Top Crypto Trading Strategies
Cryptocurrency trading is still in its infancy when compared to traditional asset classes. However, as a financial asset, there are similarities and ripple influences between both worlds. Just as investors develop strategies to manage their stock and equities, crypto traders can devise similar techniques to maximise their returns. As with stock prices, the price of cryptocurrencies is highly susceptible to market pressures. This fluctuation means that cryptocurrencies are speculative in nature.
How To Begin A cryptocurrency trader must have a strategy and a willingness to grow. First, learn the basics;
What is Cryptocurrency Trading? Cryptocurrency trading is the act of speculating on the price of a crypto asset by buying and selling through an exchange.
How Does Crypto Trading Differ From Investing? Investing and trading are the two major means of participating in crypto markets. While they are similar, investors buy and hold cryptocurrencies (HODL) in the hope of making large returns over an extended period of time, typically several months or years. Traders, on the other hand, seek to benefit from the rise and fall of cryptocurrency prices by entering and exiting price positions frequently during short periods of time. This results in smaller but more frequent turnovers.
Why You Should Have a Trading Strategy Trading cryptocurrency is not for the faint-hearted. To succeed in such a volatile market, you must have a high tolerance for risk, nerves of steel and a solid trading strategy.
A trading strategy helps to build discipline and emotional control, particularly when the market does not behave as planned.
Developing a Trading Strategy A good trading strategy needs to take into consideration several factors that may influence trading decisions, including the trader’s lifestyle, risk tolerance level, market season, available tools, and time.
A crypto trader who works a 9–5 job may be unable to keep an eye on the market charts to monitor short trends and so may suffer big losses if stop-loss rules are not implemented properly.
Oftentimes, experienced traders use most of the trading styles and eventually decide on a few that suit their needs. You may employ two or three different strategies depending on the market trends and your investment needs.
Top Trading Strategies The following are some of the most frequently used trading strategies by experts:
1. Day Trading This trading strategy involves profiting from the daily price movements of a cryptocurrency by entering and exiting trading positions on the same day. This style of trading requires the use of technical analysis indicators to establish profitable entry and exit points of trade within 24 hours.
2. Range Trading Because crypto market caps are not very large, they can be manipulated by single movers or whales to fluctuate between a certain range in order to profit off the difference. If you can recognise these patterns, you can take advantage of range trading. When trading ranges, there are two things to watch out for; overbought and oversold zones. Overbought zones indicate an impending selloff while Oversold zones signify the opposite. Most chart programs include indicators to help you recognize these zone.
3. Scalping Scalpers are crypto traders who profit from increased trade volumes. They enter and exit positions as quickly as within a few seconds before any large short-term fluctuations happen. Scalping usually requires the use of automated bots in order to increase trade cycles. Scalping is an extremely short-term trading strategy and it is best to have a large initial capital in order to profit from the extremely small margins. The larger your capital and the more trades you make, the larger your profit.
4. Arbitrage Arbitrage traders purchase cryptocurrency at a price in one market (exchange) and sell it at a higher price in a different market. Cryptocurrency markets are unregulated and anyone can set up an exchange. There are With the right information on the differences between the exchange prices of cryptocurrencies on different markets, traders can take advantage of the spread to profit. The ‘spread’ is the difference between the buy and sell price of an asset. When arbitrage trading, it is important to watch out for the fees associated with executing a trade as they vary from market to market. The amount paid in fees could potentially be high enough to offset any gains made from arbitraging.
5. Dollar-Cost Averaging (DCA) Whether in traditional stock markets or the more volatile crypto markets, true market timing is next to impossible. Dollar-Cost averaging helps investors circumvent this problem and build wealth over a period by investing a fixed amount of a chosen cryptocurrency at regular price intervals. DCA approach studies the price chart of an asset and carefully targets multiple potential points on a climbing or falling price chart. DCA can be applied to short-term or long-term trading patterns. Additionally, this strategy can also be used to take profits. You can DCA in (buy) or out (sell) of any asset.
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