Top 6 Crypto Trading Strategies
The cryptocurrency market is known to be volatile and subject to a large amount of manipulation. However, the cryptocurrency market is also the most accessible and the most fertile market, in terms of return on investment. But you must have in place & follow some strict crypto trading strategies to profit from this volatile market.
The stock exchange and the cryptocurrency market have more in common than both industries would like to admit. But the truth is, at the core of both markets is the common goal to make twice the amount of money as you put in.
With the cryptocurrency market becoming more and more mainstream and the larger effort to integrate the stock market, a lot of traditional trading techniques are finding their way into the cryptocurrency market as well. And the best part is; they’re working.
Top 6 Crypto Trading Strategies –
Scalping is making the most of the small fluctuations of a coin or stock in the market. Scalping is the process of making many profit gains in the smallest of fluctuations of the asset. A person who employs this technique is called a scalper.
Scalping is a very fast paced, meticulous kind of trading. In which the investor basically buys low and sells high, or buys high and sells higher. They essentially use the volatility of their asset against the market itself for profit.
To be able to scalping, it is important that the investor is familiar with the market, its conditions, the asset and the factor that are likely to affect the asset and it is also essential that they are flexible because the slightest slip can lead to a major loss. A scalper does almost a hundred trades a day and needs to be very quick on their feet to be able to take full advantage of the fluctuations in the market.
For a market as volatile and unpredictable as the cryptocurrency market, it seems like a perfect fit. Because the fluctuations on even the most stable tokens are unpredictable and every hour there is a new state. However, when this technique is applied to the cryptocurrency market on a day to day basis, given that the fluctuation on say Bitcoin is on most days just a matter of a $100 dollars, most of the small-time profits are wiped out in paying transaction fees for the trades.
2. Day Trading
Day trading is similar to scalping, other than the fact that in scalping there are hundreds of transactions a day, whereas in day trading there are fewer. Day trading is essentially buying and selling an asset, coin or token in the same day in order to make the most of the small fluctuations.
In day trading, the investors and traders make the most of the minute changes in value and cash out in the same day. A lot of people quit their full-time jobs and take up day trading in the stock market because it is very lucrative.
A typical day trader, when in possession of an asset he/she is looking to sell, will consider three things; the volatility of the asset, the liquidity and the trading volume, before zeroing down on a time to sell.
The aim of a day trader is to make twice or more money from an asset than the original amount they spent to get it. This particular method, in the cryptocurrency market, only works when the market is doing well. Because in day trading, traders hold their assets only for a couple of seconds, max a couple of hours at a time. Thereby eliminating holding as an option.
So when the cryptocurrency market is in decline like it was in the beginning of this year, day traders in the market would have incurred huge losses because they didn’t HODL.
3. Range Trading
The third most used strategy in the market right now is range trading. Range trading is a technique mostly employed by a lot of Forex traders and dealers. In order to engage in range trading, the trader must first identify overbought and oversold areas of the market and buy from the overbought and sell in the oversold areas.
In other words, the trader must identify where the asset, coin or token is at its least value (overbought) and buy there along with the majority of the investors and then wait till it reaches a peak (oversold) and sell there. This is a technique that can be used when there is a lack of a more stable trend in the asset.
To do range trading, the three things the trader must do is; first identify the overbought and oversold areas on the trend line, time your entry into the market and time your exit. To employ this method, huge amounts of research and time must be invested before being able to make the most of it.
4. Swing Trading
Swing trading is a longer term day trading technique. While the holding of asset in day trading may last only a couple of hours, in swing trading it can go from a minimum of six days to a couple of weeks. Swing trading requires a lot more technical analysis before entering the market than day trading does because you have to identify the trend’s lows, highs and calculate the risk.
Swing trading essentially is, first identifying a trend. Waiting for it to fall low, buy into the market when it is on its incline and sell right before the beginning of the decline or at the very peak.
This is a trading technique that can be employed in the cryptocurrency market, but the estimation of when the asset’s trend line is going to swing high is a decision can only be predicted based on community input and to some level, speculation.
5. Position Trading
A position trader is somebody who is not concerned in the small fluctuations that the market may see on a day to day or monthly basis. The trader does not concern themselves with daily news and only keeps upto date with monthly and yearly trends.
The trader may only make one or two transactions a year with their assets, which makes them a long-term investor. The only time they are forced into making a transaction or a trade is when there is an immediate threat to their asset or there is a complete shutdown being scheduled.
The cryptocurrency market’s alternative name for this kind of trading is called HODLing. Where the investor holds on to their coin or token through its highs and lows without selling it.
Arbitrage is a method of trading that exists because of market imperfections. Arbitrage as a method of trading can be totally wiped out if the market functioned perfectly, but that is a dream more than a reality.
Arbitrage takes advantages of the imbalances in assets and financial instruments and makes money off their difference. It is a trade that makes money out of the price difference in assets that are either identical or similar on different markets and platforms.
It is basically buying of an asset on one exchange and selling it on another and pocketing the difference in price of both as profit. This kind of trading, to a large extent, can be automated and performed by a bot.
It is probably one of the simplest forms of trading because it requires no said amount of experience nor does it require the need for technical knowledge. It is basic common sense that presides over this kind of trading. And in the cryptocurrency market it is essentially the difference in the pricing of a token on different exchanges.
It is a very popular method in the cryptocurrency market because there is a large difference in the pricing of coins from exchange to exchange and it is one of the easiest trading strategies because it involves no said technical analysis nor does it require any specific knowledge to do so.