trading refers to the process of making trades with longer gaps between them, betting mainly on the sentiment of investors and the overall direction of the market.

Knowing this, it is important to summarize what you should be focusing on when trying to understand how the process works. There are two methodologies you need to explore when starting out with swing trading:

  1. Sentiment analysis – the foundation of mid-term price direction and a strong indicator of trend buildups (or breakdowns).
  2. Technical analysis – while not the primary decision maker, TA helps to confirm the direction of the market and benefit within shorter timeframes.

Keep in mind that trading is very risky and unpredictable. Even the best traders lose money most of the time, so make sure that you have strong emotional intelligence and enough practical experience trading with small amounts. Only when that is achieved will you be able to execute the strategies mentioned above, and start creating your own unique variations.