Understanding crypto trading strategies

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As we said in previous articles, the cryptocurrency market is unlike any other. Volatility affects it in a way that makes entire cycles fit in a single day of trading. Yet, as risky as it may be, that also provides unique opportunities and enables traders to implement different crypto trading strategies that do not apply in other markets.

The best way of trading cryptocurrency

There’s no denying it: operating in the crypto market takes guts. We’ve seen prices rise and fall more than 50% in a short time. Sometimes in a single day. Given this volatility, cryptocurrency trading is all about planning an effective strategy and following it usually marks the difference between successful and unsuccessful traders.

That said, the changing nature of this financial market enables a wide variety of approaches traders can have to try and make a profit. Whether it is short or long-term, high or low risk, small or big budget, there are many trading styles to choose from according to your profile. Let’s have a quick overview of some of them.

Arbitrage trading

Have you ever checked a price on The Crypto App, and when you logged in an exchange, it was different? That is because the app indexes the prices of many sources and creates an average. That happens because each particular trading platform has diverse ways to set the price for a specific asset. Arbitrage trading aims to exploit those differences.

The concept of it is simple. Buy a specific amount of crypto on a cryptocurrency exchange and sell it on another where its price is higher. Let’s say Binance‘s BTC price is $40,000 and FTX‘s is $40,250. If you buy 1 BTC on Binance, send it to FTX and sell it there, you’d make $250 just for switching trading platforms.

As in the previous example, although prices differ from one exchange to another, it’s not usually a significant change. You should also consider the cost of transaction and exchange fees in the middle. That is why arbitrage traders have to be very efficient, fast and count on a proper budget.

Scalping

In times with high volatility, it is difficult to make accurate long-term predictions. Therefore, it is common for traders to turn to scalping. This is a short-term, rapid-fire strategy that focuses on and fast operations in smaller time frames. 

Scalpers open and close positions in a matter of hours, minutes and even seconds to capitalize swift and small price movements. Of course, as price targets are not very far from the entry, gains are only significant if the invested capital is considerably large. That is why scalping is suitable for more advanced traders that better understand the market’s behaviour; or whales, who have an advantage as their operations often affect the price.

Swing trading

It doesn’t matter if it’s a bull or a bear cycle. Crypto market movement often behaves as waves. After every leg up, we tend to see a correction before the next one. On the same level, every dip is followed by a recovery after going back up or dipping again. Even when a coin runs sideways, the price chart draws a slalom-like line.

Swing traders are like surfers. They try to catch these long-term waves when they form and ride them until they lose momentum some days or weeks later. Unlike other crypto trading strategies, this type of trading allows investors to take more time to consider their possibilities and double-check their decisions. Technical analysis and indicators are invaluable tools when it comes to swing trading. They help identify trend strength and predict changes in momentum.

Beginner traders find this strategy more comfortable since it is relatively safer than most short-term approaches and provides a wider margin of error.

Day trading

Probably the most common strategy out there, day trading takes its name from the stock market, which starts and closes at specific times of the day. Although cryptocurrency trading is open and available 24/7, the practice is pretty much the same.

Day traders never leave their positions open overnight (hence the name). Instead, they operate from the morning until the late night before they close all their trades. This method provides an easy way of following profits and losses of the day, but it demands a lot of focus and long hours looking at charts and sitting in front of your PC. Technical indicators and analysis also play an essential role here. However, investors that go for these tactics don’t enjoy as much time and margin of error as swing traders.

Make your own strategy

No one can tell you what approach is best for you but you. Maybe trading is not for you, and you’re more of a holder or staker. Or maybe it is. In that case, you should identify what kind of trader you are, what levels of volatility and risk are you comfortable with and how much time and money are you willing to put in. Then, review these (and other) trading strategies, design a plan and, most importantly, stick to it. Download The Crypto App to set up alerts, analyze indicators and track your cryptocurrencies’ prices.

The only traders without a plan that succeed are the most fortunate ones. But luck eventually runs out, even for them. So don’t rely on luck. Instead, invest in your financial education and learn the fundamentals of trading cryptocurrency.

Eventually, it will pay off.

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