There are several crypto trading strategies. A strategy will help you organize your techniques in order to help you reach your desired goal. There are two categories that strategies fall under, the first is technical analysis, and the second is fundamental analysis.
In this article, we’ll be going through the main trading strategies pertaining to cryptocurrencies. Of course, there is more beyond what we will be discussing here.
Firstly, let’s understand the basic definition of a trading strategy.
A trading strategy is a plan the trader formulates that is essentially a guide on his trading journey. It is a step-by-step guide he will follow while trading. Not only does this bring clarity and understanding to the trader, but it also minimizes the financial risks that are often involved in trading. This plan will also include the steps to take when something unexpected happens, this way, your emotions are not controlling you. Rather, your plan is guiding you, and telling you which step to take next.
Active Trading Strategies
An active trading strategy, as its name denotes requires the trader to actively be involved in monitoring his portfolio.
A common type of active trading strategy. This is when traders enter and exit positions in one day. They aim to go for trades that take place during one trading day.
Majority of digital currency trading platforms are open 24/7, 365 days a year. When it comes to the crypto markets, day trading is utilized in a somewhat different sense. It is a short-term trading strategy in which traders enter and exit positions in a 24-hour or less time frame.
Day traders fall under the category of technical analysis. It is a technique that can bring back many profits for traders if done correctly. Although it brings with it a lot of stress, pressure as well as risk because it is done in a short time span. Therefore, day trading is usually recommended for advanced traders.
A method of trading that is considered long-term. It involves positions for longer than a day but not longer than a few weeks, or a maximum of a few months. Swing traders typically try to profit from waves of volatility that last for several days or weeks. They may generate trade ideas based on a combination of technical and fundamental elements. Fundamental changes, by definition, take longer to occur, which is where fundamental analysis comes in.
Swing trading is the most convenient active trading strategy, especially for novice traders. The benefit of this type of strategy is that it has a longer time span. Although it isn’t too long, making you lose track of the trade. This way traders have time to think through their decisions.
It is also known as position trading is a strategy that involves holding trading positions for a longer span of time. Trend traders aim for directional trends. For example, they can enter a long position, in an uptrend and vice versa. They can enter a short position, in a downtrend. Trend traders will most often use fundamental analysis even though this is not always the case.
The trend trading strategy merely assumes that the asset at hand will navigate itself in the direction of the trend. However, there is also the possibility of trend reversal which is something to consider.
This is where the traders focus on small moves repeatedly. It is one of the quickest trading strategies. Their aim is not to hold positions for a specific amount of time but rather they often open and close positions in seconds. This is why this strategy is often referred to as High-Frequency Trading.
Scalping is most efficient in high liquidity markets where the trader can easily get in and out of positions. This strategy is not one for beginners because it is a more complex way of making profits. It requires a deep understanding of the market which beginner traders don’t always have.
Passive Investment Strategies
Passive investment strategies is a hands-off approach to portfolio management. It requires a minimal amount of time and attention. While there are some differences between trading and investing, trading is basically the act of buying and selling assets in the hopes of making a profit.
Buy and hold
This is an investment strategy in which the trader buys an asset and holds it for an extended period of time. No matter the state of the market and where it stands. This method is most commonly used in long-term investment portfolios, where the goal is to just get in the market no matter the timing. The concept behind this method is that over a long enough time frame, timing and entry price doesn’t matter anymore. This method is based on fundamental analysis and doesn’t require the trader to monitor their portfolio on a daily basis.
This is when a trader buys ETH and Indices in traditional markets even though they’re available in the crypto industry. The idea behind this concept is to create a token through these crypto assets. The token will track their performance together. Over the years this strategy will become more useful as it is a hand-off approach in the blockchain industry as well as in cryptocurrency markets.
By now you should have a good understanding of some of the most common trading strategies. Whichever strategy you choose to put to the test it can always be altered. Your trading strategy should suit your needs and goals and over the years it will evolve as you gain experience in trading.