Swing trading is one of the most popular and effective trading methods in the financial market. It is chosen by many investors because of its ability to bring high profits in a short time. So, What is swing trading and what are the strategies or methods for swing trading? Let’s find out this content through the article below by Crypto Trading.
What are the characteristics of the swing trading method?
Let’s see what the characteristics of What is swing trading.
- The frequency of transactions in swing trading is usually less than that of Scalping and day trading. Because investors often choose longer time frames to execute their transactions.
- In terms of stability, most investors choose to execute orders in medium-term time frames, usually from 1 day to 1 week. Therefore, the number of transactions they make in a month is usually quite small. To pursue this trading style, investors need to study the profitability ratio for at least one year. At the same time, consider opportunities based on short-term price action.
- The ideal return for a swing trader is generally considered to be around 12%, while the acceptable risk ratio is below 3%. Transaction costs in swing trading are usually much lower than other short-term strategies. Due to the low frequency of orders, spreads and commissions are not a big issue for investors. This is in stark contrast to the scalping style. However, traders need to factor in swaps (overnight fees). These fees can affect profits but can also help increase profits.
- The stress level in swing trading is much lower than in scalping and day trading. Instead of constantly watching the screen to observe price movements, swing trading only requires about 15 minutes a day to check market movements.
See also: Technical analysis: secret trade to increase profits
Advantages and disadvantages of swing trading you may not know
Every investment method has its benefits and risks, as they each have their pros and cons. is no different. Here are some of the common benefits and drawbacks of this trading style:
What are the outstanding advantages of What is swing trading?
has countless advantages, so it is loved and used by many traders. Let’s review the benefits of trading using the method What is swing trading.
- Low trading costs: Spreads and commissions in are usually much lower than day trading and scalping.
- Save time: No need to sit and watch the computer screen all day or watch every small fluctuation of the market every second and minute. This helps investors reduce pressure and stress to spend time on other useful tasks.
- Potentially large profits: profits can range from 20, 30 to several hundred pips per trade. Maximizing profits in the short term is entirely possible if the swing trader captures the big fluctuations in the market.
- Relying on technical analysis: can rely solely on technical analysis to seek profits.
Some limitations of swing trading
Besides the advantages, also has some limitations as follows:
- High risk when holding orders overnight: Trading positions are exposed to high risk when orders are held overnight or over the weekend. When holding orders overnight, prices may move in the wrong direction due to major news, resulting in price gaps (gaps up or down) that can cause you to incur heavy losses.
- High Overnight Costs: Overnight costs in are higher than scalping and day trading because of holding orders overnight or over the weekend.
- Analytical skills required: requires investors to have good analytical skills and understand market psychology.
- Missing out on long-term opportunities: By focusing only on medium-term and short-term trades, traders may miss out on opportunities from long-term positions.
Who should use swing trading?
is a fairly simple trading method. It is easy to apply to many investors, including in the crypto field. Specifically, What is swing trading and which subjects is it suitable for? Let’s explore the two subjects below.
Swing trading for retail investors
With its flexibility, is especially suitable for small traders with average or low capital. Large investors with large capital often do not favor this method. Because their transactions can cause large price fluctuations with just one order.
Swing trading for investors with risk tolerance
is also suitable for investors who are calm and willing to accept risks. If you are not too worried about losses and can accept fewer transactions to wait for good opportunities, then maybe the right choice. However, it is important to note that readiness and experience are necessary. Do not rush into if you are not well prepared and do not have enough experience.
What are swing trading strategies?
We will go deeper into each specific strategy for the crypto market. Each strategy will be described in detail from how to determine entry points, risk management, to the tools and technical indicators to use.
Swing trading method – Breakout trading
Breakout trading seeks to capture strong price movements when the price breaks through important support or resistance levels.
Doing
- Identify support and resistance levels: Use a price chart to identify price levels that have repeatedly failed to surpass (resistance) or failed to fall below (support).
- Wait for a breakout: When the price breaks through a resistance or support level with high volume, this is a sign of a strong breakout.
