Swing Trading Cryptocurrency: Best Trading Strategy in 2022?
Posted On March 7, 2022
If you’re one of those people who don’t have the patience to hold on to crypto for years but also can’t imagine a life sitting behind a computer all day, day trading, swing trading cryptocurrency could be the sweet spot you’ve been looking for.
Swing trading is one of the most popular trading methods in the crypto community for reasons we’ll discuss in this article, along with how to swing trade crypto, different strategies and much more. So, stick around till the end.
What is Swing Trading Cryptocurrency?
In swing trading cryptocurrency, traders tend to open positions for longer time-frames than in day trading or crypto scalping. This time frame can last for days, weeks and even months sometimes.
Swing traders aren’t interested in small, short-term profits that a typical day trader is after. At the same time, they aren’t interested in the long-term returns either.
What they are really aiming for is to make money from the “swings” in the crypto market that occur over a relatively long period of time.
Swing trading cryptocurrency relies heavily on technical analysis and fundamental analysis.
Technical analysis is only effective in short time frames. When the time frames exceed 24 hours, crypto prices are subject to other factors like economic reforms, new government laws or regulations, external influences, etc. These are factors that technical analysis can’t always account for.
Some traders even solely rely on fundamental analysis to swing trade.
Day Trading Vs Swing Trading Cryptocurrency
Day-trading involves accumulating small but frequent profits that end up compounding by the end of the day. As we know, day trading is solely based on technical analysis.
Swing trading allows you to accumulate relatively greater profits but not as frequently as in day trading. Typically, swing traders open positions every 2-3 days, but as we mentioned before, it can sometimes last up to weeks and months.
Day trading is a full-time commitment, while swing trading is more like a hobby or part-time job that you can do along with your day job. Plus, it’s a lot less stressful and time-consuming.
How to Swing Trade Cryptocurrency
Other than the fundamentals of basic investing and trading, here are some key points on how to swing trade cryptocurrency successfully –
Pay Attention to Bitcoin
This one is key.
Since Bitcoin is sitting on the Iron Throne of the crypto market, almost any drastic Bitcoin price movement will also result in drastic altcoin price movements.
It usually goes one of these two ways –
a) If Bitcoin prices rise, altcoins prices drop – If Bitcoin goes through a rapid price surge, most people dump their altcoins to ride the Bitcoin wave out of FOMO.
b) If Bitcoin prices drop, altcoin prices drop too – It’s because Bitcoin’s growth represents the growth of the cryptocurrency market as a whole. As a result, if Bitcoin prices drop, people sell their altcoins out of fear.
So, always pay attention to Bitcoin. Usually, the sweet spot lies when Bitcoin prices increase at a steady, reasonable rate. Keep in mind any radical change will almost always result in radical consequences.
Learn Technical Analysis
Forget swing trading cryptocurrency. If you’re getting into trading in general, you need to learn technical analysis. People who hate numbers, charts, or anything too technical will probably not enjoy learning technical analysis. But it’s a necessity if you want to succeed in swing trading.
Sure, some people base their strategies entirely on fundamental analysis, but that’s very rare.
Focus on the Fundamentals
Even though we said technical analysis is crucial, that doesn’t take away from the importance of fundamental analysis in swing trading. In a short time frame, fundamentals don’t really matter much. But when you hold positions for days and weeks, the chances of external factors influencing crypto prices increases.
So, make sure you always keep up with the news, the community and where the market is headed.
Consider Fees and Other Costs
There are a lot of fees and costs involved with trading that we also covered in the crypto scalping and shorting Bitcoin article. Mainly, you need to look out for the transaction fees that different exchanges charge.
You should trade crypto in an exchange that offers a combination of affordable transaction fees and a range of trading tools and features. We will talk more about the exchanges later in this article.
You also need to be aware of swing trading crypto taxes, which we will also talk about later in this article.
Bottom line – make sure you account for these costs before dipping your toe in the sea of trading.
Use a Demo Account to Practice
Lastly, this is probably the best thing you can do to get better at swing trading or any trading for that matter.
Opening a demo account and practicing with virtual funds allow you to get a feel for the practical reality of the trading world.
It’ll allow you to make mistakes without real-life consequences. You can also familiarize yourself with technical analysis, indicators, signals and how they work in real-time.
