Cryptocurrency Day trading vs. Swing trading
Cryptocurrency trading is becoming more and more popular as new people enter the markets. Depending on how risk-averse they are, traders are more prone to day trade or swing trade. First off, we need to know the difference between the two.
Day trading is trading where the long or short position is done within one day. Day traders usually stick to this rule relentlessly, regardless of the outcome of the trade. On the other hand, swing trading is and tries to take into account market swings and lasts longer than day trading. The positions can last several days, weeks, or even months. Anything more than a few months, and the trade can be considered an investment.
Many people are struggling to choose between day trading and swing trading and can’t decide which one is better for them. This article will try to explain the differences between the two.
Being a day trader is not for everyone, as it brings a lot of risks with its profit potential. Day traders enter short trades with a high win/loss ratio and hope for the trade to be profitable within the trading day. In the case of cryptocurrencies, day traders are people that hold their positions up to 24 hours, as the markets never stop. These traders often utilize leverage to make their profit potential even higher.
Day trading, more than any other form of trading, requires extreme accuracy and quick decision-making when it comes to sizing as well as the timing of the entry, exits, and stop-losses. This form of trading relies much more on the technical overview of the cryptocurrency as opposed to longer time-frame trading, which has a much more fundamental approach. For this trading strategy to work properly, the trades need to be extremely precise and calculated. Day trading can be superior to swing trading in terms of profit, but only if the trader is analytical and can handle stress well.
Day trading also requires constant analysis and knowledge of the markets and their correlations. Cryptocurrency markets are never asleep, so the amount of information a day trader has to process is huge. Day trading is a lot more demanding in terms of time spent on strategizing when compared to swing trading. However, it can be a fulfilling full-time job.
Day trading cryptocurrency markets can be extremely lucrative because of the constant fluctuations of the market. On top of that, there are no set times when a trader must operate, so anyone can trade at any time.
Unlike day traders, swing traders hold their positions for longer than a day. They are usually more patient and fundamentally driven. They require less time to trade, but more time to analyze the markets. These trades have a bigger profit potential due to the duration of the trade, but there are fewer trading opportunities as opposed to day trading.
Swing trading requires less technical analysis skills, but it is more demanding in terms of fundamental research and knowledge of macroeconomics. The entry points are not intended to be micro-managed and don’t have to be as precise. On top of that, the timing is not as crucial as with day trading since the moves swing traders are aiming to catch are larger. The important thing with swing trading is to determine the trend and trade with it.
As swing trading doesn’t take as much time as day trading, it can be a fun and profitable part-time job. However, traders need to understand the importance of stop-losses as the cryptocurrency market does not sleep while they do. If stop-losses are not utilized properly, one might lose most of the trading portfolio while they sleep. This vulnerability has to be countered with a strategy that involves various defensive measures.
Depending on the trader’s personality, ability to tolerate stress, people pick day trading or swing trading. Highly analytical people that have time to do the research and don’t like holding their positions would be a perfect fit for day traders.
On the other hand, people who like trading based mostly on fundamentals and think that chart analysis is pointless, boring, or not as important as fundamental analysis, are a good fit for swing traders.
Either way, both trading strategies can be profitable as long as the traders utilize all of the tools that can minimize their risk and increase their profit potential.