- Enter command :
- Buy Order: When the price is seen to be breaking above the given resistance level.
- Sell Order: When the price falls below the support level.
- Place stop-loss: Place just below the support level (for buy orders) or just above the resistance level (for sell orders) to limit risk.
- Set take-profit: Determine the target price based on the next resistance/support levels or the desired risk/reward ratio (usually 1:2 or 1:3).
Tools and indicators used
- Moving average (EMA, SMA): To confirm the trend.
- Trading Volume: To confirm the strength of the breakout.
Pullback trading strategy
What is the Pullback Strategy in What is swing trading? It is to take advantage of price corrections in the opposite direction of a main trend. Then enter orders following the main trend when the price returns.
Doing
- Identify the main trend: Use long-term moving averages (EMA 50, EMA 200) to identify the main trend.
- Wait for a pullback: When the price corrects in the opposite direction of a main trend.
- Enter command :
- Buy Order: When the price corrects down to the support level and shows signs of increasing again.
- Sell Order: When the price adjusts to the resistance level and shows signs of falling again.
- Place stop-loss: Place below support (for buy orders) or above resistance (for sell orders).
- Set take-profit: Set at the next resistance level (for buy orders) or the next support level (for sell orders).
Tools and indicators used
- Fibonacci retracement: To identify potential support and resistance levels in pullbacks.
- RSI Indicator: To identify overbought/oversold zones and reversal signs.
Swing trading strategy – Reversal trading
Reversal trading seeks to initiate orders when it is anticipated that the current trend will reverse.
Doing
- Identify reversal signs: Use technical indicators like RSI, MACD, and reversal candlestick patterns.
- Enter command :
- Buy order: When there are signs that the downtrend will reverse to an uptrend (for example RSI indicates an oversold zone, Bullish Engulfing candlestick pattern).
- Sell order: When there are signs that the uptrend will reverse to a downtrend (for example: RSI indicates an overbought zone, Bearish Engulfing candlestick pattern).
- Place stop-loss: Place below the nearest support level (for buy orders) or above the nearest resistance level (for sell orders).
- Set take-profit: Set at the next resistance (for buy orders) or support (for sell orders).
Tools and indicators used
- RSI Indicator: Used to identify overbought or oversold areas.
- MACD indicator: To confirm trends and reversal signs.
- Reversal candlestick patterns: Bullish Engulfing, Bearish Engulfing, Hammer, Doji.
See more: OKX: open an OKX account – Reputable crypto exchange
What is swing trading? Applying Range Trading Strategy
Range trading trades within a certain price range when the market has no clear trend.
Doing
- Determine price range: Use price charts to determine support and resistance levels that form a range.
- Enter command :
- Buy Order: When the price is at the support level and shows signs of increasing again.
- Sell Order: When the price is at a resistance level and shows signs of falling again.
- Place stop-loss: Place below support (for buy orders) or above resistance (for sell orders).
- Set take-profit: Set at resistance (for buy orders) or support (for sell orders).
Tools and indicators used
- Moving Average (EMA, SMA): To determine the main trend and confirm the price range.
- RSI and Stochastic Oscillator Indicators: To identify overbought/oversold zones within the price range.
In addition to applying the above methods, investors can also combine with the Wyckoff method. When combining swing trading with Wyckoff, you can easily determine optimal entry and exit points.
Epilogue
Above Crypto Trading has provided full information about What is swing trading. Along with that are the characteristics, advantages and disadvantages, users, and effective strategies. Learn carefully how to swing trading and don’t forget to combine with specific methods to maximize profits.
Frequently Asked Questions?
What is swing trading?
Swing trading is a short-term method, usually lasting from a few days to a few weeks. helps traders capture medium-term price movements of the market.
Is swing trading suitable for retail investors?
Yes, swing trading is suitable for retail investors. Because this method requires small capital and does not require continuous market monitoring.
What skills do swing trading require?
requires technical analysis skills, reading price charts, and risk management abilities.
