Swing Trading in Crypto: Detailed Guide & Useful Tips

Traders and investors are increasingly joining the crypto market due to its high volatility and the potential for higher returns compared to traditional financial assets such as stocks, commodities, and bonds. The crypto market is more dynamic, and the inherent volatility creates more opportunities, especially in the short and medium term. Consequently, investors are applying multiple crypto trading strategies including, for example, hodling (suitable for long-term investors), swing trading (short and medium-term traders), and day trading (implemented by short-term traders). In this article, we’ll explain how swing trading works, providing you with a detailed guide and useful tips to make your journey more rewardable by limiting risks, and enhancing profit opportunities. So, what is swing trading in crypto?

Swing trading in crypto is a strategy that involves buying and selling cryptocurrencies in a short or medium-term timeframe. The aim is to profit from volatility by either buying low and selling high (going long), or by borrowing and selling high and buying low (going short). Consider the following illustrative example. Based on the evolution of the price of Bitcoin between February – June 2024. If you implemented a swing trading strategy and timed the market perfectly (that is not easy at all), you could have generated larger profits than simply hodling. Let’s make some calculations.

1) First trade (long)
Purchased $5,000 of BTC on February 1, 2024 at $43,263
Sold it on March 14 at $73,130
Profit: +69%, your initial $5,000 is now $8,450

2) Second trade (short)
Borrowed and sold $8,450 of BTC on March 14, 2024 at $73,130
Purchased it back on May 1 at $56,650
Profit: +29%, your initial $8,450 is now $10,900 (for simplicity we assume zero interest rate for borrowing BTC).

3) Third trade (long)
Purchased $10,900 of BTC on May 1, 2024 at $56,650
Sold it on June 7 at $71,500
Profit: +26.2%, your initial $5,000 is now $13,755

With three trades over a 3-month timeframe, you could have generated an incredible +175.1% return, turning an initial capital of $5,000 to $13,755 (+$8,755).

If, over the same period, you hodled instead, you would have performed “just” +65.2%: A very healthy return, for sure, but with the same initial capital of $5,000, would only have increased in value to $8,260 (+$3,260).

Of course, this is only an example where we assumed that we timed the market perfectly, which is extremely difficult even for experienced and very skilled traders. Nevertheless, it highlights how swing trading in crypto can open more opportunities than just simple hodling.

Swing Trading: How does it work?

As exemplified in our case study above, swing trading in crypto is a strategy that involves buying and selling digital assets over a short or medium-term timeframe based on technical analysis of indicators and charts, trying to determine optimal entry and exit points. Some common technical indicators that we’ll analyze later in our guide are moving averages, Relative Strength Index (RSI), and support and resistance levels. 

It requires a more active approach compared to hodling (holding digital assets long-term), because getting the correct market timing is required to maximize profits. However, compared to day trading, it requires considerably less effort, as you can be profitable “just” by executing one trade per month, for example. 

Technical Analysis: Principles of Swing Trading in Crypto

Fundamental and technical analysis are the two most common methods implemented by investors and traders to analyze the underlying potential of a digital asset. Fundamental analysis focuses on long-term potential, analyzing factors such as technology, team, revenue streams, community engagement, whitepaper, etc., consequently focusing mainly on qualitative parameters useful to try to predict the long-term outcome, and it’s mainly used by investors instead of traders. However, having a solid understanding of the fundamental backdrop can be helpful when unexpected events happen because it allows investors to identify potential market turning points, which is critical to successful swing trading in crypto. 

This is especially powerful when combined with technical analysis which focuses on analyzing technical indicators, price patterns, and charts, aiming to predict the short and medium-term outcome of a crypto asset and trade accordingly. What are the main indicators to consider while doing technical analysis? 

Market capitalization

Market capitalization is one of the main factors that swing traders must consider. It shows how much funds are invested into the crypto assets, and it is also a parameter to assess how volatile that asset’s price may be. A large market cap means that the digital asset is consolidated and could have lower volatility, while a small market cap indicates that it’s probably a “new” asset and not many people invested in it. Small market cap is often associated with higher volatility, as smaller buy or sell orders are required to see large price swings.

