Introduction to Swing Trading in Crypto

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Eric Huffman

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Last updated:

November 19, 2024 09:50 EST

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Crypto’s volatility makes some traders shy away or even trade at inopportune times. However, that volatility can be a blessing in disguise, allowing you to trade the swings and ride chart trends to higher profits. Swing trading crypto, timed well, can offer more reliable gains than HODLing in many cases.

In this guide, we’ll learn the ins and outs of crypto swing trading, including the duration of trades, tools for timing trades, and strategies to manage risk when crypto swing trading. We’ll also study some of the most effective crypto indicators for optimizing profits. Let’s get started.

How Swing Trading Works in the Cryptocurrency Market

Swing trading crypto follows similar principles to swing trading in other financial markets. Swing traders take long or short positions based on technical indicators to ride short—to medium-term trends. Long positions can be taken using spot market trades without leverage, or advanced traders can use leverage (borrowed funds) to control a larger position and increase their potential profits. Short positions involve borrowing assets to sell and buying back at a (hopefully) lower price to close the position. The difference in price between the sell and buy prices represents the profit from the trade.

However, two key differences set crypto swing trading apart from trading stocks, for example, volatility and trading hours. Even the most established cryptocurrencies, like Bitcoin or Ethereum, are capable of dramatic price changes on the daily chart. Trading hours also play a role. Many traditional markets have limited hours. Crypto markets are never closed and trade 24/7, every day of the year.

How do traders identify swing trades? The answer varies depending on skill level and available tools. Most charting apps, including charts found on crypto exchanges, offer technical indicators. These indicators can help traders identify potential reversals or signs of continuing price direction. Similarly, indicators can help traders decide when it’s time to close a position.

The prevalence of technical traders in the crypto space makes these indicators more reliable. Many trading platforms and third-party providers even offer automated solutions for swing trading and other types of trading strategies. Imagine an automated swing trading bot that opens and closes positions based on technical indicators. However, swing trading bots are typically optimized for uptrends or downtrends, meaning traders may need to identify the trend manually before deploying capital to automated trades.

Key Principles of Swing Trading in Crypto

Generally, crypto trades fall into three categories: day trade, swing trade, and HODLing. Each of these corresponds to a time frame for the trade, with day traders closing positions within a day and perhaps making several trades per day. Swing trades typically last days or weeks, making them a medium-term trading strategy. HODLing refers to long-term trades, holding through the market’s ups and downs rather than trading frequently. Each strategy has its appeal and use case. Let’s compare.

Swing Trading vs. Day Trading

Swing trades often last days or weeks. By contrast, day trades can last minutes, hours, or as long as a day. However, day traders rarely “sleep” on their positions. Overall, day trading brings more trading fees and often more stress. More frequent trades combined with smaller market moves usually mean traders must use leverage to make the potential gains worthwhile.

Leverage introduces more risk, and the higher leverage levels available in crypto markets—as much as 125X on some platforms—amplify this risk. Even putting leverage aside, day trading often becomes more stressful, leading to emotional trades in many cases.

One oft-cited report from the Securities and Exchange Commission (SEC) indicates that 70% of forex retail traders lose money. Other troubling statistics show that nearly 40% of day traders call it quits within a month, and 80% give up within two years. Day trading isn’t for everyone, and statistically speaking, most traders won’t survive.

Swing trading takes a safer middle ground, holding trades for longer durations after identifying a trend. Additionally, taking medium-term positions allows swing traders to average into a position, reducing the effects of volatility on their acquisition cost.

Swing Trading vs. HODLing

Buy and hold positions (HODLing) consider long-term price expectations, which are largely irrelevant to day trades or even swing trades. HODLers might take a position now that they intend to hold indefinitely.

One well-known Dogecoin (DOGE) investor turned $250,000 into over a million dollars. Later, the price crashed, but he reportedly held for another three years, riding the recovery into a new bull market and an even higher valuation.

Swing trading and HODLing share one commonality in that both provide traders with the opportunity to scale into a position over time. However, the window for adding to positions in swing trades is smaller. Many swing traders build a position over the course of several buys. HODLers might add dozens of times or more.

