The Ultimate Guide To Crypto Trading Strategies
The cryptocurrency market is renowned for its volatility. While one moment the skies might be blue and the coins are soaring, in the next moment Elon Musk tweets an opinion and the coins begin falling out of the sky one by one.
This is why the market has not yet met its global potential. Although the signs point to a crypto-influenced future, there are undoubtedly a number of would-be investors who have refrained from dipping their toes in the water. This is why crypto trading strategies have become so integral.
For investors with zero strategies, fluctuations in the market (such as the recent de-pegging of Terra and Tether or the freezing Bitcoin exchanges) can lead to a collective sense of panic, with investors trading off their coins before the market dips so low that they lose out on profit. This then leads to a paradoxical dip in the price of the influenced coins themselves. The more investors panic-sell, the further the coin falls.
So What Is A Crypto Trading Strategy?
For investors with a strategy, however, crypto fluctuations are not met with the same kind of panic. A crypto trading strategy is a method used to foresee and plan your crypto future. Typically, they are an organised layout of the coins to trade, the times to trade them, when to exit, when to stay firm, and the amount of capital an investor should risk on each transaction.
This allows the trader to identify the market conditions and prices of various cryptocurrencies, with the correct strategy in place to achieve the most profitable return when trading the coins that they own.
Why Is A Crypto Trading Strategy Important?
Trading strategies are an important part of the crypto market, as the advantages of a clear head can vastly outweigh the disadvantages which come with chance-buying or trading off coins based on public opinion.
Take, for instance, the crypto whale MicroStrategy’s reaction to the recent freezing of certain Bitcoin withdrawals. While this resulted in a number of selloffs and layoffs, CEO Michael Saylor has instead accumulated more Bitcoin, stating that the next ten years undoubtedly show a brighter horizon on the cryptocurrency landscape.
This clear head and calm reaction is a direct result of a clear crypto trading strategy, and although whales will have obviously invested in strategies to keep their organisations afloat, it does not mean that the same venture cannot be undertaken by any investor. On the contrary, creating and holding on to a strategy can lower the risk of small returns and widen the doorway to a positive and lucrative future in the crypto market for anyone.
So what crypto strategies are out there and which one is right for you? Below is a guide to the strongest strategies and how they could turn you into the organised, established and clear-headed trader that you want to be.
Scalping is one of the most popular cryptocurrency trading techniques, especially for those who are looking for quick and efficient returns on their purchased coins. While various investors might look at the long-term investment opportunities, scalping takes advantage of frequent price movements that take place over a much shorter period.
In this way, rather than observing trading charts on an hourly or daily basis, scalpers will make decisions and trade in intervals of one to thirty minutes, giving them a high chance of small daily profits which can accumulate to a substantial return in the future.
How Do Traders Scalp?
Scalpers use a variety of techniques to accomplish their return:
- Range Trading
Range trading involves waiting for an established price range before executing a trade. For some scalpers, they will use a stop-limit order which retroactively executes a trade when the coin reaches either a minimum price or the price specified in the order itself.
- Big-Ask Spread
Put simply, the bid-ask spread technique finds the middle ground between the highest price a buyer is willing to pay and the lowest price that the seller is willing to settle for. This is a de facto measure of market liquidity, with the bid representing the demand and the ask price, representing the supply for the coin itself.
For scalpers looking to leverage trade, they would need to use borrowed capital which allows them to trade with more than they have in their wallets. For some crypto exchanges, this allows a trader to borrow up to 100 times your account balance, allowing them to increase their position size and potential profits. It isn’t without its risks, however: as the higher an investor leverages, the more chance there is of getting liquidated.
The Advantages Of Scalping
For investors who want to stay completely in tune with the market they have invested in, scalping can be highly beneficial, as you can get the feel of minute fluctuations and price variations which other investors may miss. This allows you to make a constant return, meaning you feel the benefits of your investments without the panic of sitting on a tumbling portfolio, with no clear view of its longevity or ability to rebuild itself.
Scalping does require an ability to accurately read charts and obtain pinpointed knowledge on all crypto exchanges, which means it is not ideal for investors who are shy of becoming fully and regularly absorbed in the market.
When examining scalp trading, it is also important to mention day trading, which is a similar (but not identical) method of trading crypto coins. Both require a strong understanding of the market and excellent money and risk management skills.
Unlike scalping, however, day trading usually focuses on hourly analysis rather than making decisions minute-by-minute. Secondly, day trading requires opening multiple trades every day, seeing as the overall profit from each trade is going to be relatively low.
Swing traders can be seen as a bit more passive compared to day or scalping traders. This is because, although scalpers will be frequently monitoring the market and making their decisions based on the market trends that are happening in the moment, a swing trader will wait for the most notable crypto price swings which can earn them a larger profit.
In this way, swing trading is about timing. If an investor was looking to trade Ethereum, they may sit on their assets for weeks or months before a swing in price leads them to trade, but it is integral for them to stay vigilant and take advantage of the swings as and when they occur.
How Do Traders Swing Trade?
The methods used in swing trading are far simpler than scalp trading. They still require extensive research and focus, as any wrong move can result in a poorer return and a substantial amount of wasted time waiting on a swing, but this research can place them in good stead to trade efficiently. The steps to achieve this are as follows:
- Find The Right Coin
- Find A Reputable Crypto Exchange
- Keep Updated On Crypto News, Social Media And Trends
- Choose The Opportune Moment To Take Advantage Of A Swing
The Advantages Of Swing Trading
The reason swing trading is seen as the opportune strategy for beginners in the crypto market is that it is not too challenging to keep track of the trade itself. While scalping requires a lot more effort and focus, the process of swing trading gives the investor far more time to work out their assets, understand the market and carry out the most beneficial trades.
