Crypto Trading Strategies
In this guide about crypto trading strategies, we go over some of the tactics you can use when you trade cryptocurrencies. The main goal of this article is to present you with different strategies for Bitcoin trading, Ethereum trading and altcoin trading. We show off different ways to trade cryptos, including arbitrage trading, buy & hold, wing, trend, and scalping strategies. Other relevant articles on this topic are advanced crypto trading and crypto fundamental analysis.
How Important are Strategies?
Tactics constitute an important part of your trading efforts, especially when cryptos are in question. Different market trends require different approaches and understanding them can make a line between profit and loss.
There are many factors that impact the price of cryptocurrency, which changes on hourly bases and sometimes drastically. Thus, it is important to understand the best way to approach trading at that specific moment. Luckily, many of these strategies come from Forex and commodity trade, both of which had time to mature.
This strategy is quite common in the crypto world, due to large fluctuations on an hourly basis. Exchanges and trade centers are numerous, leaving space for investors to buy fast and sell even quicker. The idea is to make a small profit out of several transactions within a day, sometimes even an hour. You can see the daily changes in a screenshot below.
This strategy has its merits, as it lowers don the risk of losses. On the other hand, even though cryptos can fluctuate, you still depend on exchange rates in different platforms. This can render your activities useless if unfavorable. Thus, we recommend this strategy only once you have everything set. You should also understand cryptos you are trading, thus a little bit of experience in the crypto markets is necessary.
Buy & Hold
Another popular method of trade, buy & hold even has a name in the crypto jargon – HODL. In this strategy, trader looks to purchase the coin at the low price level and hold it until the market trends push the coin into the favorable zone. The longer you wait, so will price increase supposedly.
This has several advantages and disadvantages. On the pro side, you can purchase the coin and lend it out to others, earning interest as a result. You also get to hold the coin and wait until the market reaches the level you need. On the con side, bitcoin rose to $20.000 at one point in 2018, only to fall down to $8.00 just a few weeks after. You stand to lose a lot if you miss the first purchase.
Swing trading tactic uses the graphical presentation of price fluctuations as a mean to locate trends within a certain period of time. The market moves in both directions, as price sometimes falls and rises. Swinging in the market means to locate repeating timeframes of price behavior, and then capitalize it by buying or selling.
This is reserved for experienced traders, especially those that understand charts and indicators. Mobile apps and chart platforms in this strategy are invaluable. You do need to understand peaks and drops in order to use this strategy properly.
The trend is very similar to Swing tactic, though with a little twist. Where swing is used for short-term trading purposes, trading with trends is long-term oriented. You pick up major events and reasons behind fluctuations but do not get into an hourly rate of change. You should be more interested in daily changes, as you wish to grab larger differences. Charts should then be set as months, as seen in the picture below.
This strategy has bigger potential in terms of profit than swing, though it requires a bit larger investments as well. However, you are also at a higher risk of losses if you misinterpret signs. Whereas swinging is better suited for experts, trend trading can accommodate starters as well as experts.
You should keep in mind that cryptocurrencies change value fairly quickly and drastically, meaning that this strategy can land you quite a bit money but you also stand to lose it just as fast.
Lastly, you can scalp while trading cryptos. The strategy revolves around the notion that smaller but numerous trades a day is the best profit gainer tactic. This might work on days when coin drastically changes in value and should thus be implemented sparingly.
You can also use the tactic if you are aiming for lots of trades but for a small amount of profit. This type of market approach might land you small profit per transaction but risks are very low. It is also good for starters to try their hands on the trading, tough we advise small funds only to be invested. Scalping itself uses smaller volumes of coins and funds after all in order to catch as many changes as possible.
We have several tips for you to consider while trading cryptocurrencies:
- Always look at the market data before you use a strategy. Sometimes market might move against you, so it is best to be prepared.
- When using tools like charts and bots, open up several of them and compare data. This should give you clearer idea of how the industry moves.
- If you wish to buy and sell coins to own them, prepare wallet and trade platforms prior to your activities. It is also good to check terms of trade as well.
There are many API and apps out there that provide you signal services. These are alarms that aim to guide your attention towards its findings once the market reaches a certain point. This point was preset by you, depending on the strategy used and what you plan to do (whether to buy or sell).
Signals are quite important to have, as they can show you the way towards trends and what can be done about them. Read more about signals in our article about crypto technical analysis.
In this guide about crypto trading strategies, we went over several of them in terms of advantages and disadvantages they have. Traders should use each with great care, as most involve funding on the large or frequent scale. Without an understanding of the market functions, and strategies themselves, it is easy to picture bankruptcy of your operations.