Cryptocurrency Trading Strategies
Every day there is a person who, tired of the routine, decides to become a trader. Many people think that the cryptocurrency market is a very simple niche for beginners. And this is the first and most important mistake leading to failure.
However, many start special training to become traders. After acquiring basic knowledge, there comes an understanding that to be successful and profitable you need a strategy. It is imperative to learn different tactics and learn how to use them in practice.
A cryptocurrency trading strategy is a set of actions aimed at making a profit while trading. No one can 100% guarantee a constant profit. However, a trading strategy can help you avoid total failure.
Why are so many people today carried away by trading on the stock exchange, while there are only a few truly successful and wealthy stockbrokers or cryptocurrency traders? It’s all about the amount of information that needs to be passed through. Moreover, when choosing a strategy, it is necessary to use all the knowledge gained.
There are three main principles of cryptocurrency trading. Based on this, traders have developed several strategies.
Buy and hold (Hodl). This strategy is more about investing than trading. People buy assets and store them for long-term storage. Fans of this strategy try to predict prices for several months in advance and monitor the charts throughout this time. This strategy is based on fundamental analysis.
Swing trading. This strategy assumes the use of correction when a trend is formed. That is, the trader needs to open a deal within the trend at the time of its correction. Swing trading implies the need to adjust to the trend.
Day trading. The name of this strategy speaks for itself. In this case, we are talking about trading on the exchange within one trading session during the day. Positions opened on a specific day are not carried over to the next day or another session.
Scalping. This is high-speed trading with a lot of trades. The trader opens positions and closes them after 1–15 minutes. Ideally, each trade brings a small profit, but in the end, these small amounts form a large income.
Hodl — a Trading Strategy for Beginners
The hardest part is getting started, and this is true in any field. On the other hand, this is also the easiest stage: not so much is needed to see the first results. Traders argue that the easiest strategy for newbies is HODL, which means holding assets for a long period in the hope of future price increases.
This strategy is very simple as a trader doesn’t need to know a lot to make a profit. How can this be? The thing is that cryptocurrencies may become more expensive over time. Moreover, you can invest in the most popular coins or tokens to minimize risks.
So what should you do? You need to buy a promising cryptocurrency and hold it for a certain number of months.
You don’t need to check prices often. On the contrary, it is recommended to stay away from the charts so as not to sell everything ahead of time.
However, this strategy is one of the least effective. There are no guarantees that every single cryptocurrency will rise in price over the years. However, trading is inextricably linked with statistics. And the statistics is that people who bought cryptocurrency at the beginning of 2018, when the market was in a bearish trend, now have a profit of 100–200%.
Swing Trading
With this strategy, traders can follow general market trends and use price movements within those specific trends. This is why it is certainly important for traders to determine the general rate at which the asset is moving at this time.
Swing Trading requires traders to have a basic knowledge of technical analysis and fundamental analysis. Charts and fundamentals work together in combination with the trader’s ability to make good decisions while leaving emotion aside.
Swing trading involves holding a long or short position for at least overnight or up to several weeks. The purpose of this is to get the maximum price movement. Swing trading involves a wider price range and price movement and therefore requires careful position sizing to minimize the risk of serious losses. Swing traders generally rely on wider time frames on charts, including 15 minutes, 60 minutes, daily, and weekly charts.
Day Trading Strategy
Most day traders spend a lot of time making a profit from their cryptocurrency trades. They carry out dozens of exchange operations and transactions every day. Yes, this can lead to huge profits, but it will take a long time — months or even years — to become a successful day trader.
The first thing to do is find exchanges that support many different cryptocurrency pairs.
A pair means two coins or tokens that are the object of trade. For example, if you think that Monero may rise in price against Litecoin, then you should look for the XMR / LTC pair.
The next requirement is a high liquidity platform. This will ensure you have a stable supply of buyers and sellers. Otherwise, you will not be able to close the position when the price starts to drop.
Day trading can bring both large profits and losses. If you want to profit, then remember that there is no “easy money”. It is necessary not only to follow all your tactics but also to remain stress-resistant and equanimous.
Before starting trading, you should check which cryptocurrencies are showing high volatility. This will give you more opportunities to close deals, as a result of which you can earn more.
Your chosen cryptocurrency must be liquid. Verify this by checking the exchange platform and coin (token). How? You can go to the Coinmarketcap website and see the data for the last day.
Scalping
What is the basis of successful scalping? This, of course, is a correct and timely analysis of the state of the market. Only after confirming most of the parameters of his trading plan, the scalper makes a deal.
Scalping trades do not exceed 5–7 minutes. That is, the trade is opened and closed for 100% of the entry-amount during this time. If the deal does not win back in the direction of its opening, that is, the price does not move in the intended direction, it is always closed. 9 out of 10 speculators do not hold out such a trade for more than 7–10 minutes, because it carries global risks of a reversal in the opposite direction and loss of funds.
Also, to implement a scalping strategy, you need to understand the principles of pricing, be able to correctly interpret the position of orders in the order book, analyze the movement of quotes, that is, the volume in coins, monitor the number of orders and deals in the order book, take into account what blocks and with what timings the deals beat, etc.
Conclusion
Each of the above types of strategies in the cryptocurrency market has its right to exist, and if their use allows a trader to make a profit, this is just fine. Therefore, no matter how dizzying your success is, invest in cryptocurrency trading only the money that you can afford to lose.
