Crypto Trading Strategy: The Beginner to Expert Analysis

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Crypto Trading Strategy: The Beginner to Expert Analysis

Crypto Trading Strategy: The Beginner to Expert Analysis

Since crypto trading has become incredibly trendy, financial institutions have considered it necessary to own cryptocurrencies as part of their assets. These actions have intensified in recent years such that traditional banks have found immense use with blockchain technology.. However, this would have been impossible without considering the initial digital assets. So, it is essential to understand these assets before we jump into how you can go from beginner to expert with crypto trading. So, what exactly is crypto trading?

You can define the venture as buying and selling revolutionary assets called cryptocurrencies to potentially make gains. In some cases, this leads to losses. Furthermore, you must first understand that there are factors that affect trading. These are all explained in several sections of the Bitcoin Profit platform.

At the same time, you must understand that there are different kinds of trading with crypto. For some, it is spot trading. For others, engaging with a Contract for Differences (CFD) is the way to go. There are also others who choose the path of options or futures trading. Whatever you decide, you need to understand that knowing the fundamentals will help you go far with trading. This article will go in-depth into several crypto trading strategies that can take you from newbies to expert levels.  

A Deep-Dive Into Crypto Trading Strategies

To increase your chances of succeeding with trading, you need to create a great strategy. It would interest you that if you decide to skip this step, you may ruin your chances of excelling. If you are a complete beginner, it may do you a lot of good if you decide to learn using the Futures testnet. This can help you understand why and when to buy and sell. Let’s jump into some of the popular strategies known by crypto traders.

Day Trading

As the name implies, day trading is simply buying and selling cryptocurrencies daily in a bid to make profit. So, in this case, you do not need to wait for days or hold an asset for long before taking your gains or exiting your trade. Let’s imagine you buy Bitcoin at a particular price, you can decide that you want to make 5% profit that day; you can do this in one trade or in a series of trades. However, you should note that crypto trading can be time-consuming and the market’s volatility does not help matters. So, you need to be mentally prepared while you up your technical analysis skills.

HODLing

Unlike day trading, HODLing is described as buying an asset and deciding to hold it for a long while. This means that irrespective of the price trend, you care less because you have a timeframe for taking profit. In this strategy, you do not care about how volatile the market can be in the short term. So, you can also skip the day-trading fear of market plunges.

Nevertheless, there are no guarantees that long-term holdings will result in profits. This is because some projects failed despite doing well in their initial stages. You can also be at risk of asset seizure because some regions do not support cryptocurrencies or citizens owning them. So, do your research before you jump in. 

Crypto Futures Trading

In futures trading, you enter into a contract to sell a cryptocurrency at a predicted price to make a short-term profit. You can either decide to short the market. Short means to sell or a prediction that the asset price will decrease.  On the other hand, you can also decide what you want to buy. In this strategy, you can use market inconsistencies to make your own decisions. However, you must be deeply rooted in technical analysis and risk management to excel in this trading strategy. 

Arbitrage Trading

Arbitrage is simply buying low and selling high on different platforms.If you observe well, you would know that Bitcoin or Ethereum prices on crypto platforms are sometimes different, So arbitrage is buying low on one platform, then selling high on another similar platform. The spread is the difference between the buy and sell prices. 

Still, you may need to be careful of this strategy because there are sometimes fees attached to trading. You can run at a loss if a platform charges high transaction fees. So, as a trader, you need to ensure that you never skip research before trying this out.

High-Frequency Trading

In High-Frequency Trading, you may need bots and a strong understanding of statistics and calculations. So, this might not be suitable for complete beginners. Unlike arbitrage or day trading, HFT requires algorithms and momentum understanding.  All it takes is to take advantage of the slight difference in the buy and sell trades and spigot a quick profit in a few seconds. As easy as it might sound, it can be very tasking. 

So, this strategy is not one you will want to entirely depend on as a beginner. It requires time to understand it, and traders must also be careful with decision making. In this strategy, you must also be aware of the market volatility. An indicator such as the Bollinger Bands can help you in this regard. For the algorithm part, you need to familiarise  yourself with liquidation systems and other traders’ activity. Still, you should note that market algorithms can sometimes be volatile. So, you can work on halting trading temporarily or strategizing.. 

Dollar-Cost Averaging (DCA)

For the next strategy, we look at the Dollar Cost Averaging strategy. In this case, you don’t need to concern yourself about trading. It mostly relates to long-term investing. So, what you do in this case is that you set some funds apart and keep buying your asset of interest whenever the price decreases till you reach your trading objectives. 

So, let’s imagine you buy some Ethereum when it trades for $4,000. Once it falls to $3,200, you top up. Again, if it hits $2,800, you do the same. This strategy is best for people who do not depend on trading for daily living. If you intend to make trading to help you pay your bills, then you should not bother using this strategy. However, it is still essential that you do your research before choosing assets to invest in. 

