What is a crypto trading strategy? 5 Crypto Trading Strategies Explained
You need a proven strategy to consistently make money from the cryptocurrency market.
Having a strategy keeps you focused on the constant flow of news, economic data, and market events that can interfere with your analysis.
So what is a crypto trading strategy and which trading strategy is right for you?
Why do you need a crypto trading strategy?
It would be a mistake for you to see events in the crypto markets as random and to trade based on your intuition alone. Trades executed on the basis of your instincts can indeed lead to a significant profit. However, such achievement is only the result of chance – you can’t be sure to replicate such results consistently, even if you try so hard.
Expert traders rely on well thought out methods for their success. They know that even though crypto prices fluctuate, they tend to follow predictable patterns. Accordingly, a strategic approach to trading is necessary. Our goal is to help you understand the different trading strategies you need for consistent results.
There are many trading strategies, but we will review the most popular ones. Most of the trading strategies we will mention also work in financial markets like forex, stocks, ETFs, etc. However, this article focuses on cryptocurrency.
What is a crypto trading strategy?
A crypto trading strategy is an established method of planning and performing trades that you follow. Trading strategies usually set out specifications for what trades to make, when to make them, when to exit them, and how much capital you should risk on each position.
Your crypto trading strategy is a fixed plan that you devise to earn profitable returns when buying or selling in the crypto markets. This plan uses various analytical tools to identify predefined market conditions and price levels, including important resistance and support areas.
5 types of crypto trading strategies
Five of the most popular cryptocurrency trading methods include scalping, day trading, swing trading, buy and hold, and arbitrage. And while we cover what these crypto trading strategies mean and how they work, we don’t offer specific advice on how to use them. So remember to always do your own research before buying or trading crypto.
Scalping is also a popular trading strategy in the cryptocurrency market. This trading strategy allows traders to profit from few price movements at frequent intervals. The goal is to add up small profits each day to generate a substantial amount over time.
Scalpers often use leverage to open more trades and tight stop losses to manage risk. They trade using 1 minute, 15 minute and 30 minute timeframes. Their transactions usually last a few seconds or minutes, but usually less than an hour.
2. Trading day
Day trading involves entering and exiting positions on the same day. As such, day traders aim to capitalize on intraday price movements, that is, price movements that occur within a trading day. Day traders trade on longer timeframes than scalpers but still close their positions within a day. The purpose of day trading cryptocurrency is to profit from tiny market movements and volatile activity in bear and bull markets.
Day trading strategies are designed using technical analysis. However, like scalping, day trading is a time-consuming and risky strategy more suited to advanced traders.
Trades executed using this strategy typically last longer than a day, but usually no longer than a few weeks or months. As a result, some people refer to this strategy as a mid-term trading strategy because it sits between day trading and position trading strategies, giving traders more time to think about their decisions.
You won’t be able to make spontaneous decisions like you would in a short-term strategy – you can make trading decisions with less emotion or rationality, which is why this style of trading is generally recommended for novice traders.
4. Buy and hold (trading positions)
Position trading allows traders to hold trading positions for a long period of time. This can take months or even years. Traders using this strategy generally ignore short-term price movements and focus more on long-term trends. To perform this type of trade, traders usually focus on daily, weekly, and monthly timeframes. Position traders also use fundamental analysis to assess potential market price trends and consider other factors such as market trends and historical patterns.
5. Arbitration negotiation
The practice of buying cryptocurrencies in one market and selling them in another market to take advantage of price differences is known as arbitrage trading. The trader makes money by taking advantage of the low price correlation between crypto assets offered on two or more exchanges.
For example, if the Bitcoin price on Binance is $43,000 but $43,400 on Coinbase, you can choose to buy Bitcoin on Binance and transfer the BTC you bought to Coinbase to sell at a rate higher.
Cryptocurrency arbitrage opportunities are virtually limitless as there are hundreds of exchanges in the spot market. As a result, traders are looking for more efficient ways to identify and capitalize on price discrepancies across multiple exchanges, and this trend is likely to continue.
Choosing the Best Crypto Trading Strategy for Yourself
Your personality and the time frame you choose to trade will determine your trading style.
Scalping can be a good option if you are comfortable sitting all day in front of your trading chart and entering and exiting multiple trades at regular intervals. On the other hand, you may find that a longer trading strategy, such as swing trading, is better suited to your needs if you intend to trade part-time while doing other activities.
When developing a trading strategy, the time you plan to spend trading is a very important consideration to make. Scalpers seek profits from just a few pip increments on each trade. They trade in high volumes every day, repeatedly entering and exiting the market. On the other hand, swing traders will leave their trades open for a period that can range from a few days to several weeks or even months.
There is no “best” trading strategy that can be generalized to work for everyone as it is something that is highly dependent on the individual trader. On the contrary, the “best” trading style is the one that works for you.
Take your time and develop a crypto trading strategy
It’s not easy to develop a crypto trading strategy that suits both your financial goals and your personality type. After reviewing some of the most popular crypto trading techniques, we hope you will be able to figure out which one is right for you.
Keep a journal where you record the results of your trades to easily determine which ones are really successful and which ones are not. Track and keep track of every trading technique you use. Be careful not to deviate from the predefined rules you establish for yourself to determine which approaches produce the desired results and which do not.