Swing trading: What do you need to know as an investor?

Swing trading: What do you need to know as an investor?
Table Content
What is swing trading?
Swing trading vs. scalping
Best swing trading strategies
What is swing trading crypto?
How to pick stocks for swing trading crypto

Still looking for the right trading style for you? It could be swing trading. Swing trading involves holding a position for more than a day. Swing traders shoot for short-term profits by employing technical analysis to enter, hold, and exit positions for multiple days or weeks, then close them shortly after. But there's more to it than that, so let's dig a little deeper.

What is swing trading?

Swing trading involves taking trades ranging from 24 hours to a number of months to make money from a price moving in the expected direction. Swing trading opens up the possibility of you being caught up in other types of risk that aren’t generally associated with other types of trading, such as day trading. These include overnight price changes and weekend risks, where the price could open on a trading day at a wildly contrasting price, be it positive or negative.

Whilst this applies to stock trading, markets such as cryptocurrency are available 24 hours a day and factor in all these risks, hence the increased volatility compared to stocks and shares trading. If you have studied the graphs and charts properly and are confident in your investment, you shouldn’t let volatility or emotion affect your judgment. This is a surefire way to damage your own investment. That isn’t t say follow it blindly into oblivion, but a measured approach is a key to successful trading psychology. Now that we have defined swing trading, let’s look at some specifics in more depth.

Swing trading vs. scalping

Generally speaking, swing traders will net higher profits than traders who scalp if it is measured on a trade-by-trade basis. However, as with all types of trading, patience is a virtue, and you need it in abundance. When measuring market movements via graphs and charts, it can take days, weeks, or months to execute a successful swing trade.

Conversely, scalpers don’t net anywhere near the same levels of profit. This is understandable as scalpers will take advantage of tiny price movements over a few minutes and tend not to use anywhere near the same level of capital for obvious reasons. 

Depending on the type of trader somebody is, there are pros and cons to both types of trading. There’s nothing to say you can’t have both at play at any given time in different markets, but it is key to understand the risks to both and that they operate in a largely different fashion.

Best swing trading strategies

There are four main types of swing trading strategies that traders generally employ:

● 10-day and 20-day SMA - One of the most popular and straightforward swing trading strategies is related to simple moving averages (SMAs). SMAs iron out price data by highlighting a consistent average price which can be taken over a range of, say, 7 or 28 days. For example, a 28-day SMA tallies the finishing prices for the preceding 28 days and divides them by 28 to establish a new average. The averages are then joined together on the chart to create a working average that can slice through the volatility of a standard graph, giving the figures an easier-to-understand format. Any timeframe can be used theoretically speaking, be it 1 hour or one year. It’s important to note that SMAs within smaller periods react faster to changes in price than others over a longer period.

● The Fibonacci retracement pattern - A Fibonacci pattern is established by taking the highest and lowest point on a stock chart graph. You then divide the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%. Once these figures are established, horizontal lines are drawn and implemented to spot support and resistance levels potentially. 

● Channel trading - this strategy requires that you locate a stock exhibiting a trend and trade within a channel between two specific prices. A trading channel is drawn with trendlines to join the support and resistance levels it currently trades (the channel). Analysts favor two broad types of trading channels: envelope channels and trend channels. If you have identified a negative trend on a chart, you’d potentially look to open a sell position when the price bounces down off the channel’s top line. When using trade channels to swing-trade stocks, it’s key to operate within the trend. Where the price is moving negatively, channel trading only encourages sell positions. That is, unless the price breaks out of the channel, breaking above the trendline and identifying a potential reversal, signaling a more positive trend. 

● MACD (Moving Average Convergence Divergence) crossover - This method is used to spot whether a trend is positive (bullish) or negative (bearish). The MACD indicator is implemented to establish the solidity and durability of any potential future trends calculated on price data. The MACD supplies an image to help analyze trends and allows traders to view more chart information quickly. It is one of the most crucial instruments used in technical analysis. This includes a range of markets such as shares, commodities and cryptocurrency markets. 

What is swing trading crypto?

Any methods discussed in the previous section can also be applied to cryptocurrency charts. However, there’s increased volatility within cryptocurrency markets, and they’re more susceptible to large swings, both positive and negative. With this higher volatility comes a bigger scope for potential gains if executed correctly, and swing trading is one of the most popular trading methods amongst cryptocurrency enthusiasts.

All markets come with their own risk. However, the extreme volatility and lack of regulation within the cryptocurrency market come with heightened warnings and risks. That isn’t to say there isn’t money to be made, though.

How to pick stocks for swing trading crypto

When choosing a stock to swing trade, it is important to learn the basics with more established stocks. This would include companies like Tesla, Apple or Microsoft. These companies will have established trend lines that you can examine more easily than newer or more volatile companies, and you can do your own analysis to set up your own swing trade. Not all stocks are considered ideal for swing trading, and each company comes with its own risk. By doing your own analysis and learning to digest the figures and charts, you have one step toward picking the best stocks and yielding a decent return.

Bottom line

Swing trading can potentially be a great way for new traders to start, as well as skilled traders as well. But you've got to make sure you know your graphs and charts well, as well as maintain a cool head.

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