Scalping

Traders who scalp only need to use the crypto market inefficiency to their advantage to profit. Moreover, you must be aware of the market volume before you can excel with this strategy. In addition, you need to know about asset price history to know the point to enter or exit the trade. Like other strategies, you need to stay watchful of the event happening in the market before using this strategy. Someone who is not focused might find it challenging to do well with this, So you need to work on your attention span. 

Range Trading

Trading in ranges is more of an investing strategy than trading, just like the DCA. In this case, you decide to invest and sell off the crypto within a short period. So, the difference between it and DCA is that you don’t need to hold the asset for the long term. In more practical terms, you can choose a range where an asset like  Bitcoin or Solana would trade within, and you can  make profit from it

Index Investing

Index investing is a process where you join a group of investors to purchase an asset and bear the same risk. An example of such is investing in ETFs. You can also look towards joining a liquidity pool with DeFi. So, you can describe it as more of a group investment than an individual one. It is cases like this that bring about governance tokens or community ownership.

In addition, investors can also employ researchers or investment experts before deciding which assets to invest in. This is because index funds require deeper research, and many people are involved. So, it is usually safer to engage with the advisors before putting assets together for the portfolio. However, it is most unlikely to bear losses across all assets because of the diversification that comes with it. This portfolio can sometimes include bonds, traditional investments, and cryptocurrencies. 

Swing Trading

Swing traders play with market volatility for about a week or a month. They form strategies using fundamental and technical trading indicators. In swing trading, traders have enough time to keep track of a crypto asset’s price and make investment decisions.

On the other hand, Swing trading frequently necessitates quick judgments and execution, which isn’t ideal for a novice. Also, traders need to stay active every day and gauge the market even if they are not trading daily, making it a complex and time-consuming strategy.

However, crypto bots and signals are examples of automated technologies that can help you execute swing trades faster. For instance, trading robots will scan the market and buy and sell assets without human intervention once specific criteria are met.

Trend Trading

Trend or position trading involves holding positions for a few months to profit from directional signals. Usually, trend traders enter into short positions when they anticipate downward traders. However, they invest long-term if they foresee upward market movement. 

Regardless, they must consider trend reversals using indicators like moving average convergence divergence and stochastic oscillators to increase the success of their investment strategy. 

Since beginner traders are concerned about the financial risks of crypto investments, trend trading suits them. Nonetheless, a novice or an advanced trader must conduct due diligence before committing funds.

Advantages of Trading Cryptocurrencies

There are many benefits of trading cryptocurrency, as explained below:

Drastic Price Fluctuations

Because of their high volatility, cryptocurrencies are prone to attracting speculative attention and investors. For instance, intraday price changes can give traders excellent profit, but they also carry a higher risk, like a sudden downward price trend leading to losses.

Near Anonymity

Purchasing goods and services with cryptocurrencies is done online and does not require revealing personal information. Also, with growing concerns about privacy and identity theft, cryptocurrencies may be able to provide users with some privacy benefits.

Each exchange has its own set of Know Your Customer (KYC) measures for identifying users or customers. The KYC process used by exchanges allows financial organizations to limit financial risk while preserving the anonymity of wallet owners.

Programmable Smart Capabilities

Other perks to holders of some cryptocurrencies include restricted ownership and voting rights. A cryptocurrency portfolio may also include a partial interest in physical things like artwork or real estate.

24-Hour Market

Does the crypto market close? No, it doesn’t because it is a decentralized market. The cryptocurrency market is open 24 hours a day, seven days a week, and is not physically transacted from a single location. Instead, individuals can conduct cryptocurrency transactions in various locations globally.

Peer-To-Peer Transactions

One of the most significant advantages of cryptocurrencies is that they do not require the involvement of a financial institution as an intermediary, which can lower transaction costs. Furthermore, people wary of established systems may find this feature appealing.

Disadvantages of Trading Cryptocurrencies

Despite the above benefits, the crypto space has risks or disadvantages. Some of these are explained below:

Cybersecurity Problems

Cryptocurrencies, like digital technology, are vulnerable to cybersecurity breaches and can fall into the hands of hackers, leading to crypto heists. Mitigating this problem necessitates constant security infrastructure maintenance and advanced cybersecurity measures that go beyond those utilized in traditional banking.

Scalability Concerns

The number of transactions and transaction speed could not compete with traditional currency trading before the tremendous increase in technical infrastructure. For example, in March 2020, scalability concerns caused a multi-day trading delay. The backlog hurt traders who wanted to transfer cryptocurrency from their wallets to exchanges.

Regulatory Challenges

As there is currently no legal structure to offer asset protection, crypto investors have little to no protection in the market. However, in the United States, certain exchanges comply with regulations by federal and state authorities.

What Is the Best Way to Trade Crypto?

There isn’t any best or worst way of trading crypto. If you are looking for the best crypto exchange for day trading or the best app to trade cryptocurrency, you must focus on financial or investment objectives first.

Additionally, you need to be aware of the asset classes you are willing to add to your investment portfolio and the level of risk you want to be exposed to. Furthermore, familiarize yourself with cryptocurrency trading basics such as order types, and decide on trading indicators you want to adopt.