Trading volume

The trading volume shows how much money is traded on exchanges over a determined period. As for the market cap, large trading volumes mean that a small trade doesn’t impact the overall price of the asset, while low trading volume implies that smaller trades could impact the price in a more significant way. These indicators, in general, show the interest and involvement of investors during a specific period.

Moving averages

Moving averages are trend-following momentum indicators used by traders to smooth out price data over a specific period to help identify price trends in a more clear way. They are basically single lines showing the average price of the asset over a set timeframe, such as 10, 50, or 100 days. For example, when a shorter moving average (like the 50-day) crosses above a longer one (like the 200-day), it can signal a potential bullish trend (known as a “Golden Cross”). Conversely, when the shorter moving average crosses below the longer one, it may indicate a bearish trend (called a “Death Cross”).

Relative Strength Index (RSI)

The RSI is a commonly used technical indicator that helps traders evaluate if the price of a crypto asset is oversold or overbought over a set period. This indicator shows the momentum of the price action and can range between 0 and 100. If the RSI is below 30, it means that the asset is currently oversold, and that it could be considered a good buy entry point to go long. Conversely, if the RSI is above 70, it means the asset is currently overbought, and this moment could be a good selling point if you have a long position (or an entry point if you want to go short on that asset).

Support and resistance levels

Support and resistance are essential for swing traders to identify price zones in which the trend tends to reverse direction or pause. They are useful for identifying potentially good entry and exit points, as the price usually “bounces” between support and resistance over the short- and medium-term period. For example, if Bitcoin reaches $72,000 but doesn’t go higher multiple times, it means that this price is a resistance: it could be considered a good exit point if you are long or a good entry point if you want to open a short position. On the contrary, if the price drops to $50,000 but doesn’t go lower, it is a support level and is a good entry point if you want to open a long position or a good exit point if you are short.

As you can understand, it’s not easy to implement technical analysis effectively, and it’s even harder to execute trades without being influenced by psychological biases and emotions. That’s the reason why only a small minority of active traders are actually profitable. Continuously learn, test, and improve your skills to become a profitable swing trader, and never rely on your emotions during trading.

Pros and Cons of Swing Trading in Crypto

Swing trading with crypto assets could be a full-time job if you manage to be profitable over time. However, there are both pros and cons to this trading strategy.

Pros of Swing Trading in Crypto

This trading strategy offers multiple benefits compared to hodling or other investing models:

Potential for higher return

Swing trading offers opportunities to trade both in positive and negative price trends, allowing traders to profit from the market regardless of the direction. Compared to hodling, for example, as shown in the example at the beginning of the article, traders can obtain a significantly higher return, but they must be effective in analyzing price trends and identifying the best entry and exit points for each trade.

Lower time commitment than day trading

Compared to crypto day trading, which involves buying and selling crypto assets during the same day, swing trading is less stressful, as one or two trades per month could be enough to obtain significant returns. However, during periods of lateralization (the price doesn’t make significant changes), swing trading offers fewer opportunities than day trading, in which even a small fluctuation offers possibilities for profits.

Flexibility in market conditions

Swing traders can open both long and short positions, allowing them to profit from the market no-stop. In these trading strategies, the possibilities are unlimited, as you don’t care if the market is going up or down, you “just” need to identify the trends and trade accordingly. You can make profits in all market conditions, but it’s your responsibility to implement effective technical analysis to interpret the price trend in the correct way and choose the correct entry and exit points.

Cons of Swing Trading in Crypto

However, even if the benefits are remarkable, there are also some negative factors:

Market volatility risks

Even if technical analysis can help you to identify potential good entry and exit points by analyzing support and resistance levels, the crypto market’s volatility is often unpredictable, and unexpected breakouts or black swans could result in trading at a significant loss. Technical analysis is not an infallible science, and it’s common to see unpredictable price swings that cause losses for swing traders.

