Cryptocurrency trading didn’t even exist a decade ago, but now it has become one of the favored markets for those who love the adrenaline rush brought on by high-risk, high-reward trading.
As is the case with any type of trading there’s no guarantee of profits with crypto trading, but you can help make them more likely by developing and following a cryptocurrency trading strategy. This will allow you to measure your success and failures and will help you improve your trading over time.
In this guide, you will discover four popular crypto trading strategies you can deploy today.
Most crypto trading strategies will include technical analysis, so if you aren’t familiar with this art form now you’d best start studying.
Technical analysis is used extensively in equity and forex trading, but it also works exceptionally well in analyzing cryptocurrency price movements. That said, keep in mind that cryptocurrencies are still quite volatile and prone to price manipulations.
Technical analysis can work in these markets, but you need to be quick in your analysis, and decisive in your trades. There’s no room for timid traders, but you also need to use solid risk management when trading the cryptocurrency markets.
I know it may sound risky, and it is, but when using technical analysis combined with an appropriate crypto trading strategy you can turn that risk to your advantage. Cryptocurrency markets are well-known as a hotbed for high-profit opportunities.
Basic Cryptocurrency Trading Strategies
Swing trading is a popular cryptocurrency trading strategy that depends heavily on technical analysis. If you want to become a successful swing trader you’ll need a good grasp of chart analysis. It will help you get a feel for market movements and can help you identify significant price movements before they happen.
Swing traders keep positions open for anywhere from an hour to several weeks, although several days is the most common. When you’re swing trading, it’s all about capturing short-term trends.
That’s true even if the trend is sideways, where it’s possible to buy at the bottom of a range-bound market, then sell at the top of the range several days later, and turn around to buy again in several more days as the market bounces between the two handles.
Another successful swing trading strategy is to look for breakout moves, and get into them after the breakout has occurred, but soon enough that part of the move can be captured for profits.
Swing traders need to have the discipline to determine entry and exit points and stick to them without getting caught up in emotions. If you employ a swing trading strategy you might only place several trades a week, but each trade should have the potential for great profits.
Day trading is a fast-paced and sometimes stressful trading strategy, where positions are held for no more than a single day. The day trader might use leverage when trading to amplify gains since they are closing out all of their trades by the end of each trading session.
One pitfall of day trading is that new traders can often suffer huge losses when they are inexperienced with the market they are trading. It isn’t unusual for new day traders to suffer losses for weeks or even months before finally becoming profitable.
Crypto day traders have to be especially vigilant in watching prices and chart setups since cryptocurrencies have a tendency to move rapidly and change directions just as rapidly.
Day trading is about sharp decision making and the ability to manage risk. It is also about the ability to take a win or a loss equally without emotion and move to the next trade. No trader is right 100% of the time, but as you grow as a day trader your win/loss ratio will likely improve. Learn to cut your losses rapidly and let your winners run.
Arbitrage trading is (usually) an algorithmic trading strategy that has been quite popular in cryptocurrency trading circles. Arbitrage involves taking advantage of price differences between exchanges. With so many cryptocurrency exchanges, these pricing anomalies are fairly common.
With an arbitrage trading strategy, the trader identifies mispricing between exchanges and capitalizes by buying at the lower-priced exchange and then, immediately selling at the higher-priced exchange. This is typically done using an algorithm or trading bot because humans are generally not fast enough to carry out this kind of trade.
Arbitrage trades might take less than a second when using a bot, and the profit could be $1 or less, but the strength of this strategy is that the bot can conduct hundreds of these trades each day, and the small profits can add up to sizable profits.
“HODLing” is the quintessential long-term crypto trading strategy that anyone can use. It is good for beginners because it requires little skill and no trading experience.
The term “Hodl” may seem strange, but it came to us from a misspelling of the word “hold” in a famous bitcoin forum post.
The fundamental strategy behind hodl is to identify a digital asset that has long-term potential, buy that asset, and then hold it securely until it appreciates in value significantly. That might take months, years, or even as long as a decade. The only skills needed for a hodl strategy are the ability to buy digital assets and to store them securely. The most secure storage is in cold storage like a paper wallet or a hardware wallet.
There are some downsides to a hodl strategy. One is that the cryptocurrency you choose might not appreciate in value. Another is the potential for losing your private keys, but you should be able to mitigate this risk.
One thing to keep in mind with a hodl strategy is that you can sell some parts of your holdings to lock in profits. For example, if you bought bitcoin around $1,500 in 2017 before the latest massive rally and didn’t sell some of your holdings as price approached $20,000 you missed out on the opportunity to make significant profits. This is especially crucial for hodl’ers because you should be accumulating when the price is low.
In the example above, you could have sold near $20,000 for a profit of more than 1,000% and soon after re-invested the profits when bitcoin retreated to under $4,000.
Of course, it can be nearly impossible to catch an entire move like that, but even if you bought at $4,000 and sold at $12,000 you were able to make a significant profit. Just remember that digital asset market cycles are well-known for 80-90% retracements. So, there’s a very good chance you can sell high for profits and then get back into the market at a far lower price.
The Bottom Line
These are four of the primary cryptocurrency trading strategies to use. Once you get a solid grasp on these basics, there are more advanced strategies you can explore too.
Each of these strategies differs in the amount of risk, the time requirements, the prior experience needed, the technical analysis skills, and fundamental analysis required. All of them require sharp decision-making skills. The good news is you can learn all of these by putting enough time into the study of crypto trading strategies.
Most importantly, if you want to trade digital assets, you should get started as soon as possible. There’s nothing like experience to make you a better trader.
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