Essential Tools and Indicators for Crypto Swing Trading

Several types of tools and indicators can help you identify swing trade opportunities. The easiest of these are simple moving average lines, such as the 50-day and 200-day moving averages. These can identify longer swing trades. Using shorter durations for moving averages can pinpoint entry and exit points for shorter-duration swing trades.

Other helpful indicators include the relative strength index (RSI) and moving average convergence divergence (MACD). Most exchanges offer up to 100 indicators or more. However, dedicated charting platforms like TradingView offer more features, such as the ability to create customized indicators.

Let’s examine some of the most common indicators and tools for swing trading crypto.

Moving Averages

Moving averages plot lines on a chart, one of which uses a longer duration to calculate the average. When the shorter-term line crosses above the longer-term line, that indicates an uptrend and a buy signal. Conversely, when the shorter-duration line crosses below the long-term line, that indicates a sell signal.

The chart below shows the 9-day and 20-day moving averages, with an indicator for each crossover.

Although moving averages are a lagging indicator, using moving average crossovers generally points to profitable entry and exit points for trades, and this indicator is simple enough for beginners. However, don’t expect to catch the bottom and top of a swing. Moving averages move slower than real-time prices.

Notably, the moving averages signaled a buy in early February and a sell in mid-April. During that time, BTC rose from $42,200 to $68,000 before retreating to a lower range.

Simple moving averages, while easy to use, don’t consider volume. Price changes on higher trading volume signal that the market has conviction. Conversely, it’s possible for prices to drift aimlessly on low volume, creating a less reliable trading signal. Many crypto swing trading strategies use more than one indicator.

RSI (Relative Strength Index)

The relative strength index helps to identify overbought or oversold conditions. This indicator plots a graph below the chart with a band ranging from 30 to 70, indicating normal trading conditions. However, when the indicator crosses above 70, it indicates the market is overbought. Dips below 30 indicate oversold conditions. In both cases, it’s common to see a short-term trend reversal.

Using RSI for crypto swing trading works best with a shorter-duration chart. The one-month chart for Ethereum shown below indicates several potential trades, including some potential short trades.

A variation on this indicator, called volume RSI, uses volume rather than price to form the graph.

MACD (Moving Average Convergence Divergence)

The moving average convergence divergence oscillator plots lines on a chart based on moving averages. Points at which the two lines cross indicate that a trend (up or down) may be accelerating.

Some traders use MACD to identify entry and exit points for a specific trading pair. Watch the angle of the crossover as well. Sharper angles may indicate a stronger shift in trend. Toward the end of the chart, MACD hasn’t yet crossed over, but if the market continues buying with conviction, MACD may send another convincing buy signal.

Trend Lines

Most charts on advanced trading platforms like Binance or Coinbase support drawing tools for drawing trend lines on live charts. Tracking downtrends connects the peaks on the chart. Uptrend trend lines use a line to connect the low points on the chart. As the live price crosses the trend line, it may indicate a buy or a sell signal.

Crossing above the trend line in a downtrend may indicate it’s time to enter a buy for a swing trade. Conversely, crossing below the line in an uptrend may suggest it’s time to take profits. More points of contact on a trend line typically indicates a stronger trend.

Charting Platforms and Analytics Software

Advanced trading platforms like Coinbase, Binance, OKX, and MEXC offer up to 100 chart indicators, allowing you to use multiple indicators to confirm trends for crypto swing trading. Two or more indicators that agree may increase your confidence in the trend’s strength. Many of these platforms use charts provided by TradingView, which is the leading chart platform for active traders.

However, many traders prefer to use TradingView on its own. The site limits features for free users, but even free users can access custom indicators built by other community members.

Upgrade to a paid account to build your own indicators or show more indicators on the chart simultaneously.

However, TradingView doesn’t support as many cryptocurrencies as some other platforms. Coinigy (paid access only) supports more than 5,000 cryptocurrencies, giving you access to a wider range of altcoins if you need more powerful charts than those available on exchange platforms.

If you trade frequently, a paid software solution offers more ways to track your favorite cryptocurrencies for potential trading opportunities. Some apps also support alerts. For example, you can configure TradingView to alert you if one of your indicators signals a buy or a sell. This allows you to step away from the trading screen for days or even weeks at a time if you choose.

