Every trader dealing in cryptocurrencies may need to set up his/her own trading strategy. Having a personalized trading strategy is essential to ensure safe and profitable trading.
A few important things that a trader needs to consider while creating a trading strategy are expected ROI, risk tolerance, term setting, and fund availability. These factors can also be useful when you select a trading strategy
In this article, we will look at some of the most widely used crypto trading strategies in the market, their advantages and disadvantages, and the things that one must consider when employing them.
What is Crypto Trading Strategy?
A trading strategy is a strategy that a trader uses to trade an asset. There are many commonly used and popular strategies out there among traders.
These strategies can determine the level of success that one can reap when delving into the world of cryptocurrencies.
The right trading strategy can help you increase your profits while keeping your losses minimal.
Numerous trading strategies are already present in the market which you can use while trading. A lot of these strategies are well-renowned and used by even the top traders.
The Top Crypto Trading Strategies
Let us look at some of the most widely used strategies in crypto trading
Scalping
Scalping is a trading strategy that involves trading with a crypto token at a higher volume. The higher volume of the asset makes the small changes in the coin’s price significant.
On the positive side, this method of trading gives an immediate response to the investor about their investment without having to monitor it in its long-term run.
The disadvantage of this strategy is that this particular method can also be the instant response from the market where the coin loses value in a short time.
This method can only be utilized properly by investors with a large amount of capital or through investment in really cheap coins that can be bought at a higher volume.
Range Trading
Range trading, as the name suggests is a crypto trading strategy where the investor invests in a coin after looking at the predicted low and high price limit of a coin.
Two of the best indicators to discover the range of a particular coin are the support level, which is the expected price up to which the coin would fall on that particular day, and the resistance of the coin, which indicates the tendency of the coin to go through changes in its price.
Therefore an ideal range trading target is a coin with lower resistance and a support price as close as possible to the coin’s current price.
Day Trading
Day Trading is quite possibly the most commonly known trading strategy. In day trading the important point to note is that the coin will be bought and sold within a period of one day ie. 24 hours.
Day trading options are highly risky as well as highly rewarding in most cases. This is due to the fact that the price of the coin is highly likely to fluctuate in a negative direction and cause huge losses in a low period.
Dollar-Cost Averaging
The Dollar-Cost Averaging method is one where an investor deposits a fixed amount over a predetermined set of gaps between them.
In this method, the investor can reduce the risk of incurring a huge loss all at once and instead balance his average buy price through a comparison of price and volume of the coin. This method does however involve navigating through the complexities of the crypto market when trying to sell or buy an asset.
High-Frequency Trading (HFT)
High-frequency trading is a strategy that is much suited for investors who have a deep knowledge of cryptocurrency markets and computer technology.
High-frequency trading involves using coded programs to make positions and exit them without having to experience the delay that is involved in such a process. An example of such programs are trading bots and crypto trading algorithms.
HODL
Within the cryptocurrency community, the term HODL is synonymous with the word hold. This was due to a post in a cryptocurrency forum where the user accidentally misspelled Hold as HODL.
This is a term used to refer to a cryptocurrency trading strategy that involves investing in a coin for the long term.
These long-term investors ignore the short-term rise and dips of the coin and hold them with a goal to get much higher returns in the long run.
The one obvious disadvantage of such a strategy is that it is extremely risky and can cause a significant loss of value due to the lack of supervision. The advantage of such a strategy is that the investor needn’t put any time or effort into doing any more research on the price of the coin in the shorter term.
This strategy is ideal for all those who want to take part in the world of cryptocurrency investing but aren’t interested in spending too much time or effort on it.
Portfolio Diversification
Portfolio diversification is a trading strategy wherein an investor buys a variety of digital assets and holds them in his portfolio.
This method can help the investor reduce the overall risk associated with his portfolio due to the ability to recuperate the loss he faced in one asset by using the profit that he gained through another asset.
This strategy is highly beneficial for all those who want to get the benefits of multiple kinds of digital assets whenever any one of them experiences a hike in price.
The obvious disadvantage to this strategy is that it limits the amount of profit you make by eating from your available funds to invest in other multiple assets that might not be equally profitable.
Hype Trading
Hype trading involves taking advantage of the hype that a cryptocurrency token has generated to place a bet on the price rise of the coin. We see a lot of investors use this strategy whenever a famous crypto YouTuber releases a new video about a coin.
The subscribers would often invest instantly in the coin expecting a rise in price due to the increased demand.
This strategy is highly dependent on the the aspect of time and the amount of hype as without the proper coordination of both the coin may not experience much fluctuation and the investor might even be stuck with an overvalued digital asset.
Arbitrage
Arbitrage is a strategy wherein an investor looks at the price of a particular coin in multiple exchanges. The coin is bought from the crypto exchange that offers the lowest value and sold at the exchange offering the highest value.
This strategy is highly risky and must be done with meticulous attention and in a quick time frame for it to be successful as the price differences between the exchanges could be minuscule and if not traded fast enough the user will lose out on their profit.
Moving average crossover
The Moving average crossover is a useful technical indicator that comprises a combination of both short-term and long-term indicators whose movement is used as a call to buy or sell an asset.
The short-term indicator is set up for a time frame of 20 days and the long-term indicator for a time frame of 50 days.
In such a strategy the investor buys the coin when the short signal crosses the longer signal and the investor sells when the short signal goes in the opposite direction.
RSI
The Relative Strength Index is a technical indicator that monitors the price change of the coin to determine whether a coin is overbought or oversold in the market.
This indicator can help determine the level to which the coin could fall or rise in the market based on its market saturation.
Analyzing performance metrics
The performance metrics for a project or token can be the various financial and technical indicators that have been set for the particular project and its token.
This can include the Market Capitalization of the crypto, the total supply of coins, the Funding rate, the interest rate, and the exchange flows of the coin.
Making sure that there is harmony between these elements can be of great benefit when deciding to invest in that particular project or its coin.
These are some of the most popular trading strategies that a cryptocurrency investor can employ to get better results from his investments. Let us now look at what we can conclude from all the details that we have gone through in the sections above.
The Bottom Line
Each trader may use different crypto trading strategies based on their requirements. Choosing the right strategy is essential to ensure individual success.
The various crypto trading strategies that have been mentioned in the section above can be used in the right direction and under the right circumstances to make sure that you get the most out of your crypto investments.
