Trading in cryptocurrencies is a lucrative investment option. However, once you enter the crypto market, you get to know several ways to earn through cryptocurrencies. However, entering the market and then wondering about your trading strategy can end up burning a big hole in your pocket. To avoid that, here’s our little guide to walk you through some of the most common crypto trading strategies to get you started.
What is a Crypto trading strategy?
A Crypto trading strategy is a plan that an investor/trader makes before putting their money on the line. The end goal is always the same – to maximize profits. However, the strategy determines the exact manner of getting there. Every market has these trading strategies, but they become quintessential due to the volatility of crypto trading.
A few important things to include in a good enough trading strategy can be-
- The asset you want to trade – like Bitcoin, Ethereum, Ripple, or What?
- Tools and indicators to guide you along the way.
- Your intended goal – How much profit you need to make and what your stop limit is.
- How you will monitor your portfolio
Alternatively, you can choose to go with a crypto signals provider as they can save you the hassle of doing everything on your own.
Crypto Trading Strategies
Trading strategies have a general classification as active and passive trading strategies depending on the level of involvement it needs to conduct. However, there is no concrete borderline between these strategies, and some methods remain common between them all.
- Active trading strategies – As the name suggests, this type of trading requires the active involvement of the trader as they continually monitor their assets and the market.
- Day Trading: Day Trading remains one of the most well-known active trading strategies where the strategy is to benefit from the intraday price fluctuations. Thus, the trading cycle remains under 24 hours. Technical analysis is a critical skill for day traders to have.
- Trend Trading: Investors adopting this approach take the longer route to make profits. They typically hold their assets for a few months while monitoring the trends viz a viz that asset. They hold during an uptrend and sell during a downtrend. Fundamental analysis is a primary skill for a trend trader.
- c) Swing Trading: Swing trading lies somewhere in between day and trend trading in terms of the time of its trading cycle. Swing traders hold their positions for a few weeks. They take advantage of slightly long-term market volatilities. Both Fundamental and Technical analysis remain primary skills for swing traders.
- Scalping: Scalping is a very quick trading approach where traders don’t take advantage of any trends or price movements. Rather, they use small market fluctuations to scalp profit. Having a large trading volume is necessary to make any considerable profit through scalping.
- Passive Trading Strategies – Passive trading strategies are a lot less involved than active ones; they focus on wealth generation by building a robust portfolio.
- Buy and Hold: This is the simplest strategy where traders buy an asset and hold it for a long period without much regard to any market fluctuations. Fundamental analysis remains the primary determiner for this strategy.
- Index Investing: In index investing, the traders buy an ETF-type product in the crypto market. Such products are available on both centralized and decentralized Exchanges. It basically means to create a token from a basket of crypto assets. That token’s price is dependent on the summation of price movement of all the assets in the basket.
This article is a beginner-level introduction to crypto trading strategies. A lot of traders use other tactics as well, including best crypto signals, and hybrid versions of various techniques. But, even basic strategies can effectively serve as the right launch pad for anyone looking to become a crypto trader.