“The wisdom of the crowd” is real, and listening to this wisdom may be the key to profitable trading. Of course, many traders love to say that you should go against the crowd and make your own decisions. However, the truth is that markets are made of the decisions of the masses. They are the ones who decide whether the price goes up or down.
These traders are proud of their individual skills, but in reality, the prices only go up if the masses decide to and go down when they don’t want the assets anymore. The critical difference is not going with or against the crowd. The important thing is to follow at the right time and get ahead of them when necessary.
What is a follow the crowd swing crypto strategy?
As the name indicates, the “follow the crowd” strategy is the one traders use to get into a trade in which a trend has already started. Of course, the trader did not anticipate that trend, but the trick here is to identify if the trend is likely to continue and join the crowd seeking profits.
The most significant upside of following the crowd is to avoid the risk of entering a trade without a confirmation. Since you enter the trend later, the price chart and other traders are doing the job for you.
However, the downside of this strategy is also obvious. Since you are joining the action later, the profits will be lower, and also, the more you wait to join the trade, the closer you are to the end of the trend and the more chances you have to lose money.
How to trade using follow the crowd swing crypto strategy?
Like other trading strategies, many indicators can help us apply the “follow the crowd” strategy. Like with any other strategy, the most critical indicator is the price. When the price rises, you want to buy, and when the price is trending down, you want to sell. When we follow the crowd, the price action is the best indicator and our goal.
However, every trader should succeed if this was that simple, and we know that’s not the case. Price action charts only show where the price has been and is now. Here is when the other indicators come in — especially the momentum, volatility, and sentiment indicators. So, while it is true that price action can say a lot about where the price is going, basic things like support and resistance levels and trend lines, as well as MACD, RSI, and put-call ratio, are the ones that can confirm trends.
Bullish trade setup
When following the masses, the trades are very straightforward. If the price is going up, you want to buy. But, how can you be sure that the price is going up and won’t stop just yet? By using a basic indicator such as support and resistance level in combination with sentiment indicator like puts-calls ratio.
Where to enter?
So you are looking at the price chart, and the price starts rising. That’s your first and most crucial indicator. That is when you get ready to get in. However, this is not enough. Look for confirmation. In this case, look at the resistance level and the put-call ratio. If the price is still away from the resistance level and the put-call ratio is below 0.7, you have your confirmation, and it’s time to enter the trade.
Where to set the stop-loss?
There are a few things to keep in mind when setting a stop-loss level. The support level is always a good idea, but try to have an excellent risk-reward ratio. In swing trading, the most common swing to reward ratio is around 1:2 to 1:3.
Where to set the take-profit?
The profit target as a swing trader is between 10% and 25%. Of course, there are times when you can be a little more optimistic, especially when the indicators tell you so. However, the most advisable is to exit at least a part of your principal at the closest exit, whether this is a resistance level, a risk-reward ratio, or your 10 or 25% profit target.
Bearish trade setup
For the bearish trade, we apply a similar strategy. Here, we want to look closely at downtrends, support levels, and sentiment indicators. We want not to get mixed-signal, so the sentiments indicators and the support levels confirm that the downtrend is still going and that we can make some profit from it.
Where to enter?
After a few bearish candles in a row, it is time to look at the support level. First, check if the price has some room to keep going down, so you have to sell your cryptos or short some.
Where to put your stop-loss?
The recommendable thing is to keep a 1:2 or 1:3 ratio as a swing trader. Keep this in mind when you choose your stop-loss. Then, look for the resistance level and see if it is a good level to set your stop loss level.
Where to set the take-profit?
Three things are essential to remember when setting your take profit.
- The support level is the first limit your trend will encounter. It is a good idea to exit the trade there.
- As a swing trader, 10% earning is a good profit.
- Remember the 1:2 and 1:3 risk-reward ratio.
Ideally, your take-profit level should take into account these three things.
How to manage risk?
Remember, you are a follower. You are already getting late to the trend, so don’t be too greedy. Be cautious and remember that you enter the trade after the crowd, so you won’t get as many benefits as them. This may seem unattractive, but remember that they took the risk, and you enjoy its benefits.
How to make $500 per day with this strategy?
Keeping in mind the 10-25% profit goal in your trading, with a principal of $5000 per trade, making one trade, you could make $500. Of course, if you are a little more optimistic and aim for a higher profit and also try to make more than one successful trade, you’ll need a lower principal to make $500 a day.
Following the crowd is a strategy that goes into the hard of trading. Only the crowd makes a price go up or down. So if you don’t follow the crowd, then, to be successful, you need to be ahead of the masses and hope that they follow you. Of course, this is better, and profit here is more significant, but you also have, in this scenario, a greater risk of being left alone to fall into the abyss.