Swing Trading Strategy for Cryptocurrencies

Like any other financial market, the Crypto domain can form short term swings, and you need to have a swing trading strategy for cryptocurrencies to capitalize on those short term moves. You can take advantage of any time frame and length of a movement that occurs in any cryptocurrency as long as you know how to spot a move, what tools and indicators to use, how to limit your risk, and where to take your profits.

But first things first, let’s figure out what swing trading is.

What is swing trading?

Swing trading is a technical strategy that aims to benefit from short-term moves in financial markets that typically last from a few days to a few weeks. It is the middle way of trading as the positions do not last as long as trend trading does. Yet not so fast as in day trading.

Swing trade opportunities do not come every day. Thus you have plenty of time to anticipate a trade and prepare for it. Patience and a good plan are the keys to being a successful swing trader.

You have to wait for opportunities to arise and not try to chase them or search for them on your own. Waiting will help you to tame your greed and master your fears. Why? Because most traders are fearful at the time, they have to be hopeful and confident.

Greed and fear get them into the market at the wrong time. They get slaughtered like hogs. So, let the move come when its time is due, and you will be able to enjoy riding the wave of a trade instead of being overridden by it.

Identifying highs and lows in short terms moves (swings)

The first step we should take before entering a trade is to identify the highs and lows of a potential move. Some swing traders believe they should only trade a swing within the direction of the prevailing trend. It is a good idea as it helps them focus and specialize in being a directional trader, but on the flip side, they miss counter-trend moves that can help them double their profits.

Check out the ETH/USD pair move between the 5th of September to the 23rd of September, 2020.

Source: https://www.tradingview.com/x/xxKiq8hP/

ETH made the intermediate low on the 5th of September, as bears failed to break on the 7th and 8th of September, and as the low held, the price had nowhere to go but upwards.

A short-term resistance (marked by the trendline in the middle) held for a few days, but it broke on the 10th of September. The price then fell to a previous short term resistance.

Later it proceeded to make an intermediate-high on the 13th of September (marked by number 2 on the chart) and fell to the support again between September 13th-16th September.

It made another rally upwards and briefly broke the previous high (resistance) at point 3 on the 17th of September, but failed to follow through and collapsed to the previous low made at point 1, where it jumped (point 4) as the area served as a healthy support level.

Thus, from point 1 to point 4, the price completed a full swing trading cycle with an ascending swing from point 1 to 2 and then a swing down from point 3 to point 4.

An avid swing trader would likely buy on the 7th of the 8th of September and close his trade at point 3 on September 17th. The trader could have entered a short position at point 3 and closed it at point 4 as the price approached a vital support level marked by point 1.

This intermediate short term swing trading strategy would have enabled a swing trader to trade in both directions: upwards and downwards without heeding the prevailing trend in cryptocurrencies too much.

Understanding supply and demand zones for better swing trading

Implementing supply and demand strategies, aka support and resistance levels, will lead you to see that price levels expect the price to reverse. At these marks, you can initiate your positions, purchase a crypto pair, or sell it.

For the support level to be formed and deemed a reliable one, the price has to go down to that level and jump off, failing to break it.

In the same fashion, for a resistance level to be formed and considered a strong one, the price must go up to the class and reverse by failing to break it. There has to be at least 1 level that price fails to break and redirects for us to consider it a robust supply or demand level.

Eventually, all levels get broken, and previous support becomes resistance and vice versa. Still, you have to watch the price action around those levels to determine whether you have to make a trade or stay away from it.

RSI indicator to help you spot overbought/oversold levels and hidden divergence indicating reversals

RSI indicator (Relative Strength Index) determines overbought/oversold levels in the short-term and range-bound markets. The RSI indicator has two extreme readings of 0 and 100, and they indicate how much the price is oversold or overbought. The closer to 0 the indicator is, the more oversold it is, and the closer to 100 it gets, the more overbought it is. The regulation here is that when the index is below 30, it is oversold, and if it is above 70, it is overbought.

TIP: It is better not to apply RSI to trending markets as, during such periods, it often displays extreme readings and gives false signals.

