Trading Insights: Scalping vs Swing Trading
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Trading Insights: Scalping vs Swing Trading

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2 months ago

CoinMarketCap Alexandria takes look at the two most popular styles of trading and which one should you use. Read more!

Trading Insights: Scalping vs Swing Trading

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In the past months, we have covered various forms of analysis extensively, but we cannot forget that analysis is just one part of the equation. What about taking the actual trades? In today’s article, CoinMarketCap Alexandria discusses two popular trading styles: scalping and swing trading.

We will start by analyzing what defines the two styles before getting into why you would choose one over the another. Are you ready? Let’s get into it.

What Is Scalping?

Scalping is a method in which traders buy and sell assets to make relatively small profits in a short time. Traders look for small moves in between levels in the lowest time frames to capitalize on.

Scalpers can find themselves in and out of a position in mere minutes, usually taking home a 1-3% gain on the account. While a 2% gain does not sound very impressive at first, it gets exciting when you realize that gain can be made in under an hour, multiple times a day. Compounding effects can make this strategy immensely profitable if you have the time.

To make optimal use of this strategy, traders generally rely on high leverage. The leverage allows traders to make it rain even on tiny moves, as the percentage move is multiplied by the leverage.

Scalping is a high-intensity trading style, that requires the trader to pay close attention to moves. After all, if the trade is so quick, it needs to be timed well in order to pay off.

What Is Swing Trading?

Swing trading takes a step back from the intensity of scalping, in which traders buy and sell assets with the intention to make larger profits over a longer period. The swing trader will look for significant moves between high time frames of interest to capitalize on.

The average swing trader tends to hold positions for multiple days or even weeks, where they look to make at least a double-digit return. This method of trading can generally be done in a more laid-back way, depending on whether the trader actively monitors the trades. Other traders opt to use a set-and-forget approach. This is purely up to preference.

To make the best of this strategy, traders can choose to use leverage or spot. Leverage allows traders to increase their profits, but funding costs can eat away at the position over time. Again, this decision comes down to preference.

To learn more, you may check out what is leverage in crypto trading and how to use it?

Swing Traders can afford a little more slack, as entries are often based on the 4-hour chart or above. You don’t need to nail the absolute bottom in order for the trade to work.

Scalping or Swing Trading, which is better?

In my experience, both scalpers and swing traders use similar techniques in trading, just in different time frames. Despite these similarities, they’re very different trading styles. A strong scalper often struggles to hold a swing trade for long, whereas a strong swing trader has a hard time keeping up with the pace of scalping.

A seasoned swing trader can still learn how to scalp, but it might hurt your swing trading abilities, as you will grow habits that do not go well with keeping positions open over a longer time. Scalpers generally gravitate towards “taking their money and running”, whereas a swing trader is more patient.

This reduces their risk of adverse events because scalpers are only positioned when they want to and do not tend to leave a position open overnight. A swing trader frequently sleeps with multiple positions open. Can you see why the two are conflicting?

Another key difference between scalping and swing trading is the number of opportunities. Scalping opportunities are frequent. If you miss one, the next one is just around the corner. For a swing trader, good opportunities are rarer, and missing out on a strong move can mean you have to wait for a while. Swing traders solve this challenge by monitoring multiple assets, whereas scalpers usually only focus on one or two. The best scalpers I know only trade Bitcoin or Ethereum.

A major benefit of scalping is how the method can be used in any environment. Swing trading is difficult when the market is compressed in a tiny range, such as the one we have been trading in for the last few months. Scalping on the other hand works all the time, as low time frame moves happen even when the high timeframe direction is sideways.

On the other hand, a major benefit of swing trading is the lower intensity, and how it can be done with relatively little time. Monitor the high time frame charts once or twice a day to spot some opportunities, and the alerts will tell you when to act.

If you are just starting out as a trader, scalping is generally a good way to start. The higher frequency of trades means you get much more data to improve, and a lot more feedback from the market. If you swing trade, you will only get a result a few times a month, whereas scalpers get feedback multiple times a day. Over time, this can set your learning curve in a vertical direction.

All in all, deciding which style you want to trade comes down to a few factors. How much time do you want to spend trading? Are you a patient person by nature? Are you a risk taker? When you answer these questions, it will likely become clear which style is the one for you.

While I usually conclude by saying that there is a time and place for different approaches, I do not recommend deploying both styles at the same time. I have tried this for a few months, but for me, it resulted in both styles suffering from the habits of the other style. I am better off selecting a single style and focussing on that.

That concludes my take on the two most prominent trading styles. I wish you the best of luck, no matter the trading style you choose.

I leave you with my usual disclaimer: Please remember this article is nothing more than my thoughts on the matter and should not be considered as advice. My thoughts are based on my experience alone; I am not an expert. Thanks for reading!

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