Cryptocurrency Trading Strategies
Crypto markets attract day traders and have their undivided attention since they never close down. Cryptocurrency trading has taken the market by storm with its easy going mechanism. It has no exaggerated requirements such as margin account or limitations to brokerage subscriptions. It allows traders to indulge in short-term trades. While these options are limited in stock markets. Further with cryptocurrency trading strategies traders can also maximize their profitability.
Crypto is the hottest topic; it’s new and exciting but can also burn you. Thousands of new cryptocurrencies are launched on trading platforms, and it is enticing, but it also has its risks. The crypto market is volatile and speculative, and it demands your thorough understanding of crypto, its trading principles, and strategizing.
Invest what you can afford to lose. If you are armed with exemplary risk management skills and have the nerves to handle the ups and lows of the market, we’ll fill you in about all the trading strategies you can adopt.
Plot a strategy backed by research and plan when to enter and exit the positions. Here are some popular techniques of cryptocurrency trading for beginners to make gains on short-term fluctuations in the crypto markets.
6 Cryptocurrency Trading Strategies
A strategy that uses a trading bot, an automated software tool to buy and sell financial instruments. It trades on predetermined time and preset conditions to maximize profits. Cryptocurrency trading bots are designed to make profits and avoid losses and risks.
The bots analyze price movements, exchange fees, and opportunities to make short-term profits on trades. Bot trading has for long been used by brokerages trading on stock exchanges. Understand software programing and APIs and take advantage of them as a day trader.
A long straddle purchases both a put and call order; it is also called buy straddle, option straddle, or simply straddle. The put and call orders here are on the same crypto, striking price, and expiration date.
Crypto is 5X more volatile than the traditional asset classes, and hence, the long straddle seems promising, making it a one of the popular cryptocurrency trading strategies. This strategy involves betting on the shifts of a crypto’s price. Volatility trades have no direction. Here, you win regardless of how the price fluctuates, high or low. But if the price remains stagnant, you suffer losses.
Bitcoin straddle is profitable when Bitcoin plummets or shoots up from the strike price by more than your premium. Then, you sell the call and put simultaneously to exit the trade. Simply put, a high fluctuation regardless of the direction will be in your favor.
Range Trading thrives on sideways markets by marking the constant high and low prices documented on charts as resistance and support levels. This technique involves determining a period to buy a crypto asset when it is oversold and sell when overbought to make profits.
Overbought is when buyers’ needs are saturated, and the stock is sold off, while oversold means the opposite. To keep track of these overbought and oversold zones, you can read the chart indicators like Stochastic Oscillator and relative strength index (RSI).
Identify the right crypto asset to carry out your range trade. One of the most attractive benefits of range trading is that it has clearly defined entry and exit points which minimizes losses. A range trader suffers minimal losses from news cycles or fluctuating market conditions as they make small gains over a short period.
Cryptocurrency often trades for a long time inside a particular range. A single big mover can manipulate crypto market caps as they are small. A big mover can also manipulate a coin’s price and fluctuate it to gain profits from range. If you carefully look for these patterns, you can use them to your advantage.
Scalping is leveraging large amounts of liquidity to seize on small price movements. It is said to be the trading strategy with the fastest turnaround. You can do scalping by buying and selling bitcoins in a few hours and cash out small percentage gains by the end of the day. Or you can set up a bot for high-intensity and frequent trades according to signals or technical indicators.
Scalping crypto eases automation for bots, lowers risk, and increases the potential for profitability. You can reduce the anxiety and stress of trading by programming trading bots. Scalping has smaller positions, and hence you can evaluate the gains or losses at the end of the day instead of long-term investing. The volatility of the markets indicates that traders can earn small profits over time, adding up to considerable gains in the long term.
With scalping, you take advantage of increased trading volume to make profits.
Scalpers also exit a trade within seconds of entering, and many others use automated bots to increase their trading cycles’ frequency.
You will want to exit a trade prior to any fluctuation toppling the market sentiment on a coin. In addition, you will need a large bankroll to take advantage of this terribly short-term cryptocurrency trading strategy fully. The returns on every trade are small, but the scalp comes back with a considerable amount of money when you stake a significant amount.
Cryptocurrency trading strategies such as Arbitrage let you buy crypto in one market and sell it in another for a higher price. “Spread” of an asset is the difference between buy and sell price. Crypto is unregulated, and hence creating an exchange is easy, leading to a vast difference in the spread as there also exists differences in asset liquidity and trading volume.
As a trader, you are required to hold a portfolio on an exchange to start trading. You can begin arbitrage by opening accounts on exchanges you believe are bound to show different prices for the same asset. The discrepancies are not that large, but the low barrier to entry for new exchanges paves the way for many arbitrage opportunities more often than in traditional asset markets.
But while attempting arbitrage, consider the trading fees and if it is palpable or wiping your gains.
Technical Analysis involves the study of financial data to identify statistical trends through past prices and volume data points. TA allows traders to approach trading scientifically and earn. You can apply a technically devised strategy to any market or security; it requires historical trading data.
TA in crypto can act as a blueprint that can help you evaluate how historical performance can determine future gains or losses. Using TA to trade in crypto is a hot topic among traders since many do not believe TA holds ground in crypto due to its lack of global regulations and abundance of exchanges. While others believe in the strength of (relative strength index)
The RSI indicator analyzes the relationship between the price of crypto and demand for it. It identifies if the asset is overbought or oversold so traders can plot entry and exit points based on momentum. With RSI, you can use Money Flow Index (MFI) to check if the price of BTC is tilting towards a bullish or bearish market.
TA as a strategy should be fused with other strategies to get the best of it. As a crypto day trader, beware of TA and, along with it, the news, fundamental analysis, correlation arbitrage, and other market factors. TA emphasizes planning a complete strategy with enter and exit positions.
Crypto day trading pursues short-term profits by plotting high-risk strategies that plan frequent purchases and sales of crypto. If you are up for day trading crypto, know where to trade, prepare a detailed strategy, and stick to the entry and exit points.
Remember that many traders lose profits. Allot specific time to your trades, measure gains and losses, and stick to a full-fledged strategy. You can start with paper trading to try your hand and practice without using your actual money to trade.
Understanding cryptocurrency trading for a novice can be pretty overwhelming, but researching is key. Your hard work is bound to come through.
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