Steps to Start Swing Trading Cryptocurrency

The first step in crypto swing trading is to choose an allocation. Think of it as a budget or an amount you’d be willing to put at risk. However, there are two parts of the equation: the investment amount and the potential loss. Using stop-loss orders can help you manage the latter.

Many swing traders use the 1% rule, which dictates that no more than 1% of your capital is at risk on a single trade. You might invest 5%, 10%, or some other amount of your total portfolio, but limiting potential losses to 1% with stop-loss orders preserves your capital for future trades if the market turns.

Let’s examine the basic flow, including choosing a crypto trading pair, identifying trading opportunities, and managing risks.

1. Choosing the Right Cryptocurrencies for Swing Trading

Swing trades capitalize on price trends, so examining a few criteria can help you find a trading pair that offers better odds of success. Volatility is key, but liquidity and trading history are also important. Let’s look at each in more detail.

• Volatility: For a long time, Cardano (ADA) was jokingly referred to as a stablecoin because the price moves were seldom and small. You’ll want to choose a cryptocurrency with enough recent price movement to earn a reasonable profit from the trade. Bitcoin, Solana, and Ethereum all make popular choices for beginning swing traders.
• Volume: Low-volume crypto trading pairs can turn on a dime if the overall market changes or if news affects the pair. Look for trading pairs with sufficient volume to confirm that a trend is real rather than rudderless chart drifting.
• Liquidity: Consider pairs with plenty of liquidity (willing traders). A pair with fewer traders may lead to less-than-perfect entries and possibly disastrous exits if there aren’t enough open orders to support the trade with minimal slippage.
• Established Community: New launches often make poor candidates for reliable swing trades. Consider swing trading crypto assets that have an established community of believers that can hold a floor on the price and that will buy the dips to help a trend recover from temporary swoons.
• Trading platform: The crypto pair you choose may dictate the trading platform. For example, many popular meme coins only trade on decentralized exchanges. A safer bet may be to choose tokens that are available on your favorite centralized exchange, such as Coinbase or Binance.

2. Identifying Good Entry and Exit Points

Basic indicators discussed earlier, such as moving averages, MACD, RSI, and trend lines, can help you identify entry and exit points on a chart. However, because crypto swing trading focuses on medium-term trades, you can enter or exit positions gradually. By contrast, day trading often involves a single buy and sell for each trade.

Dollar-cost averaging (DCA) refers to buying in equal amounts at fixed intervals. For example, with a HODL position, you might invest $10 per week. By design, this strategy buys more of the asset when prices are lower. However, you can adapt the same strategy to ease into or out of swing trade positions.

Let’s say you wanted to swing trade BTC, using moving averages as an indicator, with RSI as an additional indicator. In the example below, RSI indicates normal trading, with no violent reversals in the trend expected.

The larger red box indicates a potential entry as the moving average lines cross. You could enter two or three buy orders spaced at intervals of your choosing. The first buy, when the indicator first signals a buy, would be the costlier, but the following buys would likely catch some of the dips, lowering your average cost. Later, you can use the same strategy to exit the position, breaking up your sale into two or more orders at intervals of your choosing.

In this example, you also have the option to hold for a bit longer, as the crossover angle didn’t signal a strong change in direction. The price recovered, sending the chart higher. The above example would return close to 2% if held for a stronger sell signal, which triggered at about $68,700. A 5x leverage trade would have netted a 10% gain.

3. Managing Risk and Setting Stop-Losses

A DCA strategy to enter and exit trades helps to manage risk and removes the requirement for perfect trade timing. However, you can also manage risk with stop-loss orders.

Advanced crypto trading platforms like Coinbase Advanced or Kraken Pro support limit orders as well as take-profit and stop-loss orders.

• A limit order is a trade with a fixed price, allowing you to trade with precision. Both buy and sell limit orders are supported on advanced trading platforms. As a bonus, trading fees are typically lower when using limit orders.
• Take-profit orders lock in gains. After you enter a position, you can set up a take-profit order to automatically exit a position when the market reaches a price trigger or when the price increases by a percentage you define.
• Stop-loss orders work similarly to take-profit orders but with a different goal. A stop-loss order protects your trading capital by automatically closing your position if the market goes against your trade. Similar to take-profit orders, you set the parameters for your stop-loss.

