Adopting a trading strategy works and is constant even in Cryptocurrency. This article talks about the Top 7 Crypto Trading Strategies.
With the plethora of cryptocurrency Altcoins available in the market, one thing is for sure, Bitcoin gives you value for money. As of now, there are at least 1200 cryptocurrencies in the market.
As the choices are overwhelming, it is quite challenging to pick one. Ideally, day trading gives traders opportunities to invest their time and effort to understand the market they plan to trade-in.
It is the same for cryptocurrencies also as the new entrant gives a lot of opportunities to traders to profit from the discrepancies and movements. These don’t ideally exist in other markets.
Now the question is, what is day trading? When we talk about day trading, you can say it is a process where you can speculate on financial products.
Often, day traders speculate over short term price movements by buying and selling some financial instruments.
What is a trading strategy?
We can describe a trading strategy as an extensive plan for all your trading activities. It’s a framework you create to guide you in all your trading endeavors.
For instance, a comprehensive trading strategy may include the following:
- what asset classes you trade
- what setups you take
- what tools and indicators you use
- what triggers your entries and exits (your stop loss placement)
- what dictates your position sizing
- how you document and measure your portfolio performance
As you’ll shortly see, the definitions of trading strategies aren’t necessarily strict, and there may be overlap between them. In fact, it may be worth considering a hybrid approach by combining multiple strategies.
A Financial Plan Has To Be In Place
Many people fail to understand that in the cryptocurrency market, things won’t always go as planned. On days when things feel bullish, there is the propensity to feel like you will never record a loss. However, the cryptocurrency world is a very volatile space, which is evident in the many variations of Bitcoin price over the years. As such, you must put certain financial safeguards in place to keep you on your feet on days things don’t go as planned.
One of the best ways to put in place a financial plan is to diversify your investment. Why buy Bitcoin with debit card when you can consider investing in other coins with good prospects like Dogecoin and Litecoin?
Understand Different Strategies
As against what you might have thought, investing in cryptocurrencies is not a game of chance. Several trading strategies exist that can be engaged to get certain results. Before you buy Bitcoin or any other coins available, ensure you have invested in learning different strategies. Some of these cryptocurrency trading strategies include day trading and night trading.
The day trading strategies explain how you can trade your coin effectively for other coins to profit from it. On the other hand, night trading, which has proven to be more effective, teaches you how to beat the changing cryptocurrency prices at night to avoid a loss.
While you can learn these different trading strategies from experts, the internet is an excellent place to find helpful information that can guide you. You can go on YouTube and watch detailed videos on every crypto trading strategy that exists. After watching these videos, you can open a demo account and practice the strategy before you buy Bitcoin.
Crypto Trading Strategies
This involves holding on to your investment for a few weeks or even a month or two. Here you must try to make profits based on market trends. Investing in undervalued cryptocurrencies that are likely to go up.
A position trader has a long-term strategy in place and is here for the long run; they invest in crypto by determining an expected upward trend and sell it post-the-trend at their planned profit.
Crypto trading bots can be customized as per a trader’s short-term or long-term plans. They are trained and designed to make significant profitable trades tracing, scanning, and analyzing the market trends, but are not recommended for beginners due to the complexity involved.
Day Trading Strategies
The difference between gambling and trading is an effective strategy. A good strategy can be the difference between one or two lucky streaks and consistent long-term returns. You can apply different trading strategies in different situations, depending on the nature of the market and your competencies. It is up to you to understand the market and decide when it is appropriate to apply a given strategy.
Here are a few crypto trading strategies you could use to understand how to day trade crypto in more detail.
High-Frequency Trading (HFT)
High-frequency trading is a technique where you take advantage of price changes that occur on the order of seconds or fractions thereof. The frequency in question is routinely on the order of dozens of trades per second—far beyond the capability of a human trader.
The only way to engage in High-frequency trading is using a piece of software known as a trading bot. The bot monitors the market and, based on the given trading logic, executes trades continuously for as long as it is connected to the exchange. By instituting specific trading logic, High-frequency trading can be combined with many other strategies.
As a beginner, focus on a maximum of one to two stocks during a session. Tracking and finding opportunities is easier with just a few stocks. Recently, it has become increasingly common to be able to trade fractional shares, so you can specify specific, smaller dollar amounts you wish to invest.
That means if Amazon shares are trading at $3,400, many brokers will now let you purchase a fractional share for an amount that can be as low as $25, or less than 1% of a full Amazon share.
Avoid Penny Stocks
You’re probably looking for deals and low prices but stay away from penny stocks. These stocks are often illiquid, and chances of hitting a jackpot are often bleak.
Many stocks trading under $5 a share become delisted from major stock exchanges and are only tradable over-the-counter (OTC). Unless you see a real opportunity and have done your research, stay clear of these.
Scalping is a strategy for making a small profit from a large number of trades, which adds up to a larger profit. Scalping uses large amounts of liquidity (currency) to take advantage of small price changes over a short period. The time horizon is generally a few minutes but can be as short as seconds or as long as hours.
Range trading is based on the assumption that crypto prices will normally —over a given period— only fluctuate within a certain range. Price movement outside of that range is assumed to indicate that a price is about to undergo abnormal change. For example, if the price dips below the lower bound of the range, that could suggest it is time to sell—under the assumption that it is the beginning of a significant downward swing.
Technical analysis is a statistical trading strategy. By performing various statistical calculations on historical price data, you attempt to uncover trends in the market. Technical trading is based on the belief that past prices have some effect on what future prices will be.
News and Sentiment Analysis
News and sentiment analysis is similar to technical analysis, with one crucial difference: it is based on predicting human actions and reactions, rather than price trends. With news and sentiment analysis, you try to predict whether demand will fall or rise for a given cryptocurrency by analyzing different information sources. By analyzing the sources you try to understand the social consensus on that currency and predict what actions people will take. The sources of this data are industry and mainstream news outlets, as well as social media posts.
Loss or Destruction of the Private Key
Bitcoins (and this applies to other cryptocurrencies) are stored in a digital wallet and are controllable only by the possessor of both the public key and the private key relating to the digital wallet in which the bitcoins are held, both of which are unique. If the private key is lost, destroyed or otherwise compromised, an investor may be unable to access the bitcoins held in the related digital wallet which will essentially be lost. If the private key is acquired by a third party, then this third party may be able to gain access to the bitcoins.