Swing Trading

Definition
Swing trading is a way of trading with which the investors go long or short multiple times within one day or over a few days to gain profits. Traders tend to focus on the market trend in a short period of time. Swing trading involves technical analysis, and also requires traders to utilize fundamental investment knowledge to look for trading opportunities. In the meantime, investors should calculate the loss or gain limit and predict the market trends afterward, so that he or she can meticulously plan for the next loss or gain points. Swing traders need to prepare orders with different points in position, and vary their loss or gain limit. Therefore, swing trading requires investors to have a relatively strong analytical ability.

Overview of technical analysis and fundamental analysis
In cryptocurrency trading, technical analysis refers to the trading discipline concluded based on the periodic trends of the cryptocurrency market. It focuses on the patterns of price movement and factors that affect the price, such as demand and supply, trading volume, etc.
As for fundamental analysis, it tends to examine factors such as economics in general, a company’s state of operation, and industry conditions to predict and value the price of a cryptocurrency.

How to swing trade
Some swing traders trade within the range of the prices they predicted, while some tend to look for price reversal movement or a bullish setup to enter the market. There are also swing traders who tend to find entries when the market price drops to a certain range.
To mitigate the influence of subjective and irrational judgment, swing traders utilize mathematical and logical disciplines to observe and predict market trends. These disciplines form a collection of algorithms or “trading s” that send signals of when to buy or sell. Common technical analytical indexes include such as the Simple Moving Average (SMA) and the Relative Strength Index (RSI).

Dr. Alexander Elder, a famous trader from the U.S., has proposed a specific trading strategy - “3 Ways to Profit” in his book Trading for a Living. The strategy has become a reference for many swing traders.
The first way is to observe the Moving Average (MA) of the asset for 30 days, 90 days, and 200 days respectively. If all three MA lines show upward trends, and the market outlook is positive based on fundamental analysis, traders can choose to go long.
The second way is to observe the same MA lines as above. If all three MA lines show downward trends, and the market outlook is negative based on fundamental analysis, traders can choose to go short.
The third way is to most complicated one. It requires the prediction of perfect Top and Bottom entry prices to maximize profits.

Scaling is another common trading strategy in swing trading. In scaling, traders divide the capital into several portions and enter the market in batches at ideal prices. For example, if a trader plans to purchase some Bitcoin worth $400, in most cases, the trader will invest the $400 once. However, in swing trading, the trader will divide the 400 dollars into several batches, and assign different prices to different patches, when the desirable prices come, the trader can sell the batches accordingly. Let us assume that if the price of Bitcoin continues to drop, and it almost reaches the bottom, with Relative Strength Index and Stochastic Indicators showing a bearish market outlook, one can place the orders as follow:
When 1 BTC = 8,110, buy-in $100
When 1 BTC = 7,972, buy-in $100
When 1 BTC = 7,875, buy-in $100
When 1 BTC = 7,819, buy-in $100

According to the numbers above, the average buy-in price is (8,100+7,972+7,875+7,819)/4=7,944 USD. Comparing to investing all $400 once at the price $8,100, the swing trading style can help lower the average buy-in price, resulting in gaining more profits when the market goes bullish again. For instance, if the price of Bitcoin starts to bounce back,1 BTC=8,200 USDT, the profit the trader can gain by selling 4 Bitcoin will be （8,200 -7,944）*4=1,024 USDT.

Advantages and disadvantages of swing trading
Advantages
1. Traders can maximize their short-term profit by making use of market volatilities.
2. Traders can rely on technical analysis to simplify the decision-making process during trading.

Disadvantages and risks
1. Sudden market reversal can result in severe losses.
2. Traders might oversee long-term profits.