What Is a Crypto Trading Strategy? 5 Crypto Trading Strategies Explained

Read on and learn the best strategies and tools to help you with your crypto trading journey. As such, day traders aim to capitalize on intraday price movements, – i.e., price moves that happen within one trading day. Day traders trade on timeframes higher than that scalpers but still close their positions within a day.

• Be it between crypto-assets or between crypto and fiat assets, the exchange rate is a point that can be made profitable when utilized at accurate trade moments.
• Trading frequently — sometimes making trades per minute — also means those small gains add up.
• One that is defined not only by the technical aspects but also the business behind trading; a proper structured trade that is in line with the overall trading plan that has been proven to work.
• The IRS now treats crypto as a regular asset, like property, stocks, bonds, or commodities such as gold.
• At one point, Bitcoin traded at a 40% higher price in South Korea than in the U.S.

Usually, they break before reaching the extreme of this area, but as they approach it each time the price tests the trendlines the chance of a breakout becomes higher. Historical price action, psychological levels, trendlines, Moving Averages, Fibonacci retracement, and extension levels, to name common ones. We won’t be getting into all of these things here, so we’ll keep it simple and we’ll talk about channels and wedges. Various metrics can form areas of support and resistance, and these act as places where price action tends to get stuck or turn around. Support refers to when one of these areas is below the current price, and resistance is the term when it is above.

Why you need a trading plan

There are a number of payment service providers (PSPs), brokerages, and cryptocurrency exchanges that you can use to buy and sell crypto assets. Range trading is all about choosing a range at which you’re comfortable buying and selling over a period of time. Traders should set time aside to familiarize themselves with the upcoming rules and regulations taxing profits earned from crypto.

• This type of information can give you insights into market sentiment and potential price movements based on user behaviour within the blockchain itself.
• For example, if you aim to comprehend the direction of public interest, consider examining the Relative Strength Index (RSI).
• The first choice isn’t always the best choice when figuring out where to conduct crypto trading.
• Even so, chart patterns and technical indicators can also play a major part in a swing trading strategy.

The RSI is widely recognized and utilized by retail traders for its popularity in capturing trends and market sentiment. Variations in trading success arise from a trader’s capacity to interpret the tool and deduce appropriate decisions. A trading bot is an automated software tool investors use to buy and sell financial instruments at a preconfigured time or when predefined conditions are met to maximize profits. Crypto trading bots are designed to increase profits and reduce losses and risk. Since beginner traders are concerned about the financial risks involved with crypto investments, trend trading is suitable for them.

How to Backtest Your Crypto Trading Strategy

And one of the best ways to learn this is through price action; the technique that the majority of professional traders use. Once you have learned how to read the charts, you will know why the market is going up, down or sideways and then will you recognize which strategy to put into play in that direction. The most significant benefit of signals is that they provide valuable trading data to their members, allowing investors to more effectively manage their assets. If you’re new to trading you are probably wondering how it is that traders can make sense of market conditions and actually find reliable ways to make profits. You can invest in Bitcoin directly by using one of the major cryptocurrency exchanges, such as Coinbase or Binance.

Unlike other financial markets, the crypto market has no set sessions, so it is essential to pace your trading activity to avoid burnout. Range traders may use technical indicators like the Relative Strength Index (RSI) or the Stochastic Oscillator that displays overbought and oversold zones, typically at 70 and 30. When a price is oversold, the price may reverse and the same if the price is overbought. You’ll find oscillator indicators on most trading platforms, but they aren’t 100% reliable. Most cryptocurrency traders fail because they are in too much of a rush to make money. They do not do the foundational work to prepare for the unpredictability of trading cryptocurrency.

Recommended platforms for your first trades

“Knowing what the blockchain does, its network size, governance, and protocols will allow you to assess the overall condition of your prospective investment,” Greenberg says. “So, be prepared to learn a lot and follow news on your selected assets’ blockchain updates.” No matter the market, a day trader should have a thorough understanding of crypto as well as trading principles. – If you have impeccable risk management skills and nerves of steel, here’s what you need to know to get started day trading crypto. Once you’ve found a trading strategy that works for you, start looking for an exchange to trade on. Consider factors like ease-of-use, on and off-ramp options, fees, reputation, state of financial health, and the team when picking a crypto exchange.

It is best to have a large bankroll to take advantage of this extremely short-term day trading crypto strategy. Although the ROI of each trade is very small, staking a large amount means the scalp comes back with a substantial amount of money (0.5% of $100,000 is $500, enough for a luxury car payment). Trading frequently — sometimes making trades per minute — also means those small gains add up.

Crypto Trading FAQs

Technical analysis is a trading discipline predicated upon the idea that a trader could predict an asset’s future price movements, given its historical price action. TA uses a host of technical indicators to achieve this, including trade volume, moving averages, trend lines, candlesticks, chart patterns, and more. At the end of a technical analysis, a trader should have identified trading opportunities and a potential entry point.

• In the past, flash crashes have led to exchanges refunding millions of dollars in losses to affected users.
• Read the whitepaper, see what people are saying, and ask yourself if you understand what kind of asset this is and if there is a real demand for it.
• When you use 2 or more take profits, you can spread the risk of trading, which will maximize your chances of making good profits.
• You’ll find oscillator indicators on most trading platforms, but they aren’t 100% reliable.
• After choosing your exchange, you’ll need to set up an account and place some fiat currency into a digital wallet before you can start trading.
• Trading strategies typically set out specifications for which trades to make, when to make them, when to exit them, and how much capital you should risk on each position.

