Are you new to the world of trading cryptocurrency? Well, we are glad to inform you that there are numerous ways of getting profit from trading cryptocurrency. To be a trader, you must be able to strategize because it will help you organize your trading methods into a clear outline that you can make use of. This way, you can continuously observe and elevate your cryptocurrency strategy.
While there are many different trading strategies, we will cover some of the most common ones. So, would you like to develop your trading strategy? Let's first understand why you need a trading strategy.
Why you need a trading strategy?
If you want to become a constantly profitable cryptocurrency trader, you'll need to work on developing and polishing your strategy. A trading strategy is an established method of making trades that you can follow in the hope of making profits.
In a nutshell, a trading strategy is more or less a set of rules for market entry and exit. With a trading strategy, you can decide whether the market situation goes in line with the conditions outlined in your strategy and, if it does fit, open a trade.
1. DAY TRADING:
It typically refers to a short-term trading style, where traders enter and exit positions within 24 hours or even less. To start a day trade, not only will you need to decide what to trade and how much capital you'll need, but you'll have to get the proper equipment and software, determine when to buy or sell and of course, how to manage your risk. Day trading, amongst others, might be the most well-known active trading strategy. To now think that all active traders are by definition day traders, it's not true. It's just a common misconception.
Naturally, day traders will use price action and practical exploration to express trade ideas. Moreover, they may employ many other techniques to find disorganisations in the crypto market. Day trading in cryptocurrency can be very profitable for several traders, but it's often quite stressful, demanding, and may involve high risk. However, day trading is suggested for more progressive traders.
2. SWING TRADING:
Swing trading is a long term strategy that involves taking trades that lasts for some days up to a couple of months in order to profit from an anticipated price change. Swing traders basically make use of technical analysis to look for trading opportunities and may later utilise fundamental analysis in addition to analyse price patterns.
Many traders find this style exciting because it offers an acceptable give and takes between the frequency of the trades and the time it demands. Swing trading could arguably be the most comfortable and convenient form of active trading strategy for many beginners in the world of crypto trading. A major benefit of this method of trading over day trading is that swing traders take longer to play out. Still, they're short enough so that it's not too hard to keep track of the trade. With swing trading, decisions can be made with less speed and more judiciousness. Swift trading is short enough to prevent distraction.
3. TREND TRADING:
Trend trading can be referred to as a trading strategy that involves the use of several technical indicators which aid to pinpoint the market momentum direction. When a price is going in one direction entirely, such as up or down, that is called a trend. Trend traders tend to take advantage and enter into a long position when an asset is trending upward. They may also decide to enter a short position when an asset is trending lower.
Trend trading is a standard strategy as it allows traders to identify and take advantage of the market drivers. They are considered to help you identify trends as early as possible and to also withdraw from the market before they reverse. They are also considered a mid to long-term trading strategy, but it is also not affected by time, depending on how long the trends last. A trend trading strategy makes an assumption that the underlying asset will continue to move in the direction of the trend. However, they also have to take into account the possibility of a trend reversal. It can be ideal for beginner traders if they properly do their due diligence and manage risk.
4. SCALPING:
Scalping is one of the fastest strategies applied by engaged traders. It basically focuses on making use of various price gaps caused by bid-ask spreads and order flows. Scalping can also be referred to as a day trading approach that requires entering lots of small-profit trades rather than fewer large-profit trades. Scalpers must have control; once a set profit or loss has been reached, the scalper needs to quit or leave the trade.
This is one of the fastest trading strategies you can ever know about. It is a trading style that specializes in profiting off small price changes, mostly if a trade is executed and brings profit. Scalping can be very profitable for traders who utilize it as a primary strategy, or even those who want to use it as an extra type of trading. It's a great trading strategy if beginners are convinced the trading style suits their personality because it requires a lot of disciplined approaches.
Passive investment strategies
Passive investment is an investment strategy that aims to intensify returns by reducing buying and selling. Passive investing basically means position trading investment for the long term investment sphere.
1. BUY AND HOLD:
This is more of an investment than about trading. It's a passive investment strategy where traders purchase an asset to hold it for a more extended period, not minding the market instability. Investors following this strategy usually depend on the company's fundamental analysis in which they are planning to invest. It might not involve monitoring the performance of the portfolio frequently, but once in a while. While buying and holding Bitcoin is a popular strategy within the cryptocurrency sphere, the buy and hold may not be suitable for other cryptocurrencies. While there are many lessons to be learnt from investing, you should not start investing until you have a fundamental investing knowledge.
2. INDEX INVESTING:
Index investing means purchasing exchange-traded fund (ETFs) and indices in the traditional markets. It is also available in the cryptocurrency markets both on Centralized cryptocurrency exchange and amidst the Decentralized Finance movement.
Index investing can be referred to as the process of utilizing index funds to develop a passive investment strategy. Index investors decide which of the markets they would be investing in, the amount of money they would be investing in each one, and then, they make use of index funds to put their plan in place. Based on observation and experience, index investing tends to outperform active management over a long time frame. Taking a hands-off approach to investing gets rid of the uncertainties and doubts that arise in a crypto picking strategy.
FINAL THOUGHTS:
Developing a crypto trading strategy that best fits your business aims and persona style is not an easy thing to do. In the above article, we have talked about some of the most common crypto trading strategies that will be helpful to you as a beginner. So, optimistically, you can figure out which one may suit you best. Good luck!