Swing trading is often the starting point for those seeking to venture into trading, and perhaps move from an investor status to an active trader status. The reasons are simple: it is a medium-term trading and can complement other trading styles such as day trading, trend trading, or scalping. According to Investopedia, the typical holding time for a swing is 1 to 4 days. For crypto, however, which is traded 24 hours a day, 7 days a week, we can adapt our rules and we no longer need to be so strict about the period of detention. In cryptos, while the conditions are still valid, you must stick to your position.
Disclaimer: Our content is intended to be used and must be used for informational purposes only. It is very important to do your own research and analysis before making any investment based on your personal circumstances.
What is a swing in a market?
The price of a crypto can be defined as the balance between supply and demand at a given time. This is the price at which a buyer and a seller agree to carry out a transaction. Over time, these equilibrium prices may rise or fall, or even laterally within a range.
A typical market trend is that prices move from a contraction range to an expanding range. The gap between the two is called a “break-out”, and that’s where we see strong and fast price movements to a new area on a graph.
One way to see the mechanics of this is to compare the contraction of amplitude to a spring that would be compressed. Bursting occurs when all the spring energy is released, which can occur either upward or downward (sometimes called Bart Simpsons in the Cryptos market). We now have the beginning of a “swing” on the market.
If this break is followed by a series of higher peaks and higher funds in the “wave movements”, the market has formed an upward trend. If the opposite is true, we have a downward trend. Each wave is considered as its own swing on the market.
As swing traders, our job is to catch the most violent part of this movement – the escape. Some traders choose to hold on to the trade by several swings and thus follow the trend, while others prefer to sell once a predetermined price target has been reached.
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How to find the right Swings?
Most of the time, prices of any negotiable value fluctuate within a certain range. On the stock market, it is often said that the market varies up to 80% of the time.
To look for potential trading opportunities, one approach is to first look at your charts in one of the longest periods, for example the daily period or the 4-hour period. Once you have identified a promising position, move to a shorter period, such as the one-hour period, to look for specific entry opportunities.
In general, there are three important factors to consider when looking for an entry as a swing trader:
1- Fluctuations should occur in the same general direction as the trend that is emerging in the highest time frames.
2- If you exchange cryptos, look for momentum in pairs that share similar characteristics to the one you exchange. For example, if you are considering exchanging a privacy crypto like Dash, the idea is to see how other coins like Monero or Zcash do.
3- Carefully assess the trend. Is it getting stronger or weaker? A downward trend could mean that it is about to change direction, while an upward trend could mean the opposite. Another question is whether the volume of transactions still supports this trend? Upward trends with a gradual increase in volume are considered to be the most robust.
As swing traders, we have to be aggressive when we detect good opportunities. You can’t afford to miss out on good opportunities. Make sure you earn enough on your good trades to compensate for the inevitable losses that will result.
Similarly, a swing trader must also know when to stay out of the market. It is just as important to recognize the conditions that keep you away as it is to be aggressive in the right conditions.
Finally, remember the words of the legendary trader Jesse Livermore: “There is a time to go long, a time to go short, and a time to go fishing.”
Sometimes there is just no way to anticipate what lies ahead no matter how bullish the momentum may be. Take for instance, the recent dip that resulted from the Evergrande saga.
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