Taking the form of a more passive technique of trading, this does not mean that swing traders themselves should be passive in their approach. As mentioned earlier, a substantial amount of time should be spent on following the correct steps, with a keen eye on the market trends and movements to take advantage.
If the landscape of cryptocurrency is a sea underneath a raging storm, then the process of holding – or “hodling” – is an anchor which keeps a ship from breaking apart. To hold a number of crypto assets is historically the most fruitful investment strategy. As the name suggests, it involves investing in crypto and simply holding onto the assets, allowing investors to buy low and see out the storm as it occurs.
Providing the correct due diligence is carried out and risk management is a constant focus, the holding strategy is one of the easiest and most simple to undertake, both for the more advanced crypto traders and the beginners who are looking for a strong profit.
How Do Traders Hold Onto Their Coins?
Unlike both day trading and swing trading, the act of holding onto coins is more about short- and long-term security and confidence:
- Obtain A Hardware Wallet
- Refrain From Day Trading
- Think Long Term
- Prepare For Any Volatility
It’s important to note that, while there are many advantages of hodling crypto assets, the first step is crucial in attaining these advantages. Holding onto your coins on an exchange can be hazardous if a hacker gains control of your system, especially if you have a large portfolio, so obtaining a crypto wallet and putting in the extra yards for security can ease any concerns about criminal interference.
The Advantages Of Hodl Trading
Utilised by many crypto whales, hodling is seen as the most fruitful when it comes to crypto’s future. With the incoming implementation of Web3 and digital currency growing more popular across the world, a far higher price of crypto assets can easily be envisaged around a decade from now. So long as an investor is confident in their investments, they have every reason to feel secure and unphased by the regular fluctuations that occur in the journey.
In terms of building a hodl portfolio, many of these investors also choose to trade altcoins as the best way to grow. With most investors wary of trading Ethereum or Bitcoin, a small amount of capital is perfect for more speculative trades which can help to build the portfolio and set the investor up for future returns.
Arbitrage trading is the practice of buying from one crypto market and selling to another. This allows a trader to take advantage of price correlation among various exchanges, meaning they can book a higher profit if there is a difference in liquidity and trading volume.
For instance, if Bitcoin is being traded for $20,000 on one exchange but $20,200 on another, then a trader can buy a coin on the former exchange and then sell it at a higher rate on the other.
How Do Investors Arbitrage Trade?
There are hundreds of market exchanges out there, which means there are plenty of ways for traders to capitalise on these differentials and build a profit:
- Spatial Arbitrage
This is the most simple means of arbitrage, where a trader will buy and sell the same crypto asset simultaneously on two separate exchanges.
- Convergence Arbitrage
Usually preserved for the more advanced cryptocurrency traders, convergence arbitrage involves buying an undervalued asset and short-selling an overvalued asset. This means that, when the prices meet at a median price, the trader who has short-selled can take double the profit.
- Triangular Arbitrage
While simple arbitrage typically involves buying from one exchange and selling on the other, triangular arbitrage is the process of trading between three different currencies. For example, a trader may buy BTC using USD, then buy LTC with that BTC and finally trade LTC for USD, ending with a potential reward of higher USD.
The Advantages Of Arbitrage Trading
One of the main advantages of arbitrage trading is that it is generally a lower-risk strategy than swing trading or holding. As the trader is buying and selling simultaneously, they are not placing their assets into a volatile market in the hope of long-term success. Simultaneously, the volatile market becomes an advantage rather than a hindrance, as a trader will depend on price differentials to make a return.
Lastly, the general cryptocurrency market direction will make less of an impact with this strategy, as the trader does not have to rely on a direction to make money. Instead, they will simply be focused on the exchanges as they see them and take advantage of the differentials when they become evident between one exchange and the other.
Why Is Cryptocurrency So Popular?
Cryptocurrency is so popular because it is a new means of trading and purchasing without the need for a middleman. The value of a cryptocoin is determined by supply and demand, which subsequently allows an investor to make more of a profit on a single coin over time.
Is It Worth Investing In Cryptocurrency?
Of course. Although it has been around for over a decade, cryptocurrency is only just starting to become the beast that it will be in the future. If you were to invest in cryptocurrency now, then it is likely you have taken advantage of its early years, securing coins that will only gain in their worth.
Which Trading Strategy Suits Me?
The trading strategy that will suit you will entirely depend on your own personal circumstances, financial wealth and aversion to risk. If you are unsure, then beginning with swing trading is a good method to see a relatively fast return. Likewise, hodling is a good strategy for investors who want to benefit from crypto’s future but not become too actively involved right now.
Should I Take Into Account Public Opinion?
The whole point of forming a trading strategy is that you are doing your own research and analysis. In this way, although it is important to keep on track of news, you have to make the decision yourself on whether that news is enough to alter your plans.
Will I Definitely See Returns With These Trading Strategies?
Due to cryptocurrency being a highly volatile market, there is nothing definite when it comes to trading strategies. Depending on which strategy you choose, however, it is highly likely that you will see some return, especially if you stay focused and do your research on the market itself.