Financial risks can be reduced with a good strategy, in this article we would be examining simple crypto trading strategies for beginners and advanced traders.
The cryptocurrency market has grown so large in the past years that traders can now make use of various opportunities to speculate on market volatility and make a profit from price movements.
Before we go into the different strategies used for trading crypto let’s look at the meaning of cryptocurrency, crypto trading, and crypto trading strategy
What is cryptocurrency?
Cryptocurrency is a digital or virtual medium of exchange secured by cryptography ( Cryptography is a method of using encryption and decryption to secure communication in the presence of third parties.)
A cryptocurrency is a form of digital asset that is not issued by any central authority such as the government or a bank. It is based on blockchain technology which allows it to be distributed across a large number of computers.
Cryptocurrency is also called crypto or crypto – currency and it is stored in a digital wallet.
What is crypto trading?
Crypto trading is the act of buying and selling cryptocurrency to earn a profit. Cryptocurrency trading entails making predictions about price changes using a CFD trading account or purchasing and selling the underlying coins through an exchange.
What is a crypto trading strategy?
A Crypto trading strategy is a fixed plan designed to make profitable returns when buying or selling in the crypto markets. It is the plan you create to guide you through your trading activities. It is also a framework you follow when executing your trades.
Trading strategies set out the specifications for the kind of asset you want to invest in, which trades you want to make, when to make and exit them, and how much capital you want to invest in each position.
They are two types of trading strategies; active and passive trading strategies.
Active trading strategies involve purchasing and selling cryptocurrencies based on transient price movements to profit from them. It requires regular portfolio management and persistent observation. Some examples of the active trading strategy include day trading and swing trading
Passive trading strategies involve long-term investment, with little trading in the market. Unlike active trading, passive trading does not seek to profit from short-term price fluctuations or market timing. An example of a passive trading strategy is the Position trading (HODL)
There are also two methods to consider when building a trading strategy. They are used to analyze and evaluate the market before using any of your preferred strategies. They include technical analysis (TA) and fundamental analysis (FA).
Technical analysis (TA) is used by the trader to predict the future price of an asset based on its historical price actions.
Financial analysis is used by the trader to determine an asset’s value. The trader uses both economic and financial factors to determine if an asset is worth investing in.
They could work for both short and long-term investments. They compliment each other but they could also be used independently.
Simple trading strategies for beginners and advanced traders
Experts rely on carefully studied trading strategies to profit from the crypto market. Here is a list of some trading strategies that traders employ to trade successfully in the crypto market.
- Day trading
- Scalping
- Swing trading
- Arbitrage trading
- Trend (position) trading
- Crypto Futures trading
- Range trading
Day trading
The term “day trading” comes from the traditional markets, where trading is open only during specific hours of the day. In the crypto market, day trade represents a short-term trading technique.
It is a trading technique in which the traders enter positions and exit positions in a period of twenty-four hours or less. Traders that employ this technique monitor the price movement that happens within a day. A day trader will execute several deals throughout the day, buying low and selling high for little gains that add up to significant gains at the end of the day.
This technique aims to make a profit from volatility opportunities in the market.
However, it is very time-consuming, very risky and most times recommended for advanced traders.
Scalping
Scalping is a technique that relies on repeatedly taking advantage of tiny movements in the market. It is one of the quickest trading techniques available as traders could open and close positions in a matter of seconds.
A scalper would not try to take advantage of big moves or engage in heavy volume trading. Instead, they aim to profit from frequent, tiny movements with controlled transaction quantities. Scalpers prefer calm markets with less volatility in prices.
Scalping has less market risk as trades can be done on less volatile assets and it requires a deep understanding of how the market works.
Swing trading
Swing trading is a medium-term trading strategy in which the traders hold positions for more than a day and some weeks but not more than a month.
This is the most convenient trading technique for beginners as less impulsive and more deliberate decisions can be made during swing trading. Swing traders have enough time to react to how the trade is unfolding.
This technique aims to take advantage of an incoming and outgoing trend. This technique makes use of both technical and fundamental analysis to make investment decisions.
Swing trading is time-consuming as traders have to stay active and monitor the market consistently even though they are not trading.
Arbitrage trading
Arbitrage trading is a trading technique in which a trader buys cryptocurrency from one market and sells it in another market to make a profit from the price difference in both markets.
The trader makes a profit by taking advantage of the low price correlation between cryptocurrency provided on two or more exchanges. For example, a trader can buy Bitcoin on Binance for $20,000 and sell on Coinbase for $20,500 because Coinbase is offering a higher rate for Bitcoin.
Opportunities in this trading strategy are limitless as there are so many exchange platforms with different rates that traders could identify and capitalize on to make a profit from trading.
Trend/Position trading
Trend or Position trading is used by traders to hold positions for a few months to profit from directional signals. This trading uses longer-term charts to determine the trend of the current market direction. This type of trade may last for several days to several weeks and sometimes longer, depending on the trend.
This strategy entails making long-term asset investments. The trader or investor would purchase or invest in an asset when the price is low and sell it when the price is high. However, opening and closing a position using this approach could take months or even years. It is the best strategy for those who prefer a more hands-off approach.
This strategy is sometimes called ‘HODL’ (or Hold On for Dear Life) in cryptocurrency. The term is derived from a play on the word ‘hold’ – to buy and hold.
Crypto futures trading
Crypto Futures trading includes regulated trading agreements in which the parties agree to buy or sell an asset at a defined price on a specific date.
Crypto Futures trading occurs between two investors who make a contract to bet on a cryptocurrency’s future price. Without actually owning any cryptocurrencies, it enables investors to speculate on a cryptocurrency’s future value.
If the price of the crypto moves in a different direction from what the traders set, they could either buy at a higher price or sell at a loss.
Licensed brokers for futures and options trading allow you to trade cryptocurrencies.
Range trading
Range trading is an active investment strategy in which the investor chooses a range at which to purchase and sell over a certain period.
Range trading takes advantage of non-trending markets by recognizing regular high and low prices, also referred to as resistance and support bands. The concept of trading inside a limited range enables the trader to buy and sell when an asset is oversold or overbought.
Trading in ranges takes use of the fact that markets vary within a range. Traders can profit from the range by purchasing at the support price and selling at the resistance price up until a breakthrough. This strategy can be employed at any time frame, from minutes to months.
With range trading, significant price levels must be identified. Range trading makes use of some technical analysis tools including support and resistance, volume trends, and moving averages.
Conclusion
As the world of crypto grows, investors have formulated different strategies to trade on the crypto market. Trading on the crypto market could include both active investment strategies like Day trading and also passive investment trading like Position trading.
With so many trading strategies employed by different traders, you must study each trading strategy and weigh the risks and cost of investing through that trading strategy.
Successful traders rely on carefully considered strategies. The trading strategy that works for you is the “best” strategy.