For example, if you followed the 1% rule, you would risk no more than 1% of your portfolio on a single trade. Let’s say your portfolio is worth $10,000. You could set a stop-loss to exit the position if you are down $100 (1%).

However, be careful when using close stops in crypto swing trading. Market volatility can cause your stop-loss to execute, only to see the market resume the original trend without you as a participant.

You can also use trailing stop-loss orders. This type of stop-loss order follows your trade as prices climb, locking in a profit if the direction changes and the price falls by a percentage you define.

4. Use a Demo Account to Practice

Several popular trading platforms, such as OKX and eToro, offer demo accounts that let you hone your trading skills. Both of these platforms also offer charts with indicators to plan entries and exits for virtual trades, allowing new or experienced traders to experiment without risking real money.

Swing Trading Strategies for Cryptocurrency Traders

Swing traders use several types of strategies to plan trades, including breakout trading, Bollinger bands, and Fibonacci retracement. Let’s examine some of the most common trading strategies used for crypto swing trading, some of which we’ve touched upon earlier. Notably, some traders combine these strategies, perhaps using one as a main strategy and another to confirm the trend or choose price targets.

Trend Following

Trend following refers to identifying a price trend and placing trades that capitalize on the opportunity the trend presents. For example, if you spot an uptrend, you can enter a buy position to ride the wave, using indicators to identify a profitable exit and stop-loss orders to protect your trading capital. Earlier, we discussed several ways to spot trends, including moving averages and trend lines.

Breakout Trading

Breakout trading focuses on reversals after a consolidating downtrend. One of the most reliable ways to spot potential breakouts centers on a chart pattern called a descending wedge or falling wedge. In a descending wedge, although the trend is down, the trading range is tightening. This suggests fewer sellers as the pattern builds. Falling wedges typically break to the upside once the trading range escapes the wedge. Conversely, rising wedges typically break to the downside.

Fibonacci Retracement

Fibonacci levels refer to price points on a chart that indicate where support and resistance are likely to be found. These points are calculated using percentages based on Fibonacci numbers.

Fibonacci numbers occur throughout nature, and many believe these ratios also drive price action. A significant percentage of traders use Fibonacci levels, making these levels a sort of self-fulfilling prophecy, with traders setting buy or sell orders at key levels determined by Fibonacci numbers.

In the example below, BTC is likely to encounter resistance at about $93,300. Traders who use Fibonacci levels might set their sell price for long positions just below this price. According to Fibonacci levels, support in this range is at $83,500.

Support and Resistance

Support refers to price points at which buyers are likely to buy (and sellers are reluctant to sell) based on historical price action. Conversely, resistance refers to price points that have proven difficult to cross in upward trends.

However, these two levels have another relationship. Previous resistance levels become support levels once eager buyers break the resistance. Similarly, when support is broken in a downtrend, previous support becomes a new resistance level.

Like trend lines, the primary indication of resistance and support levels is how often the chart touches on a given price point before changing direction.

Bollinger Bands Method

Developed by John Bollinger in 1983, Bollinger bands have become a popular tool for swing traders in equity markets. Many crypto swing trading strategies also utilize the Bollinger band method.

Bollinger bands use a moving average, along with an upper and lower band, to indicate price action and overbought or oversold conditions.

As prices reach the upper band, this indicates the market may be overbought and could see a pullback. Prices near the lower band suggest the market is oversold. In the example above, you can see where Bollinger bands predicted medium-term trend reversals for the BTC market with impressive accuracy.

However, trading volume also plays a key role. As with most other indicators, low-volume trading can send false signals. Active markets like Bitcoin and other leading cryptocurrencies can work well with Bollinger bands, using action at the edge of the range to signal entry and exit points.

Mean Reversion

Mean reversion works by plotting an average cost. The idea is that prices eventually return to the historical average, which, of course, changes over time.

You’ll find several variations of this strategy on charting platforms like TradingView. However, in its simplest form, mean reversion can be seen with a simple moving average (SMA), as shown below.

When the price moves above the average, this indicates an uptrend, whereas a price crossing below the average indicates a downtrend. By definition, mean reversion is a lagging indicator, meaning you’re likely to miss the precise top or bottom when using this method. Mean reversion also produces lackluster results when markets trade sideways. Volatility is key unless you’re targeting a longer-range trade.