Another useful application of RSI in swing-trading cryptocurrencies is to watch for a hidden divergence in the indicator.

What does that mean? It means that when the price makes a new high, with the reading on the indicator making a lower high, it is called a hidden divergence that shows an area of strong resistance.

Similarly, when the price makes a lower low, but the indicator makes a higher low, it is also a hidden divergence showing an area of strong support.

In combination with support and resistance levels, this can be a great tool to help you decide when to open a trade.

Refer to the chart below, which shows overbought and oversold reading as well as hidden divergence levels.

Source: https://www.tradingview.com/x/INRulQRM/

Swing trading between ‘tracks’

Trading between tracks, ranges, or channels is another way to utilize the swing trading system.

It does not matter whether the price moves up or down as long as it is contained within a specified range marked by upper and lower trendlines. You can play on both sides: buy at support, when the price touches or nears the lower part of the channel, and sell at resistance when the price touches or approaches the upper part of the range.

In the example below, you can see the price of BTC/USD was trapped within a narrowing range that had the shape of a descending triangle.

On the 6th of February 2018, the pair formed the low of the channel, bouncing powerfully off the level and creating the upper point for it on the 5th of March, 2018.

It then made five swings low and five swings up before breaking down out of the channel on the 14th of November.

Source: https://www.tradingview.com/x/otgSSx57/

Rules for entries, exits, and take profit targets in swing trading

Considering the previous example with BTC/USD, we can define some rules for trading the system.

How do you enter a trade?

Entry levels are supply/demand or resistance/support zones marked by trendlines seen in the graph above. When a trader spots a price approaching resistance or support, they can enter a short or long position, depending on where the price is.

You want to have a correct risk/reward balance, so you only buy at support and sell at resistance, the areas marked with blue and red arrows on the graph.

Tip: Do not buy or sell in the middle of the ‘rails’ or range because you do not get good odds for profit, and your risk of being run over by seasoned market professionals is too high.

In swing trading, we usually use smaller stops, risk less than in trend trading as we aim for smaller profits, and keep our positions open for a shorter time. So, if it is an 8%-10% stop loss on the size of your equity in trend trading, we would not want to risk more than 5%-6% of our equity on this type of trading strategy.

Alternatively, if the price breaks the ‘rails’ boundaries, you should close your trade, as most likely, a new tendency has emerged, and there is no point in losing the defined amount of money. Cut your losses quickly and move on.

The minimum take profit target should be double the size of your risk, which is 10%-12% of your equity.

You can set it to triple or quadruple the size of your stop-loss if you are more aggressive. That way, your risk-reward ratio would be 1 to 3 or 1 to 4. Otherwise, you can enter your trade (buy) at support and exit (take profits) at resistance, or vice versa, selling at resistance and exiting (take profits) at support.


Swing trading is an intermediate-term strategy that best fits traders who do not like keeping their position open for months or entering and exiting markets every day.

They can capture the bulk of a move (a swing) and ride it till they hit a critical roadblock (support and resistance).

Generally, the position they hold will be from a few days to a few weeks. If you want to be a swing trader in cryptocurrencies, study the past graphs of cryptocurrency performance, locate swings, and do some paper trading before allocating real money to trading.

Stay safe and earn profits.

About ExMarkets

ExMarkets is a digital asset exchange platform powered by the state-of-the-art trading engine developed in-house. On the exchange, ExMarkets users can trade the most popular cryptocurrencies and gain the chance to participate in the token sales of the most promising blockchain and crypto projects through ExMarkets Initial Exchange Offering (IEO) LaunchPad.

ExMarkets has obtained two operational licenses for crypto-fiat gateway and custodian service provision by the Estonian regulator, making it one of a few certified players in the market. It takes only a few minutes to set up your account, and users are allowed to make deposits in Bitcoin, Ethereum, other supported cryptocurrencies, tokens, and, most importantly, Euros.

ExMarkets is a part of the CoinStruction liquidity framework, which is aggregating order-books from the most well-known cryptocurrency exchanges guaranteeing 24/7 crypto liquidity — a feature that can seldom be seen in the current market.



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