Cryptocurrencies provide different ways for traders to make money. However, to be truly effective, it is also important to know how you can make money. This is where strategy comes in.
Trading strategies will help you to organize your operational techniques into a framework that you can build with. This way, it is easy for you to monitor your performance and optimize it going forward.
Most advanced crypto traders who step into the industry tend to do a lot of fundamental and technical analysis, and there’s a lot to cover when it comes to both alone. However, it is important for you to get an introduction to trading strategies if you’re to even start your trading journey.
Since there are so many trading strategies available, we’ll look into the most common ones. You will get to understand the basics of each strategy and look into how best to apply it as you speculate the crypto market. A solid trading strategy will go a long way in helping you to achieve your investment and trading objectives.
Introduction - What is a Trading Strategy?
A trading strategy is simply an elaborate plan that covers all trading activities that you embark on. It is a framework that guides you as you trade and which you follow. Everyone hopes to make money while they trade, and your strategy will go a long way in ensuring that you do that.
Trading strategies will also help you cut down on financial losses, especially in the event of a downturn. Having a strategy helps you to cut down on any uncertainty, allowing you to move forward strongly.
To be fair, it isn’t compulsory to go into trading with a strategy. Some traders simply go in and get lucky enough to make their money. However, it is highly recommended that you have a strategy when you trade. You don’t want a situation where everything just happens at the whims of the market.
If something unexpected goes down - as it tends to go down from time to time - you will be more than happy that you have a strategy. You get to manage your emotions and understand how to react to uncertainties. Essentially, a trading strategy will prepare you for any possible outcomes. You don’t make any impulsive or risky moves when you have a trading strategy.
In most cases, having a strategy will require knowledge of the following:
- Your asset
- The setups you’re taking
- Technical and fundamental indicators
- The entry and exit points
- Position sizing strategies
- Portfolio performance parameters
At the same time, your trading plan should have additional guidelines - no matter how minute. Some traders decide not to make any trades when they’re tired. Others even choose not to trade on specific days.
Now that we have the perfect introduction, let’s consider some of the most common crypto trading strategies that can help you out:
Day trading is perhaps the most popular strategy out there. Put simply, it involves entering and exiting a trading position within 24 hours. Day traders look into the market and try to capitalize on price movements that happen within a day.
While day trading came from the traditional markets, most cryptocurrency markets are open 24 hours a day, which means that they can always set their trading parameters how they like. However, day trading in the crypto space is also a bit different from how it works in the traditional space as it holds a shorter time span.
Swing trading spans a longer time than regular day trading. Here, you stay in a position for a few days or a few weeks. At the highest, swing trading occurs within a month.
Like all trading strategies, swing trading looks to capitalize on volatility. However, these volatilities can take a few weeks to play out. Swing traders also consider technical and fundamental factors as they work.
Most beginners find that swing trading is more convenient. Since trades take longer to play out, traders don’t have to check on charts so often. Also, the longer time frame allows traders to think about their decisions much better.
Also known as position trading, trend trading involves holding on to a trading position for much longer - usually a few months. Here, traders look to capitalize on directional trends.
Trend traders also tend to focus more on fundamental analysis when they work. This strategy guesses that an asset’s price will continue to move in a specific direction, and the trader puts themself in the perfect position to capitalize on this. As a beginner, you can consider trend trading. However, you will need to do a lot of risk management and due diligence as well.
Scalping is another quick trading strategy that you can consider. Here, traders capitalize on small price moves multiple times. So, you can make scalping moves several times in a single trading day.
A scalper doesn’t hold his position for a long period at all. Many of them hold a position for just a few minutes or hours. Once a position has proven to be profitable, they close it and look for other opportunities.
Scalping can be very lucrative. However, its risk and frequency aren’t easy to master. So, beginners might want to do a lot of research and risk management before moving into scalping positions.
Hodling is pretty simple; you hold an asset for a long time - months to years. The premise is that asset prices will increase over time, and you will be able to gain from that.
Many beginners tend to “hodl” because it is convenient. As long as asset prices consolidate higher in the long term, they will be fine. However, you will also need to invest a sizable sum before you get big gains from hodling. Check out our other article on 12 crypto youtube channels to subscribe to.