Crypto Trading Strategies That Every Crypto Trader Needs to Know

Muhammad Naeem

Blogger

Crypto trading is widely regarded as potentially the most lucrative way to profit from the cryptocurrency market. The crypto market is not a place where one can simply jump in and hope for profits. To become a successful crypto trader, you must have steel nerves, risk management, enough knowledge of the crypto market and most importantly, a sound trading strategy. Whether you're a seasoned trader or a beginner stepping into the world of cryptocurrencies, having a well-defined trading strategy can significantly improve your chances of making profits.

What is trading in crypto?

In simple terms, the act of buying and selling cryptocurrencies for the purpose of generating profits is known as cryptocurrency trading. Just as traditional stock trading is carried out through forex exchanges, cryptocurrencies are traded on crypto exchanges. Cryptocurrency exchanges are the platform where users trade cryptocurrency and they charge a small fee for every trade they make. This fee varies depending on the cryptocurrency exchange. Binance, Coinbase, Kraken and KuCoin are some of the popular crypto exchanges where traders can buy and sell cryptocurrencies.

Crypto trading strategies

If you are new to the crypto market and believe that trading cryptocurrencies is a shortcut to being rich, it is much more complex than that. Cryptocurrencies are highly volatile assets and any fluctuation in price may result in a decline in value or complete loss of assets. While trading cryptocurrencies without a strategy is technically possible and may even grant you profits once in a blue moon, a balanced and well-designed trading strategy is necessary to mitigate these volatility risks and ensure your profits from trades. Here are some popular crypto strategies that every new crypto trader should know about. We will start with day trading.

I. Day Trading

Also known as intraday trading, day trading is one of the most popular ways of trading cryptocurrencies. In day trading, traders open their trading positions and close them in a single day. As traders try to get maximum profits in a single day, it is also considered the riskiest form of trading. Day traders often rely on technical analysis, chart patterns, and market indicators to decide their entry and exit points in the market. Risk management is necessary for day trading as it also may multiple trades in a single day. Given the highly volatile nature of cryptocurrencies, day traders aim to generate profits from small market movements. However, it's important to note that day trading may not be suitable for every trader and is generally more suitable for those with quick decision-making abilities and technical expertise in the crypto field.

II. HODL (buy-and-hold)

The term” HODL” is a term that is often used on social media and other crypto platforms which stands for “ Holding On for Dear Life”. It means that you should stick to your investment for the long term no matter what the conditions are. This trading strategy is more suitable for those traders who don’t want to actively participate in trading and are risk-averse personalities. There may be potential risks associated with this strategy; however, when carried out strategically and effectively, it provides great chances that you may generate profits by buying low and selling high.

III. Futures trading

Futures trading is one of the most popular and convenient methods of trading cryptocurrencies where investors speculate on the future price of a digital currency like Bitcoin. Futures trading involves using futures contracts where investors bet on the future price of a cryptocurrency without actually owning or holding the cryptocurrency. Futures trading in cryptocurrencies refers to an agreement between two parties to buy or sell a specific cryptocurrency at a predetermined date and time based on the future price of a cryptocurrency. For example, let's assume the price of cryptocurrency "Y" is $3,000. You want to buy 50 tokens of this cryptocurrency and it costs you $3500 per token. The total price of these tokens comes to $175,000. If the price of this cryptocurrency somehow increases to $4,000 per token in six months, you will have made $25,000 ($200,000 for 50 tokens). Conversely, if you want to sell a futures contract, you can fix the price at $175,000. If the price drops to $2,500 per token ($125,000 for 50 tokens), you can still sell at $175,000 ($3,500 per token). In this way, futures trading allows you to make profits from cryptocurrencies without actually holding them but rather by speculating on their future prices.

IV. Swing Trading

Swing trading in crypto refers to a trading strategy where traders focus on short to medium-term price swings or "swings" in the market. Unlike day trading where traders close their trading positions within a day, swing traders hold their trading positions longer than a day but no more than a few weeks or months.

Entry and exit points in swing trading are identified through technical analysis tools, price swings, chart patterns, and other indicators. Swing trading allows traders to capitalize on small price swings without the need to constantly monitor the market the entire day.

V. Scalping

Scalping, another trading strategy, has the fastest turnarounds. In scalping, traders hold their trading positions for a few minutes to a few hours to capitalize on minor price fluctuations.

This trading strategy requires a high level of focus and quick decision-making abilities to identify short-term patterns to identify opportunities for making a quick profit.

VI. Stop-Loss Trading

This trading strategy involves automated execution of stop-loss which immediately sells off assets if the market is behaving in the opposite direction of the trader’s expectations.

VII. Trend Following

This strategy involves trading based on market trends i.e. buying assets when the prices are going up and immediately selling them whenever there is a downtrend in the prices. Investors use technical indicators, trend lines and moving averages to make their trading decisions.

VIII. Dollar-cost averaging

In the dollar-cost averaging method, traders invest a fixed amount of money into a specific token regardless of its price. For example, you invest $100 into Dogecoin every month no matter what its prices are. In this way, your $100 will buy you more Dogecoin when prices are low and fewer when prices are high. This strategy helps investors to grow their crypto holdings consistently over time without much financial stress or emotional decision-making.

Conclusion

Crypto trading is rewarding but it needs a sound trading strategy. However, before adopting any of these strategies, make sure you thoroughly know how to apply it and that it matches your trading style. Moreover, cryptocurrencies are subject to market risks and it is always advised to do due diligence and conduct your own research before making any investment.