Scalping vs Swing Trading
Are you wondering which trading strategy you should be using? Find out the main differences between the two trading strategies!
To Scalp or to Swing?
It’s fairly easy to get caught up in the theoretical profits when you’re talking to your friends that already trade, or maybe listening to someone on YouTube that wants you to register on an exchange using their affiliate link. A 5% price move… that means 50% if I set my leverage to 10x. Or maybe 100% if I set my leverage to 20x. It’s enticing, we know. But before you start mashing the green and red buttons, there’s a very basic, fundamental decision that you have to make – what kind of trader will I focus on being? How much time do I have to dedicate to trading? How good am I at managing risk?
Scalping and Swing Trading Explained
You’ll often hear people describing themselves or others as swing traders or scalpers. It’s very popular to be a scalper nowadays. These terms refer to the length of time that the trader’s positions remain open.
Scalping is a form of day trading, meanwhile swinging is a form of intraday trading. Day trading is the toughest type of trading that can be done. By definition, trades like these are opened and closed on the same trading day. Swings, on the other hand, remain open for multiple trading days or can even last as long as a couple of weeks. Conversely, scalp trades are really quick, sometimes lasting seconds – profiting many times a day off of very small price changes. Scalpers usually utilize the power of leverage to achieve larger profits. This is how they get you. Promises of big gains in a matter of minutes. Make no mistake, scalping is the hardest endeavor in trading, since the price can move so quickly against you, at best making you lose lots of money or at worst getting liquidated, because we all know how volatile the crypto markets can be. One combats these risks by employing a really strict trading strategy and iron-clad risk management, especially when using high leverage. Liquidation price is usually inches away from our entry, therefore our stop loss is set very tight – I’ve even observed second to second trades being executed using market orders without stop loss, as there’s no time to input the SL and TP numbers into the exchange.
Swing trading is the other main strategy, and as stated before, it differs from scalping in how much longer the trader keeps their position open. The term swing refers to the entirety of a trend within a given amount of time. Every swing starts with the swing low and ends with the swing high. Because every aspect of the trade is looser, we highly recommend using lower leverage, or preferably no leverage in swing trades, because the price of invalidation (dictated by our strategy) is much further away. One is wise to use basic indicators such as the Simple Moving Average or Exponential Moving Average to determine the approximate location of the swing high (or swing low) – the trader usually attempts to exit at the upper (or lower) boundary of the channel the price is moving in.
Most traders do not define themselves as belonging to only one group or the other. A wise trader knows how to evaluate the market conditions and the perceived risk of using one strategy against the other. In fact, market conditions are one of the more important aspects of determining which approach is best used in a given situation. If we started observing the market on 5-minute charts looking for quick scalp trades and found that the unpredictability of the price action makes us uncomfortable, we can move into higher time frames to find that bigger moves are the way to go.
So, to recap, here’s the pros and cons of scalping:
- By lowering our exposure to the market, we limit the amount of risk, as it’s easier for the price of our coin to move 1$ than 1000$
- It’s highly advised one doesn’t use a high amount of leverage unless they’re experienced and have employed a strict exit policy.
- Low leverage will mean low profit. High leverage will mean high profit… but also risk a higher loss.
- Exit thoughts on swing trading
- Unleveraged profits are often higher than with scalp trades, because the trader waits a prolonged amount of time for the price to move, ecuring 5-50% profits on their position with ease
- Stop losses are looser
- Easier for traders with day jobs
If you’d like to learn more about trading strategies from me and the rest of the Filthy Rich Futures team, you can do so by joining our Discord group! Surround yourself with like-minded people, Filthy Rich Futures is a group of futures traders that is suitable for both beginners and (semi-) professionals, see you there!