Crypto Swing Trading Strategy Explained: 5 Key Rules
There’s swing trading, and there’s crypto swing trading. In this guide, I’ll explain how to swing trade the world’s most volatile asset class – with 5 key rules I’ve learned from trading it since 2017. You’ll get the hard-earned lessons without the hard knocks.
What is crypto swing trading?
Swing trading is a hybrid between short-term “day trading” and long-term “trend trading”.
With day trading, you get in and out of your trade on the same day. With trend trading, you can stay in your trade for many months – until the bigger trend has ended.
Swing trading lies somewhere in the middle: you try to capture price swings (up or down) for a few days to several weeks.
So without further ado, here are the 5 rules for my crypto swing trading strategy.
Rule 1: Plan your swing trade based on the current state of the crypto market
The crypto market doesn’t move in a straight line. Bull markets have big dips, and bear markets have big rips. In this strategy, you buy the dips in bull markets, and short the rips in bear markets. When the market is ranging sideways, you play the ranges – or don’t trade at all.
In bull markets, you let your winners run until there are clear signs that the bigger trend is slowing down. This is especially true if you buy crypto at a lower price. Crypto bull markets can be extremely volatile. So if you get into a good position early, you should try to “protect your entry price” to keep your risk down. And if you’re not in a trade yet, the idea is to only buy on those big down days.
In bear or sideways markets, it’s usually better to take profits at pre-set price targets. For example, at a key Fibonacci level, or after a 5-10% price move.
Of course, deciding whether crypto is in a bull or bear market can be tricky. So, I base it on bitcoin’s relationship with its 20-week moving average (SMA). This is the average of bitcoin’s price over the latest 20 weeks (taken on Sundays when bitcoin ends the trading week).
It’s not always perfect, but the chart below shows how the 20-week SMA can be a line in the sand for bitcoin bull markets (most of the time):
- Bull market: Bitcoin is above the 20-week SMA, and the SMA slopes up.
- Bear or sideways market: Bitcoin is below the 20-week SMA, and the SMA slopes down.
Rule 2: Get into your crypto swing trade gradually
Dollar-cost averaging is when you buy into an investment gradually, in smaller chunks, rather than all at once. This can help you get a better average buy price if the investment goes down after your first purchase. It’s the same idea with crypto swing trading.
One of the biggest mistakes you can make with swing trading is to get into your entire position in a single order. In my experience, it’s a lot better to split your trade entry into 2 or 3 separate orders. This way, you can get a “safer” average entry price for your trade.
Remember, crypto swing trading is about catching a price move over a few days to several weeks. Unlike day trading, swing trading gives you ample time to build your position.
Example: The “all in” buy vs the “gradual” buy
Bob wants to buy bitcoin for a swing trade because his analysis suggests the price could go up in the coming weeks. One day he sees bitcoin move higher, so he buys his full position in one go – at a price of $28,000.
But over the next few days, the price drops to $26,000. Since Bob is already “all in”, he panics and sells his position for a loss. Bob’s analysis (that the price would eventually go up) was correct. But he still lost money because he was overexposed too early.
Joe, on the other hand, splits his position into 3 buy orders. Unlike Bob, Joe only buys a third of his position at $28,000. And when the price drops to $26,000, he still has cash to buy more bitcoin. This brings his average buy price down from $28,000 to $27,000.
Joe then buys his last third after the price makes its first “higher low” – again, when the price is $27,000. At that point, Joe is confident that the trend is working for him. He’s in a strong position to stay in his swing trade.
Sidenote: I had a similar bitcoin trade this year, splitting my position into 3 orders like Joe. It took a lot of patience, but the trade paid off nicely in the end! With crypto swing trading, you only need a few good trades per year to reap big rewards.
Rule 3: Get out of your swing trade gradually
This rule applies mainly to crypto bull markets – where it can pay off to “let your winners run”. At the same time, it’s also good to take some profits once in a while. This way, you’ll have cash on the ready to buy the next bull market dip (these happen often).
Example: The “all out” sell vs the “gradual” sell
It’s early January in the crypto bull market of 2021 and Bob is onto a winner. He bought Cardano (ADA) for 15 cents on Christmas day last year, and the price has now doubled to 30 cents in a couple of weeks. The opportunity to double his money is too good to ignore. So, Bob cashes out his entire position. “Not bad,” thinks Bob.
The price of ADA then drops down to 23 cents over the next few days. “I’m a genius, I’ve sold the top!” he thinks. One month later, ADA is priced at $1, and it doesn’t look like it wants to stop. This makes it really difficult for Bob to buy back in without taking a lot of risk.
Joe takes a third of his profits at 30 cents, another third at 50 cents, and fully cashes out at $1. As the price goes up, his risk goes down, and he still gets more upside from the bull market rally.
Of course, in bear or sideways markets, cashing out all at once often works out better.
Rule 4: Don’t let a small loss turn into a big one
Crypto swing trades won’t always go your way. When it’s clear that your analysis was wrong – and the price is moving against you – just get out of your trade. There’s nothing wrong with taking a small loss of 1 or 2% of your trading account. But a 10 or 20% loss? That’s a much bigger problem! This is also why “scaling” into your trade in smaller chunks (see Rule 2, above) can work wonders.
Rule 5: Swing trade the chart, not the news headlines
To be a good swing trader, you need to have a good sense of where the price might go next. After trading crypto since 2017, I can tell you first-hand that nothing will help you more with this than learning technical analysis.
In the below YouTube video, I give a basic introduction to technical analysis. From the 7th minute on, I go into 5 different technical analysis case studies – starting with the bitcoin top of April/May 2021. If you find value in the video, you see our free technical analysis course here – which has another 19 videos that cover more advanced topics and trading strategies.
Crypto swing trading conclusion
Swing trading strikes a good balance between shorter-term trading and longer-term investing. And since crypto prices swing a lot, it can work really well for bitcoin, ethereum, and different altcoins. Here’s a summary of reach rule:
- Plan your swing trade based on the market state: Buy dips in bull markets and short rips in bear markets. Adjust your strategy based on bitcoin’s relationship with its 20-week SMA.
- Get into your crypto swing trade gradually: Use dollar-cost averaging to enter trades in smaller chunks to help you achieve a safer average entry price and reduce risk.
- Get out of your swing trade gradually: In bull markets, take profits incrementally to capitalize on the rally while maintaining cash for future opportunities. In bear or sideways markets, consider cashing out all at once.
- Don’t let a small loss turn into a big one: Exit your trade if the market moves against your analysis. Accept small losses to avoid bigger ones.
- Swing trade the chart, not the news headlines: Use technical analysis to guide your trading decisions. News usually happens after the price has already moved.
