In this article we will discuss the Top three Crypto Market Trading Strategies everyone should know about.
When we think about the most well-known use-case for the cryptocurrency and blockchain space we tend to think about things such as cross-border international payments. However, by far the largest use-case for the cryptocurrency space right now is: trading. We all remember Bitcoin’s monumental rise to the $20,000 mark, and this was fuelled by the increasing numbers of traders and volume sizes. Bitcoin’s volatility is great for traders, because it creates trading opportunities that can result in big returns. Navigating the cryptocurrency market first begins with have a solid strategy in place. Here are a few trading strategies that you could be using to gain an edge in the market.
1. Fundamental Analysis
The first trading strategy on this list is fundamental analysis. This strategy is used very often in traditional markets such as stocks and bonds. The idea behind fundamental analysis is to find companies/assets that are undervalued by the market. This is often reflected in the price of the asset with it trading at a lower price point compared to other companies/assets. A trader using fundamental analysis would look to take a long position when an asset is undervalued and then make gains on price appreciation as the market recognises the value of the asset.
Traders will use a number of metrics to help them determine the underlying value of an asset. For example, when finding the underlying value of a company’s stock, the following metrics are often used:
- P/E Ratio – Price to Earnings Ratio
- EPS Ratio – Earnings Per Share Ratio
- ROE – Return on Equity
Fundamental analysis and metrics cannot be used in the context of cryptocurrency given the fact that cryptocurrencies such as Bitcoin are a fundamentally different asset class. For example, Bitcoin and Ethereum are not companies that generate cashflow. Despite this however, there are metrics that are being used in the space to help in determining the value of various cryptocurrencies. For example, the following metrics can be used:
- Crypto-asset value proposition
- Quality of the team
2. Swing Trading
The swing trading strategy is well-known and has its origins from the traditional markets of stocks and commodities trading. Swing trading looks to generate returns off the upward or downward price swings of an asset. This strategy is particularly great for the crypto market given its volatility. It’s not unusual to see the price of Bitcoin swing upward or downward by over 20% in the space of a few hours. To use this strategy properly, a trader will need to be able to accurately call when an upward or downward swing is in play, which can be tricky. Swing trading is best executed using an automated set-up. Crypto bots and signal groups (e.g. Binance signals) are good starting points in better executing the swing trading strategy.
3. Arbitrage
Another feature in the cryptocurrency market is the fact that there is often differences in the price of cryptocurrencies such as Bitcoin across cryptocurrency exchanges in the market. For example, the price of Bitcoin might be trading at $10,000 on Binance and $10,100 on BitMEX. The idea behind arbitrage trading is to profit off the price differentials that exist between various cryptocurrency exchanges. You will need to be fast in order to execute this strategy effectively, so an automated set-up might be useful when using this strategy.
Conclusion
Being a trader in the crypto market is exciting, given the huge number of opportunities that exist for traders. Having a solid trading strategy will set you on the right path to consistently and reliably generate returns when trading. These strategies are just a few that you can get started with, but it’s important to find a strategy that works well for your own trading style.
Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.
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