What Is Trading Strategy And Why Is It Important?
When it comes to cryptocurrency trading, having a full-proof strategy is essential. As most crypto markets are volatile, it’s imperative to be able to catch the most profitable trades in real-time. Having trading strategies for cryptocurrency means you have a set methodology, backed by useful tools that help you identify and make the most money out of each trade you make on crypto exchanges. If you have yet to formulate one, no worries! Read on and learn the best strategies and tools to help you with your crypto trading journey.
How strategies can benefit your investment and crypto future?
Trading strategies for cryptocurrency are beneficial, especially when you’re starting out as a new trader on the market. For example, deciding early on whether you’d like to own the currency or simply trade and profit off it is a first step in strategizing. Deciding such things promptly will eventually determine the value of your investment. If you see that the currency is worth owning and you project it booming in the future, buy it. If it’s too volatile, simply trading it is then the best option. This way, you’ll be able to sit atop the crypto trading markets with the least amount of risk.
What tools can help you with your strategies?
Crypto trading strategies very rarely work alone. Most of the time, seasoned traders and brokers use additional tools to help them realize even the most effective approaches. For the most part, the trading platforms that most brokers use have the basic elements of crypto trading, like the trading charts, real-time price trackers, historical coin values, exchange values, and more. However, there are a few off-platform tools that you can use to strengthen your strategy for future crypto trading.
Trading bots are a great addition to your crypto brokerage platforms. Commonly, they’re artificial intelligence software able to predict the rise and fall of cryptocurrencies and make relevant trades. They function independently and require minimal instructions to run on the platforms of your choice. There are lots of cryptocurrency bot trading strategies out there, you just need to pick one that works. Compared to manual trading, as with most platforms, these bots can catch the most profitable trades even when you’re away and help make every crypto trade count.
Blockchain analytics tools
Many traders overlook this, but analyzing the blockchain provides a lot of insight into how particular crypto coins have traded and will trade in a future span of time. From seasonal fluctuations to rise and falls due to significant financial events, these extensive blocks of trade data have them all. The information that can be interpreted to project future market value, volatility, inflow, and outflow of exchanges, which in turn tell the crypto broker whether investing in these coins would be profitable now and in the future.
Coin performance trackers
Aside from the painstaking task of analyzing blockchains with hundreds of coins in transactions every second, there’s a simpler option when looking for details on a single cryptocurrency’s performance. Coin trackers have detailed information on crypto coins including trading histories, fee fluctuations, as well as their hash rates. Such trackers are great for strategizing the trade of specific coins and determining their viability in the near future.
Crypto news events tickers
Even the best crypto trading strategy factors in the latest happenings in financial news. It is very often that a piece of breaking news affects the trade of cryptocurrencies. Having a tool that gives you the latest update in trading, as well as for specific coins and their operators, provides you an edge when buying or selling, especially in large chunks. Even developmental news about coins can be profitable if you use them wisely.
Main crypto trading strategies
The best crypto trading strategy spread is actually a combination of effective trading methods. A lot of these strategies are derived from methods used in forex and stock exchange, with a few tweaks to make them suitable for use in crypto markets. There are active strategies, which involve aggressive buying and selling patterns, and passive strategies, which require less time and effort from the trader’s end. A quick look at these active and passive methods will help you choose the best strategy for trading crypto.
Crypto day trading strategy is the most commonly used by traders, both beginners and experienced. Although the strategy is thought to mirror its standard counterpart, day trading happens around the clock in crypto markets. The slight difference in definition here is that crypto day trading are trades that are opened and closed by crypto brokers within a span of 24 hours at a time. Given the volatility of crypto markets, the day trading strategy can be risky, demanding, and hectic. However, practiced day traders would port well from standard markets into crypto markets as there are many similarities.
Index investing for crypto markets works by aggregating a group of reliable crypto assets under a single token. Traders then invest in the token, which will rake in profits depending on the overall performance of components within the token. Such crypto indexes rely heavily on blockchain data, so traders will have to be savvy with blockchain analysis to be able to successfully trade crypto indices and read into the profitability of trading on each token.
The art of arbitrage trading isn’t commonly used in crypto markets. However, with carefully calculated trades, a person can bring home extensive profits. The essence of it is to make a profit off an asset that’s differently valued on individual trading sites. For example, Bitcoin may be listed at a higher price on one market and lower on the other. An arbitrage trader would act to buy some on the lower market and via a crypto wallet, sell the asset on the higher value market.