Swing Trading Cryptocurrency Strategies
There are more than three swing trading crypto strategies, but we’ll only cover these three as they are the most common. Different styles and strategies suit different personalities based on their risk appetite and patience. Each approach has its pros and cons. Understand that and pursue what best suits you.
‘Range’ in range trading represents the space between two price levels where one is the average low, and the other is the average high. Depending on what swing trading crypto strategies you deploy, you can choose to long or short crypto.
Basically, buy at a low price level and sell it off when it reaches its average high or vice versa.
Pattern trading is very similar to range trading.
As we know, crypto prices move in trends – uptrends or downtrends. Within these trends, there are patterns. To understand or practice pattern trading, you need a fluent understanding of different chart patterns and indicators.
Nonetheless, the concept is similar. Only the tools used are different.
Moving averages help traders see the direction that crypto prices are headed in. You take two moving averages – a short-term MA and a long-term MA and compare them to determine the market trend.
We have explained moving averages and golden cross in great detail. Go check it out.
Tools for Swing Trading Crypto
If you’re swing trading cryptocurrency, you’ll most probably need some or all three of these tools.
Crypto bots are especially helpful in day trading and scalping when you have to open and close positions much more frequently. But that doesn’t mean you can’t integrate crypto bots in your swing trading strategies.
The simplest way to explain crypto bots is this – You program crypto bots to do what you would have done anyway.
Signals are a set of predetermined conditions that you set yourself with the help of technical analysis. They work in similar ways to bots. You program them to tell you when it’s an ideal time to open a position based on your own swing trading crypto strategies.
There are two kinds of signals – automated and managed.
Automated is what we just described. Managed signals are signals created by other traders available to the general public to copy.
Risk Management Tools
Risk management tools include stop-losses and protective measures you can take to prevent losing large trades overnight when you’re not actively looking over the market.
These are crucial, especially in swing trading cryptocurrencies, where the time frame can last for days and weeks.
Taxes on Swing Trading Cryptocurrency
As we already know, the IRS treats cryptocurrency as property, meaning the same capital gains tax laws apply to crypto as other properties and assets.
To understand how cryptocurrencies are taxed, we highly recommend you check out this crypto tax guide.
However, most people already know how crypto is taxed. That’s not the difficult part. The difficult part is understanding how to collect all the trades and transaction data, calculate them and report taxes. That’s the hardest part.
For HODLers, this might not be such a huge deal. But for day traders and swing traders, it’s nearly impossible to manually collect all this data and calculate taxes on them. And all of this becomes even more complicated if you’re using multiple exchanges and wallets.
Therefore, if you’re swing trading cryptocurrencies, you’re better off using a crypto tax calculator like Bitcoin.Tax to sort your trades and taxes.
Bitcoin.Tax will automatically collect all your trade history from all the different exchanges and wallets you’ve been using, calculate capital gains and losses and help you create a tax report.
Best Crypto to Swing Trade
If you’re still a beginner in swing trading or trading in general, the best crypto to swing trade for you would be Bitcoin and Ethereum.
As you gain more and more experience and knowledge in swing trading, you can start diversifying into other altcoins, such as Tether.
Ideally, any volatile assets are best for swing trade. And as we already know, cryptocurrency is inherently volatile. So, it doesn’t really matter what crypto you choose. However, the size of the market or market capitalization does matter.
Most altcoins don’t have as big of a market capitalization as Bitcoin and Ethereum. That’s why, as a beginner, it’s advisable to stick to these two.
Best Exchanges for Swing Trading Cryptocurrency
When looking for the best exchange to swing trade crypto, you must consider these four factors – trade volume, liquidity, fees and trading tools and features.
Recently, we published a list of the 6 best crypto exchanges for day trading. The list also applies to swing trading cryptocurrency. We explain all four factors and why it matters, along with the pros and cons of different exchanges.
Nonetheless, here’s the list if you want a quick overview –
Is Swing Trading Cryptocurrency Worth it?
If you’re one of those people who like trading or, at least, intrigued by it but don’t wanna quit their job to spend their entire day in front of a computer looking at charts and graphs, swing trading is for you.
However, if it’s worth it or not is a totally different question altogether.
The answer is – it depends.
One of the main things to consider is the cost and fees associated with swing trading. After evaluating all the factors, if you still find it potentially profitable and if you’ve nothing better to do that would bring you more returns, then why not?