TL;DR
- With cryptocurrency’s high volatility, swing trading and scalping are two of the most popular strategies in crypto trading.
- Scalping focuses on short-term, high-frequency trades to make a profit.
- Swing trading focuses on a longer timeline and few trades to make a profit.
- One can take advantage of paper accounts as a practice before depositing real money into an exchange.
- If trading is too risky, consider yield farming, staking, and other methods of generating passive income in crypto.
There are 2 main groups of people in the crypto space. The first group is investors who buy crypto for the long term because they believe in the underlying technology that will bring change to the world.
Investors look at the fundamental factors directly affecting the cryptocurrency, such as the founders of the project, its real-world use cases, and future developments.
Then there are traders who buy and sell crypto on a short-term basis. However, there are different types of crypto traders, which can be distinguished based on their trading styles and strategies. With cryptocurrency’s high volatility, swing trading and scalping are two of the most popular strategies that many traders use today.
To be successful in trading in the long term, you will need a strategy that fits your style, preferences, and risk appetite. If you're a budding crypto trader who wants to learn more about alternative trading strategies, this one's for you.
What is Scalping?
The goal of the scalping strategy is to make money off small fluctuations in crypto prices throughout the day.
Scalping is a form of day trading in which several trades are made with very short holding periods, often ranging from a few seconds and a few minutes. These short holding periods mean minimal earning potential, but to maximize their profits, scalp trades make multiple trades throughout the day.
Scalpers act quickly and follow few if any, consistent strategies. In principle, scalpers make money by taking advantage of the difference between the bid and the asking price. These windows of opportunity are more prevalent compared to massive price movements, as compared to a relatively calm market but they do experience regular fluctuations.
How can I start scalp trading?
Scalp trading requires time and attention dedicated to watching and understanding the markets. Scalp traders must be able to make decisions under pressure and think on their feet to be successful in the market. It is generally thought that impatient traders are effective scalpers since they are quick to get out of a transaction once it turns profitable.
The other important factor is having access to an exchange that charges low fees because scalpers will be making multiple trades a day. If the exchange charges a relatively high fee, this can greatly reduce scalpers' profit potential.
What is Swing Trading?
The goal of Swing trading is to recognize the macro trends and trade with the trend. For example, swing traders typically invest in assets that have corrected or consolidated, and then cash out profits when prices begin to climb again.
Most swing traders follow the direction of the overall market trend. For example, when the asset price breaks the support line, traders can start shorting the asset making a profit from the downward price movement. Conversely, when the asset price has a breakout through the resistance line, traders can go long on the asset, making a profit from the upward movement.
Unlike scalp traders, swing traders can hold their position for a few days, weeks, or sometimes even months to maximize their profits.
How to start Swing Trading?
Swing Trading requires the trader to have the patience to wait for prices to move to their advantage. Using a longer timeline chart like a monthly or even yearly chart and relying on indicators like Fibonacci retracements, relative strength index (RSI), Support and Resistance, and other technical indicators to find entry and exit points for their trades.
With fewer trades being done, swing traders keep their exchange fees to a minimum which allows them to have higher profit margins.
Swing trading is a popular style of trading for part-time traders as they can use their lunch breaks to check in on the markets. Because swing trading looks at a longer time frame and requires more patience hence, it’s a good choice for people who don't want to be put into high-pressure situations where they have to make decisions very quickly.
Which type of trading is more profitable?
Both swing trading and scalping are profitable strategies, the difference between the potential profit of both strategies depends on the risk appetite of the trader.
Swing trading holds lesser risk as compared to scalping because, with lesser trades, this reduces the chances of mistakes and fewer exchange fees involved.
On the flip side, scalping has its advantages in reducing risks because if the market doesn’t move with the trader’s strategy, the trader can quickly close the position and reduce the losses that might incur, whereas, in swing trading, traders are more exposed to short term volatility in the event a token price suddenly dips.
There is no perfect trading strategy, however, there are some things to consider before you decide if Swing trading or Scalping is for you.
Things to Consider Before Scalping or Swing Trading
To regularly profit from swing trading or scalping, a great deal of dedication, effort, and knowledge is required but only knowing the concepts won’t help you succeed. Practical experience is also an important part of finding out which trading strategy yields you positive results over time which is key to becoming a successful trader.
PRO TIP: You may take advantage of "paper trading," in which you conduct demo trades in the same way that you would with real transactions. Many exchanges offer a demo account for free to allow you to explore the platform, implement your strategies, and practice your trading skills.
Since both trading strategies have some slight differences, knowing your tolerance to stress, preferred pacing, spare time, and flexibility will lessen your risks in implementing these strategies.
Risk/Reward of Crypto Trading
Being a volatile asset class, cryptocurrency trading has facilitated a massive transfer of wealth, and the ones who paid their due diligence benefited the most. Having said that, trading might not be something that is suitable for everyone and there are many different alternative methods of generating passive income in cryptos like yield farming, staking, and other methods.
Being aware that everyone is different and that what works for you might not work for your peer. But having awareness of this difference will allow you to understand yourself better which will give you a better idea of which style of investing or trading is suitable for you.
Disclaimer: The information and publications in this article are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation offered or endorsed by Coins.
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