Swing trading is a crypto trading strategy that spans slightly longer than day trading but not longer than trend trading. Crypto prices rise and fall in waves and swing traders take advantage of just that. Having a slightly longer trade period allows traders time to make decisions and to properly study recent coin trade patterns. Additionally, charting tools and technical analysis of coin performance help traders predict the graph, and thus their sales and buys. This is by far the best option for beginners as it's not too taxing and still allows a profit margin.
Trend trading, as the name suggests, is a crypto brokerage strategy that relies on the directional trend of the crypto asset. The idea is that the crypto coin will keep moving in the same direction for a period of time, which brokers can use to profit off. They do, however, have to consider possible changes in the trend and risks it may pose. Advanced crypto traders usually use Fundamental Analysis, which is an overall look at the health, value, and growth patterns of a crypto asset to predict trends. Moving averages, projected trend lines, and technical indicators can be additional indexes that can assist on this front.
Another strategy for crypto trading is scalping. Scalping is the act of making small profits off small movements of crypto coins in the market. An experienced trader usually deals with the rise and falls of multiple coin assets at one time to maximize earnings, making this quite a hectic option. A trader planning to use scalping as a method of gleaning profits of the market also needs to have a defined exit strategy. This is to avoid a large loss that could eat up small profits painstakingly earned so far.
HODL is a strategy of holding a purchase of cryptocurrency asset block usually with the intent to sell at a later date, ranging from days to years, even. However, due to the volatility of cryptocurrency markets at present, the most common outcome of HODL is at best a breakeven. HODL is most commonly touted as the last standing strategy, as most HODLers, as they’re known, can end up holding on to their crypto assets indefinitely, without a suitable selling moment in the market.
Trimming or hedging is similar to its counterpart in common finance and banking. The art of hedging is a manner to allow for a breakeven. This can be quite useful, seeing as the crypto markets are notoriously volatile. Most crypto brokers decide on a top and bottom limit for their trades, which by complex calculations, will lead them back to their original investment. It’s also common for those who hedge cryptocurrency to deal in comparatively smaller batches of assets, in comparison to other traders.
Tips for successful crypto trading
Determine your investment pool
Many people go all-in the moment they hear about the profits that crypto trading can bring them. This is discouraged as it’s more financially secure to segregate your financial investments from your personal pocket change. Having too much of your private spend invested in volatile crypto markets can leave you financially vulnerable and without a substantially adequate amount of liquidated assets for emergencies. It’s always advised to invest no more than 10% of your net income in crypto markets.
Identify crypto trade fees
Most fresh crypto traders are unaware of the presence of trading fees. Most platforms are moving towards a fee-less approach to trading, due to the sudden boom. However, some trading platforms still impose them, heftily as well. Always survey different trading platforms and make a mental note of their fee structure. This will help to maximize your profits on each crypto site you trade on.
Closely monitor exchange rates
Even the best crypto trading strategy means nothing if you don’t keep a close eye on the exchange rates. 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. Exchange rates are also beneficial when planning on a bulk trading strategy. Hawk-like monitoring will give you the lowest possible market rates in a day, which would be the most profitable point to make a big purchase. These blocks can be either traded on another platform for higher returns or converted into more profitable assets.
Manage risks well
Managing risks means mitigating every possibility of an unprofitable trade. Traders can do this by mastering techniques of fundamental analysis, projecting market trends, and studying closely the directional trends of each crypto asset to determine its profitability. Aside from that, historical performance, as well as the current hash rate of mining for a single crypto asset will give you a clear idea of its current position and relative volatility. Based on all these factors, crypto brokers make an informed trade, with the highest possibility of success.
Use reliable trading platforms
When trading, it’s common to enlist the use of a trading platform. But, such platforms must be secure and as confidential as possible. Ensure that yours is protected with the latest encryption technology to guard your data. Also, your login credentials should be secured in a multilayer. This avoids easy access to your trading account and siphoning of assets or digital looting. Aside from security, a good trading platform offers data in real-time to traders, be sure to look out for that as well.
Trade on multiple platforms
Why wait for profit on one site when you can generate quick yields on multiple platforms, for the same asset? The rates for exchange between crypto assets, even buying and selling rates, can vary greatly. Scour through a few different crypto trading sites and take note of where the lowest and highest prices are. Use these as leverage to add and subtract from your investment pool, as gainfully as possible.
Have a good exit strategy
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.