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Swing trading is an approach used by traders to make trades that last for several days or weeks, utilizing multiple indicators. A swing #trader uses either fundamental or technical analysis to identify clues and signals that indicate potential price "swings" in a certain direction and magnitude. Once identified, the trader opens a position and patiently waits for the movement to unfold.
🤔How to Swing Trade Bitcoin?
The first step to becoming a swing trader is to learn market analysis. This requires time and dedication, as the trader must become adept at analyzing charts and patterns that indicate potential price movements.
Two common methods used for #swingtrading trading are fundamental and technical analysis.
Fundamental Analysis for Swing Trading
Fundamental analysis focuses on studying news, events, and other microeconomic factors surrounding an asset. For example, an #ETH swing trader would continuously monitor all news related to the project. An ideal example would be Ethereum adopting a new proof-of-work consensus protocol. Many people might predict that such an upgrade would cause the ETH price to rise. Overall, fundamental analysis requires being highly engaged with the project's structure, innovations, and news. The more information one has about the asset, the better chances of correctly predicting future movements.
Technical Analysis for Swing Trading
On the other hand, technical analysts focus solely on actionable signals related to the price. They don't concern themselves with the project's structure, management, or other micro and macroeconomic factors. Technical analysis consists of examining charts and indicator patterns that offer clues about price direction. Many swing traders primarily rely on technical analysis.
3 Technical Indicators for Swing Trading
1-Moving Averages (MA): Moving averages analyze the average price activity of an asset over a specified period. The MA is represented by a single flat line on the chart, smoothing out random price fluctuations. Popular MAs include the 200-day, 100-day, and 50-day moving averages. The combination of multiple MAs can often reveal upcoming reversals or significant changes. For example, if Bitcoin's 50-day MA falls and intersects with the 200-day MA after a long continuous uptrend, it could indicate a bearish movement. Conversely, if the short-term MA crosses above the long-term MA, it may signal a bullish move.
2-Relative Strength Index (RSI): The market moves in cycles of buying and selling. When the market is overbought or oversold, the Relative Strength Index (RSI) comes into play. In an overbought market, many expect the market to cool down or reverse direction. The opposite happens in an oversold situation. RSI is considered a momentum oscillator as it measures the speed and change of price movements. Since RSI can indicate when prices are about to turn, it is a useful indicator for this strategy.
3-Volume Indicators: Volume indicators like "On-Balance Volume" (OBV) use volume flow to predict price changes. The OBV indicator, for example, is based on the concept that an asset's price is influenced by both individual and institutional traders' buying and selling volumes. When individual traders panic-sell, institutional traders often buy in high volumes, causing the price to stabilize and eventually rise. Similarly, when individual traders rush to buy in a rising trend, institutional investors may sell in larger volumes, causing the price to drop. This indicator can be used in combination with a volume histogram to examine an asset's current interest level. If the line connecting two peaks on the histogram forms a slope (up or down), a market reversal is likely.