Emotional stress

Swing trading crypto requires less effort than day trading, but it’s an active trading strategy that requires constant monitoring and analysis of charts and technical indicators. It often causes stress for traders, as they are responsible for the profitability of each trade. Hodling and dollar-cost averaging (DCA) crypto assets, on the contrary, cause less emotional stress, as you just need to buy and hold over a long period without worrying about identifying correct entry and exit points.

Overtrading risks

As studied and demonstrated in multiple scientific researches, a loss has a greater emotional impact than a profit. When you experience a significant loss (and it happens to every trader), you feel the urgency to recover it as soon as possible. It usually causes overtrading, in which swing traders try to recover losses by executing more trades than scheduled in their trading plan, consequently causing irrational decisions and additional losses. Remember, recovering a loss is mathematically more difficult than making a profit.

Trading fees

Since swing trading requires opening and closing multiple trades over the course of the year, traders must consider higher trading fees compared to hodling. Depending on the platform you use, they usually range between 1% and 3% of each trade, and it’s a cost to consider, as it reduces the overall profitability of your trades.

Is Swing Trading Crypto profitable? Final Tips for Traders

Swing trading in crypto could be profitable and become your full-time job if you develop an effective trading plan, implement sound risk management, and use take-profits and stop-losses accordingly. It’s a risky strategy but can bring you higher returns compared to hodling. Here are some final suggestions and tips to make your swing trading journey more profitable:

Develop a trading strategy and stick to it

One of the most common crypto trading mistakes investors make is not developing and following an effective trading strategy. In this case, the most difficult part is sticking to it consistently over time, as some unexpected losses could cause overtrading or other irrational behavior, such as ignoring take-profits or ignoring support and resistance levels aiming for a quick recovery of losses.

Continuous learning

In trading and in investing in general, you cannot stop learning. Mistakes are common and inevitable, but you should learn from them and keep improving your trading models. Every day, you will be better than the previous ones, and it means your profitability will increase over time. Be patient and learn continuously to improve your results.

Sound risk management

Another important tip is to implement sound risk management to limit losses while maximizing profit opportunities. This means that, for example, you should not allocate the total budget for each trade but instead invest only a minimal portion of it in each trade (usually ranging between 1%-5% of your total budget). Other risk management strategies include diversification, setting stop-losses, using secure platforms, assessing your risk tolerance before starting investing, and more.

Set take-profits and stop-losses

If you want to trade efficiently with minimal emotional impact, set well-defined take-profits and stop-losses to automate your trades. It means that if the price reaches a predetermined level, whether it is a profit or loss, the trade will be closed automatically. For example, you can set them with a ratio of 3:1, meaning that if your trade performs +3% or -1% it will be closed automatically. Of course, this is only an example, DYOR (do your own research) to set them according to your trading plan.

Be realistic about returns

Another common mistake of new traders is being greedy. You don’t need to perform +10% in one single day, as it’s likely impossible to be sustainable over a long period. Even 1% a day is still likely impossible. Appreciate the power of compound interest and adopt a long-term vision, even if you’re a swing trader, and you will see positive results.

Start with a small amount of money

Nobody is born skilled and experienced. Take your time and start with a small amount of money to test and define your trading strategy. Be patient and increase the amount of money invested gradually, there is no rush, and opportunities are unlimited. Don’t be cocky and prioritize learning over profits: The results will come, gradually.

Avoid overtrading

Finally, the last important tip is to avoid overtrading. We must remember it once again because it’s the main reason why many traders are not profitable. Stick to your predefined trading plan, and never execute not-scheduled trades to recover losses. Emotional trading is your worst enemy on your path to becoming a profitable swing trader.

In conclusion, swing trading in crypto can be an effective strategy to obtain high returns from the market, but it’s important to understand the risks involved and develop a trading strategy suited for you. At Trakx, we are here to facilitate crypto trading by providing educational resources and powerful tools, such as our Crypto Tradable Indices (CTIs), customized crypto baskets that allow for easy diversification, advanced crypto-index trading strategies, automatic rebalancing, and sound risk management.