Cryptocurrency Trading strategies

Day trading

Day trading is a trading strategy that aims at profits in a short duration. It involves high risk and is not advisable for beginners. This strategy uses market volatility as an advantage to make profits from intra-day. In this day trading strategy, investing huge amounts result in higher profits. Since this trading is highly risky, it requires some technical analysis to avoid heavy losses. Perfect timing of entry and exit points helps traders to execute trade profitably.

Pros:

• Investors can set their goals and work at their own pace
• There’s no overnight risk, which is real, especially in stock and commodity trading
• Faster returns

Cons:

• It is stressful to make profits in intra-day trading.
• It requires a lot of technical analysis and number crunching.
• It requires a lot of discipline while investing.

Scalping

In this strategy, trade calls are made based on the past performances and trends of the cryptocurrency. Scalping is also considered a fast-paced trading strategy. Small moments in trends help in profit making. Instead of holding on to positions, scalp traders rely on quick trades that book small profits from small price changes in a repeated process.

Pros:

• Profit potential: Scalping allows traders to profit from small price movements in the market, which can add up to significant gains over time.
• High liquidity: Cryptocurrency markets are known for their high liquidity, which means traders can execute trades quickly and easily.
• Fast-paced: Scalping can be an exciting trading strategy, as traders need to make quick decisions and act fast to profit from small price movements.

Cons:

• High risk: Scalping is a high-risk trading strategy, as traders need to make quick decisions based on market volatility. This can lead to significant losses if the market moves against them.
• High transaction costs: Because scalping involves making multiple trades in a short period, transaction costs can add up quickly, eating into profits.
• Emotionally taxing: Scalping can be emotionally taxing, as traders need to constantly monitor the market and make quick decisions. This can lead to stress and burnout over time.

High-frequency trading

HFT, or high-frequency trading, is a trading strategy that uses algorithms to execute a trade. In this strategy, algorithms and bots decide the entry and exit points. Experts in mathematics and computer science design these bots and algorithms for calculated trading. Only experienced traders familiar with the bots and algorithms can only use this strategy wisely.

Pros:

• Speed: HFT enables traders to execute trades at incredibly fast speeds, allowing them to take advantage of small price movements before other traders can react.
• Efficiency: HFT can improve market efficiency by increasing liquidity and narrowing bid-ask spreads, making it easier for traders to buy and sell assets.
• Increased profits: By executing trades at high volumes and fast speeds, HFT traders can potentially earn significant profits, especially in volatile markets like crypto.

Cons:

• Increased volatility: HFT can contribute to increased market volatility, as large volumes of trades executed in a short period can cause sudden price swings.
• Limited accessibility: HFT requires sophisticated technology and expertise, making it difficult for individual traders to compete with larger firms.
• Risk of errors: The speed and volume of HFT can increase the risk of errors or technical glitches, which can lead to significant losses.
• Potential for market manipulation: HFT can be used to manipulate markets by creating artificial price movements or spreading false information.

Dollar-cost averaging

Dollar-cost averaging (DCA) is a cryptocurrency trading strategy that involves investing a specific amount of money into crypto at regular intervals or periodically, regardless of the price. Overlooking the impact of market volatility is the main objective of this strategy. This strategy requires a strong fundamental analysis as it involves a blind investment attitude based on the broader aspect of the assets like their future value and reputation are considered in this strategy.

Pros:

• Reduces the impact of market volatility: Dollar cost averaging allows investors to buy more shares when the price is low and fewer shares when the price is high, which reduces the impact of market volatility on their investments.
• Reduces the impact of market volatility: Dollar cost averaging allows investors to buy more shares when the price is low and fewer shares when the price is high, which reduces the impact of market volatility on their investments.Reduces the impact of market volatility: Dollar cost averaging allows investors to buy more shares when the price is low and fewer shares when the price is high, which reduces the impact of market volatility on their investments.
• Reduces the impact of market volatility: Dollar cost averaging allows investors to buy more shares when the price is low and fewer shares when the price is high, which reduces the impact of market volatility on their investments.

Cons:

• Opportunity cost: Dollar cost averaging may result in missed opportunities for investors who have a lump sum of money available to invest. If the market experiences a significant upswing, investors who are using dollar cost averaging may miss out on potential gains.
• Transaction fees: If investors are investing in individual stocks or ETFs, they may incur transaction fees each time they invest. Over time, these fees can add up and reduce the overall returns of the investment.
• Psychological impact: Dollar-cost averaging can be psychologically challenging for some investors, as it requires them to invest even when the market is down. This can be difficult for some investors who may feel the urge to hold back when the market is experiencing a downturn.

Do not trade based on hype

Cryptocurrency is a booming technology and a new concept of currency that has taken the world by storm in recent times. Bill Gates and Elon Musk have been supporting cryptocurrency for a long time, which made it even more popular among their followers and technology buffs. When tech icons supporting the crypto technology served as a free promotion for trading the crypto markets. In addition, a few big firms like BMW and Tesla have also accepted Bitcoins as trading instruments in their own business, which further promoted cryptocurrency as an alternative to traditional currency. In this scenario, a cryptocurrency does get a lot of hype and publicity, this is something that cannot be affordable by the commoners.

Having a diversified portfolio

Since cryptocurrency is an evolving technology and concept, it needs to sort out a lot of legal and technical aspects to be more accessible for the commoners. Diversifying crypto investments help mitigate heavy risk as it involves investments in several other cryptocurrencies. As trends and market fluctuation is different for different cryptocurrencies, it is obvious to have different profit and loss for the portfolio.

Brainstorming

Just before entering into any trade, it is important for a beginner to brainstorm on the concepts of the specific trade. Having a good knowledge of the techniques and strategies help traders to execute a trade professionally.