Since 2009, the rise of cryptocurrencies has ensured that there is a new way of making payments. In April 2021, the crypto market crossed the $2 trillion threshold, which further reflects the growing adoption of cryptocurrencies across the globe. Bitcoin – the largest cryptocurrency – has a market cap of over $700 billion. Now, there are a plethora of cryptocurrencies that traders can invest in.
As the crypto industry keeps growing in size, different questions have been on the minds of crypto enthusiasts: What is cryptocurrency trading strategy? What strategy is the best for cryptocurrency trading? Are there various platforms for trading cryptocurrencies?
The high level of volatility ensures that cryptocurrencies can experience a wild swing in their prices over a period. For this reason, there is a great need for cryptocurrency trading strategies to ensure that investors make the most of the significant fluctuations in crypto prices. With this in mind, this comprehensive guide will look into the various cryptocurrency trading strategies that you should know. So, keep on reading.
Types of Trading Strategies
Trading strategies require more time and effort to master. Some of them are introduced as follows:
This crypto trading strategy involves opening and closing positions within the same day. Traders take advantage of the intraday price movement in a chosen cryptocurrency for profit. To ensure successful trade, investors can depend on technical indicators to determine the entry and exit points for their cryptocurrency.
With day trading, investors can adopt technical analysis, as well as price action, to create trade ideas. Apart from this, they may also adopt other techniques to detect inefficiencies in the crypto market. For some, day trading can be quite profitable. Yet, it may involve a high level of risk.
Oftentimes, experts and analysts give out support and resistance levels every day for traders to make use of. The term “resistance” is regarded as the point up to which the price of cryptocurrency may increase. As a result, the resistance level is often a price above the current price. On the other hand, “support” is a term used for the level below which a crypto price should not fall.
Also regarded as position trading, trend trading is a crypto trading strategy that involves holding positions for a long period, typically for some months. This strategy also involves taking advantage of directional trends. Traders may choose to enter a short position in a downtrend while entering a long position in an uptrend.
Traders that adopt trend trading typically make use of fundamental analysis. However, this may not necessarily always be the case. Nonetheless, fundamental analysis involves considering events that may take longer to play out.
Trend trading is a strategy that relies on the underlying to keep moving in the trend direction. Yet, it must be noted that trend traders should not ignore the possibility of a reversal in the trend. With this in mind, they may also take advantage of trend lines, moving average to increase their rate of success while reducing the level of financial risks
This strategy is best for beginners once they can pay full attention to important details as they manage their risks
Buy and hold
This is a passive crypto trading strategy that involves traders purchasing assets with the hope of holding them for a long period, irrespective of the market variations. This is a strategy that can be considered in a long-term investment portfolio.
The idea is simple: Getting in the market without any regard for timing hoping that the value of the asset will increase in the future. In this case, the entry and exit points do not matter much.
The buy-and-hold strategy is based on fundamental analysis. This strategy often involves no need for frequently keeping track of the performance of the portfolio, but rather occasionally. Even though the crypto market is relatively young, the buy-and-hold strategy is adopted by many traders.
Yet, it should be stressed that trading cryptocurrencies is risky since they are volatile assets. While the buying and holding strategy may be great for established cryptocurrencies such as Bitcoin and Ethereum, it may not be suitable for other new cryptocurrencies.
Cryptocurrencies were created to reduce the reliance on FIAT currencies. In recent years, the crypto industry has experienced massive growth. This has also brought about a rise in crypto trading. To make the most out of crypto trading, the best strategies must be adopted.