The Art of Cryptocurrency Swing Trading: Essential Strategies for Beginners

An introductory guide to swing trading BTC and other cryptocurrencies

Cryptocurrencies are known for their high volatility. While price fluctuations of BTC have declined significantly since last year — thanks largely to institutional purchases — the largest cryptocurrency by market capitalization still experiences significant short-term swings. Altcoins with smaller market caps, meanwhile, are commonly subject to greater volatility.

From the name alone, swing trading sounds like a good fit for cryptocurrency’s inherent volatility. Indeed, assets in certain markets, such as cryptocurrencies or commodities, may be better suited to this trading style, as they tend to exhibit more short-term volatility. 

In this guide, we will provide an overview of what swing trading is and will discuss some trading strategies — as well as pros and cons. However, in doing so, we assume readers have a basic understanding of trading fundamentals — which are covered in our cryptocurrency trading guide for beginners and introduction to cryptocurrency technical analysis.

What is cryptocurrency swing trading?

Swing trading is one of the most popular active trading strategies. 

Traders attempt to capture short- to medium-term price action within a particular range. Compared to day traders, swing traders keep a position open for several days or weeks — though, usually no longer than one month — and often look at one-hour, four-hour and daily charts to identify the top and bottom of a range. 

Swing traders primarily use technical analysis to determine trading opportunities — but generally not to the same extent as day traders. And to some degree, fundamental analysis could also add benefit to a swing trader’s strategy.

The swing-trading mindset

Firstly, swing traders must have confidence in their technical analysis, through which a clear range is defined. They must also exercise strong discipline when actually closing positions in profit or when setting stop losses, in case the price jumps out of the defined range’s boundaries. 

Swing traders must understand the risk/reward ratio derived from their set stop loss and profit target in order to determine where to enter a trade. If the stop loss equates to a loss of one unit and the profit target equates to a gain of one unit, the parameters of the trade are not favorable. As such, swing traders may not open a position for several days in order to wait for a better risk/reward ratio — such as risking one unit for a reward of three units. Setting alerts at key levels is often needed. 

Additionally, overtrading — having too many open positions or reacting to price movements with high-frequency trades — does not make a swing trader more successful. As such, the swing-trading mindset tends to encourage patience.

Swing trading pros and cons

In the context of swing trading, stop losses are relatively tight — especially when weighed against a buy-and-hold strategy. This allows swing traders to choose a larger initial position or add leverage, as there is no plan to hold if the trade fails. 

Swing traders can profit from both price increases during a bullish run and price decreases during a downward move. Moreover, swing trading is designed to be less stressful than day trading, as it does not require monitoring the charts all day. Also, because swing traders place their orders less frequently, their overall trading costs are less expensive when compared to other trading strategies.

As for the disadvantages, swing traders are exposed to overnight risk, as well as the risk of thinner order books during weekend hours — particularly in the 24/7 cryptocurrency market. It is difficult for swing traders to grasp a market that never closes, as the price often breaks through planned trading ranges and causes the original technical pattern to become invalidated. 

Cryptocurrency swing-trading strategies and tips

Swing traders are more likely to use countertrend strategies in order to capture large gains from price reversals at the edge of a trading range. As such, identifying support and resistance levels is one of the keys to success. Successful traders usually look for opportunities on the four-hour and daily charts, and then use 15-minute and one-hour charts to find an accurate entry. 

The range-bound trading strategy is primarily that of opening a long position at the support level and short at the resistance level. For example, 1INCH/USDT on the one-hour chart (illustrated below) ranged between 5.21 USDT and 5.91 USDT around the beginning of May 2021. This gave traders several opportunities to enter a position at around 5.20 USDT and then exit near 5.90 USDT. Similarly, a trader might attempt to maximize their gains by opening a short position at the top of the range (5.90 USDT) and then by exiting when the price approaches the bottom (5.21 USDT). 

Moreover, “buying the pullback” is also a popular swing trading strategy. Often, a breakout of a resistance level leads to increased buying interest. So, traders who happened to miss a breakout opportunity might choose to wait for a pullback and place limit orders in the hopes of buying near the previous resistance level. 

Swing trading is also suitable for uncertain price movements where an underlying asset price moves within a channel. Swing traders expect to buy near the bottom of a channel and sell near the top of a channel. 

The ETH/USDT four-hour chart below shows an ascending channel — indicating a bullish trend. With this channel-focused trading strategy, swing traders generally trade in the same direction as the trend. When the price bounces off the bottom line of the channel, that may represent a good opportunity to open a long position. Conversely, traders would look for opportunities to short at the top of a descending channel. 

In a range-bound market, waiting for a fakeout — i.e., when the price appears to break out of the defined range but quickly reverses back into the range — can be a good time to step in. This is especially true when there is a divergence between the price and popular technical indicators, such as the Relative Strength Index. For example, a bullish divergence occurs when the price makes a lower low and the indicator makes a higher low. The opposite is true for bearish divergences. Combining fakeouts with divergences can give traders an early, high-profit entry signal. 

The BTC/USDT four-hour chart below shows how BTC made a lower low of 46,988 USDT on April 25, but the Relative Strength Index indicator printed a higher low. This fakeout could be due to a large number of stop-loss orders getting triggered near the April 23 low of 47,504 USDT. As a result, BTC rebounded quickly as buying power entered after the price recovered April 23’s low. 

In summation, swing trading is a popular cryptocurrency trading strategy that promotes patience and planning, as opposed to high-frequency trading or intraday scalping. 

Swing traders define clear ranges or channels, and they look to make long or short entries at the bottom or top boundaries of said areas. They may also look to trade pullbacks following breakouts, as well as identify technical divergences during potential fakeouts.

Compared to a buy-and-hold strategy, swing trading provides for the ability to enter positions with greater size or additional leverage, since a risk-reward ratio is predefined and trades are closed when stop-losses are triggered.