Candlestick Patterns

Many crypto swing traders also utilize candlestick patterns to guide their trades or in combination with other indicators. Chart indicators consider the price activity on the chart itself, perhaps combined with volume or other metrics. On the other hand, candlestick patterns can often predict future price movements and indicate market sentiment.

For example, the bearish breakaway pattern shown below indicates the market has lost steam.

Candlestick patterns are a science unto themself. However, knowing some key candlestick patterns can help you evaluate your position and the market’s expected direction based on recent trading.

How To Know If A Swing Trading Strategy Is Working

One of the best ways to know if a trading strategy works for you is called backtesting. When backtesting, you can put your theories to the test by seeing how they would have fared in past price movements. Newer cryptocurrencies won’t have much history, but well-established cryptocurrencies like Bitcoin or Ethereum offer up to a decade or longer in trading history, allowing you to see how your strategies would have performed in the past and how often they proved accurate.

Once you’ve entered a live trade, monitor the progress occasionally to see if you need to re-evaluate your position, particularly if you chose indicators you’re less familiar with or haven’t done backtesting.

You can also consider using a demo account on a platform like OKX or eToro to trade live markets without putting real money at risk. This, combined with backtesting, is a better way to find out what works for your trading style than using real money in live trades.

What Is The Best Time For Swing Trading?

Indicators can point to profitable entry and exit points. However, most indicators don’t consider trading liquidity, which can affect your buying or selling price. Many traders enter and exit trades when liquidity is highest. The best time to trade crypto from a liquidity standpoint is often during business hours in the US when traders come in droves.

Higher liquidity typically means lower slippage. In short, you’ll usually get closer to the value you expect from the trade because spreads narrow. Money lost to slippage eats away at expected profits when buying or selling.

Volume during peak trading hours also makes indicators more reliable. Prices can drift aimlessly on low volume, whereas when more traders put money on the table, signal reliability usually improves.

Top Tips for Successful Crypto Swing Trading

Swing trading requires discipline, but at its core, it all starts with a plan. Let’s discuss some top tips for successful crypto swing trading.

Build a Trading Plan

Swing trading relies on patterns that point to trends. Consider practicing on a demo account or even on paper, documenting your trades to learn what works, what doesn’t, and which strategies need a bit more testing before going live with real trades.

Once you’ve learned the ropes and have some paper-trading successes, use your experience to develop a plan for swing trades with real money. Identify a cryptocurrency that looks prime for a reversal or trend continuation and place your bet.

Trade within your means and use stop-loss and take-profit orders to protect your downside and lock in profits.

Set Goals

Use indicators to set profit goals. You can go back in time on the chart to see how a specific cryptocurrency trades using similar indicators and set a profit goal just below the average return based on historical trading. Optionally, you can also use a trailing stop loss that follows your winning trade to lock in profits if the price begins to fall. This second strategy can allow you to earn more profits than using a fixed exit price.

Stay Updated on Market News and Trends

Generally, you don’t want to trade the news as a swing trader. However, once the market has a chance to digest any news events, there may be a new trend you can use in your trades. Educate yourself on news or trends that may affect your trade before entering it, but avoid trading because of the news. If news affects your trade negatively, well-positioned stop-loss orders protect your trading capital.

Avoid Emotional Trading Decisions

Emotion is the enemy of profit. Countless traders have held for too long, round-tripping their profits, or sold at an inopportune time simply due to fear. FOMO (fear of missing out) is another common stumbling block for traders, causing them to buy into an already overheated market. Successful traders use indicators rather than emotions to guide their trading decisions.

Conclusion

Swing trading finds a happy middle ground between often stressful day trading and long-term investments (HODLing). By taking a small percentage of your capital, you can build a larger trading portfolio through successful swing trades. Medium-term moves over days or weeks often translate to increased profits compared to simply HODLing. However, risk management, including stop-loss orders and limiting your swing trade budget, becomes an essential part of any swing trading strategy.

Before attempting to swing trade with real money, learn the ropes with a demo account, if available, or practice against real market prices by documenting paper trades on a spreadsheet. Also, consider backtesting your strategies to see how reliably they would have performed based on past market trends. This approach allows you to find trading indicators and strategies that fit your style as an investor. Best of all, by the time you enter your first real trade, you already have experience.

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