Being a trader is not being 24 hours glued to your computer screen, making pennies every few minutes. Day traders try to catch earnings by making small trades that add up to create profit, while other traders try to get more out of less. Once you learn how to trade, you can enjoy life trading just a few hours a day and looking for greater profits.
Instead of looking for small profits, they want to work less and make significant money in a few days. That’s what the breakout swing trading is about. Breakouts are these large movements coming after a consolidation period. By catching a few of them in months, your profit will be much higher than that of a day trader without spending hours and hours looking at your pc. Read on to learn how to apply this strategy and make large profits.
What is a breakout swing crypto strategy?
It is when traders, instead of making lots and lots of little movements, wait for the correct patterns to catch large movements, whether up or down. Since this is a swing trading strategy, the time frame of the trade is much longer, and it typically goes from 5 to 10 days.
By doing this, traders avoid spending many hours in front of their computers. However, there are some risks associated with this. Typically, the amounts involved in these trades are more significant, so the losses can also be greater.
How to trade using the breakout swing crypto strategy?
To use this strategy, you need to clearly understand the support and resistance levels. But that’s not it. Everybody knows that most traders fail and lose money, so you need to do things differently to avoid being another failed trader. However, this doesn’t mean that you need to have something special.
Mainly it would help if you had discipline. That’s probably the critical factor and the difference between a successful trader and the rest. But also, to apply the breakout swing strategy, you have to know the market you are trading in, get familiar with the patterns and look for confirmation signals such as moving average and RSI and avoid fakeouts.
Bullish trade setup
In the bullish trade setup, you want to look closely at the price chart and draw the support and resistance level. The channel where the price moves before the breakout will give you most of the signs you need to profit from the upcoming movement.
The indicators to confirm the breakout are RSI, moving average, and most importantly, it is recommended to let the price rise a little before entering the trade. While it is true that this will prevent you from earning some additional dollars, you will avoid trading fake breakouts.
Where to enter?
The time to enter the long position is once the price gets out of the consolidation channel and you get another confirmation signal such as an excellent RSI value or triangle pattern. The more confirmation you get, the better.
Where to set the stop-loss?
A stop-loss is an essential tool in modern trading, but it is even more critical in the case of swing trading. Since these trades take days and sometimes even weeks, it is impossible to be all the time monitoring the price to exit the trade at the right time. That is why setting a good stop-loss level is vital.
The stop-loss level has to be set so that the risk-reward ratio is 3:1 or something around that. That way, if you plan to make some profit in a few days and your target is 10%, your stop loss has to be somewhere around 3%
Where to set the take-profit?
The take profit level depends much on how long the consolidation channel was. After six months of sideways moving, you can expect a more significant move than after only five days. However, an excellent take-profit level is between 10% and 25% as a rule of thumb.
Bearish trade setup
The bearish trade setup is for those occasions where the breakout is downwards, also called breakdown. The right move here is to enter a short position to profit from the depreciation of the crypto.
Where to enter?
After the first bearish candle breaks the support level, look for confirmation signals to ensure the breakout is authentic. If you don’t trust the other signals, wait a little longer to see the direction of the next candle and then enter.
Where to put your stop-loss?
Besides the risk-reward ratio, there are other valid parameters for choosing your stop-loss level. The MA is a popular one. Setting your stop-loss level slightly below the support level is also good.
Where to set the take-profit?
Again, the take-profit depends on the time frame used to draw the consolidation channel. After a month of sideways movements, it’s not rare to see massive falls, especially in the crypto market. However, the good idea is to exit the trade partially every time you reach a determined take-profit level. For example, exit 20% after making 10% profit, 30% after the 25% profit level, etc.
How to manage risk?
Understanding the market you are trading in is essential, and set stop-loss levels at a reasonable point to manage the risk. Since these are large movements that happen over several days, it is less likely to have lucky moments than the ones you can have on day trading where you are looking to make just a few pips of profit.
How to make $500 per day with this strategy?
For a trader to make the equivalent of $500 per day in a five-day trade, he needs to make $2500. With a conservative take profit level of 10%, the size of the invested principal should be $2500. This kind of move is not rare but doesn’t happen every day with the same coin. To make a consistent profit, you need to trade many cryptos.
This is one of the most popular trading strategies. Most crypto millionaires have made their money out of large BTC and ETH movements rather than small day trading movements. This strategy works perfectly with cryptos since the market is famous for its high volatility. Learning how to master this technique can differentiate between being a loser trade and a successful one.