Crypto day traders should look carefully at an asset’s trading volume to gauge whether it can be sold quickly and at a higher price level than purchased. Understanding and accounting for volatility is a day trader’s best friend. The volatility of a market refers to the unpredictability of crypto price movements. Factors that affect the volatility of markets include the news cycle, economic data, and research reports. In the crypto markets, the same factors have a dramatic impact (or none at all) on certain crypto assets.

MicroStrategy, other crypto-linked stocks gap up as bitcoin rebounds

Take the recent Bitcoin bottom for example – the market printed one of these bullish divergences right at the lows. The RSI divergence strategy is a more technical strategy but can be used to great effect for timing trend reversals before they happen. This is when the price starts moving in the opposite direction, from a downtrend to an uptrend or vice versa.

• It shows sellers are losing momentum, and the market is ready for a reversal.
• All in all, divergences between price and the relative strength index are strong trading signals that can help you spot reversals before they happen.
• The type of transaction determines the manner of operation of cryptocurrency trading in the cryptocurrency market.
• It means buying when the price is low and selling when the price is high.

For identifying users or customers, each exchange has its own set of Know Your Customer (KYC) measures. The KYC process used by exchanges allows financial organizations to limit financial risk while preserving the anonymity of wallet owners. The amount will depend on your personal situation, i.e., your financial capability. That said, the rule of thumb is that you shouldn’t invest what you cannot afford to lose. So, for example, investing the money meant for your mortgage payment is a bad idea because you could lose it all. After you’ve performed demo trading and you’re feeling somewhat confident in your skills, conduct an actual trade with a small amount of money.

How strategies can benefit your investment and crypto future?

If we look at the circled area (white) more closely on the 30-minute chart, we can see there was another divergence that showed momentum was changing back to bullish. HTX’s new mission is to build a metaverse free port with a vision to achieve financial freedom for 8 billion people on earth. HTX is embarking on a growth strategy of “global expansion, thriving ecosystem, wealth effect, and security and compliance.” “H” stands for Huobi, “T” represents TRON with a commitment to being all in TRON, and “X” stands for the exchange.

• That means all crypto transactions are verified through a computing process known as “mining” and then recorded on the currency’s ledger.
• With swing trading, decisions can be made with less haste and more rationality.
• Trend traders may enter a long position in an uptrend and a short position in a downtrend.
• When you work with Plus500, you gain access to a European derivatives broker that focuses primarily on CFDs (contracts for difference).
• It helps you deal with emotions during market volatility, as you have time to get used to the size of a position.

You also want to know how much you are gaining or losing from a particular trade or investment. To better understand leverage, assume you enter a trade with 5x leverage. This means that your trade’s position size is 5 times the capital you staked from your own pocket (i.e., margin).

Essential Crypto Trading Strategies for Beginners and Experienced Traders

It could be based on these broad strategies or something completely new. FA is the art of a trader using both economic and financial factors affecting a given asset to determine an asset’s value. Through FA, you will be able to know whether increase that asset is either overvalued or undervalued at the current valuation. If you can figure out that question, you can then decide whether or not to invest, when, and for how long a period you would look to keep the investment.

• Although the ROI of each trade is very small, staking a large amount means the scalp comes back with a substantial amount of money (0.5% of $100,000 is $500, enough for a luxury car payment).
• Support refers to when one of these areas is below the current price, and resistance is the term when it is above.
• When it comes to crypto trading, having the right tools at your disposal can make all the difference in staying ahead of the game.
• However, in the United States, certain exchanges comply with regulations by federal and state authorities.

When entering a crypto trade, you must already have an escape plan, so to speak. Exit strategies are plotted based on the support and resistance points of each crypto asset and its transactional history. Many platforms offer unique stop order features, with scalable limitations. This helps to prevent excessive losses when the market trend suddenly flips the other way or when a fall happens too quickly due to an impactful financial event. Volatility is most prevalent in micro coins, or coins with small market caps compared to other cryptos. Right now, any coin with a market cap lower than $1 billion is considered small cap.

Index investing

The profits from swing trading cryptocurrencies can be significant, but you may need a larger stop loss than day trading cryptos. The practice of buying cryptocurrencies from one market and selling them in another market to profit from price differences is known as arbitrage trading. The trader makes money by taking advantage of the low price correlation among crypto assets offered on two or more exchanges. Five of the most popular cryptocurrency trading methods include scalping, day trading, swing trading, buy and hold, and arbitrage. And while we’re covering what these crypto trading strategies mean and how they work, we’re not offering you specific advice on how to use them.

• It’s crucial to remember that past performance does not guarantee future results.
• High volatility also means those coins can move in the wrong direction just as quickly.
• It will comprise the kind of assets to invest in, the frequency of your trades, and your investments’ size.
• There are many techniques day traders use to make gains on short-term fluctuations in the crypto markets.

Cryptocurrency day trading can be quite lucrative, especially for short-term traders. If you have the right cryptocurrency day trading strategy, you should have no problem. Remember about technical and fundamental analysis, with anemphasis on technical analysis, since historical price analysis can tell a lot about when to enter and exit a position. Once you’re set up on a platform, it’s time to pick what you’re interested in investing in.