Beginner's Guide to Crypto Trading Strategies
Cryptocurrency trading is a high risk, high reward activity. Like everywhere else, there is no guaranteed money in crypto trading, and if someone tells you otherwise you should steer away from them as far away as possible. It is, however, a highly...
Cryptocurrency trading is a high risk, high reward activity. Like everywhere else, there is no guaranteed money in crypto trading, and if someone tells you otherwise, you should steer away from them as far away as possible. It is, however, a highly lucrative way to make money, as many people make a living by trading cryptocurrency but it may not be for everyone.
High volatility, price fluctuations, pumps and dumps, Ponzi schemes, exit scams, shady exchanges, and limited regulatory oversight make profitable crypto trading exclusive to risk-prone, skilled, and level-headed traders who enjoy massive gains, especially during bull markets. You've probably heard a story or two about them.
A handful of highly experienced traders even manage to make profits even during bear markets, when the streets are filled with "blood," people are panic selling, and the prices are dropping as fast as the value of Venezuelan Bolivar.
This guide will show you the most common cryptocurrency trading strategies that you can apply to your crypto trades immediately.
Technical analysis (TA)
If you want to get into crypto trading, you’d better learn at least the basics of technical analysis. Although looking at the charts, drawing lines and identifying key price levels may appear foolish at first, it is one of the best tools you can have at your disposal, and it's certainly better than having nothing.
If you have previous experience in Forex and Stocks markets, you’ll know what we're talking about. But unlike Forex and Stocks, where key levels and price pretty much follow established technical analysis methods, the wild west frontier of crypto trading is significantly more rebellious. The price movements are way more volatile, the markets move fast, and they are more prone to price manipulation. Hence, the knowledge baggage you might bring from other markets needs to be adapted to crypto through your own experience, lessons, sharp and decisive actions, and appropriate risk-management methods.
Although it may seem complicated, crypto trading combined with adequate TA methods can lead to many high-profit opportunities. If you are smart and vigilant about your trades and strategy, you’re likely to be in for a fun and profitable ride.
The tools that you can use to aid your decision-making process are:
- Tradingview (charts and technical analysis)
- Predicoin (market sentiment analysis service)
- Coinpaprika (coin index and research site)
- Coinmarketcal (a calendar of upcoming crypto events)
- Delta (portfolio tracking app)
Besides, a great place to kick-off your trading career is eToro. Known for its social trading feature, eToro also offers you plenty of resources, tools, and guides to learn the ins and outs of both crypto and traditional trading.
Crytpocurrency trading strategies
Strategy #1: Hodl
Hodl is a fundamental long-term crypto trading strategy for every beginner. It requires the least skills and experience in trading, and literally anyone can do it.
It’s famous name Hodl comes from a misspelled word “hold.” It was coined in December 2013 following the post by Game Kyuubi at Bitcointalk.org.
The core principle of the Hod crypto trading strategy is to purchase a cryptocurrency with potential and hold it securely for a long time in hopes to sell it for more later. The sale can happen after a year, a few years or even a decade.
For such a strategy to work, all you need to know is how to purchase cryptocurrency and how to store it securely. Most hodlers use cold storage wallets like paper wallets or hardware devices like Ledger or Trezor.
Hodl strategy does have its drawbacks though. First of all, there’s no guarantee that your assets are going to appreciate in value. The project may go bust, the network may experience a failure or other issues, or there may be better alternatives in the future. Second, you may lose your private keys, so storing them safely is a priority.
Last but not least, there is no point in riding out cryptocurrency boom and bust cycles if you’re not taking profits along the way. For instance, if you bought bitcoin in 2017 for around $2,000, held it until it reached $20,000 and didn’t sell a bit along the way, you’ve missed a great chance to make an extra $10,000++ since the price dropped all the way back to retest $3,000.
Of course, it may be difficult to catch sudden, exuberant movements, but it’s a great trade even if you sell at $10,000 or so. Every great crypto bull market has had a nearly 80% retracement, which makes it a no-brainer not to cash out when there’s a chance.
Besides, you can always reinvest your profits once the market bottoms out. Yes, the long-term game is still the main focus here, but don’t forget to take profits whenever possible or at least after major price surges. It’s a smart way to remain liquid and grant yourself a treat for the smart decisions you took. Just holding and not taking profits only tends to lead people to unnecessary irrational decisions further in time.
All this leads us to the next strategy - swing trading.
Strategy #2: Swing trading
This is where charts and technical analysis (TA) come in. To be good at swing trading, you need to be at least somewhat familiar with the fundamentals of technical analysis. It will help you to watch the markets and develop a sixth sense for significant price movements.
Swing trading is all about making aright move at the right time. The goal is simple - to make as much profit as possible during crypto market swings. Whether the prices are going up or down, you always try to capture a chunk of a potential price move.
For example, if you have an open $5000 position on bitcoin when the market is going up, you want to hedge it at the top (for instance, exchange it to USDT) just before the market reverses just to buy in at the near-term bottom again (change your USDT back to BTC), thus increasing the size of your position.
Successful swing traders look to capture a part of the expected move and then move on to the next opportunity all the time, but that may also mean only several trades per week.
The key is to set concrete entry points, stop losses, and take profit levels before every trade and stick to them. Aiming for $100-200 profit per move is okay, as long as time rewards outweigh risks. In some cases, the market can signal $1000 moves, but it’s incredibly difficult to catch them with 100% accuracy. Therefore, securing profits by moving your stop losses higher should be a priority in profitable swing trading.
Strategy #3: Daytrading
Daytraders are people who live off cryptocurrency trading and spend most of their time trading. Whether it is buying or selling assets, margin trading, or exchanging perpetual contracts, they make a dozen different trades every day hoping to catch favorable price movements. The rewards can be immense, but also a bit challenging for novices - especially if you know little about technical and fundamentals analyses or have little experience in the markets. It may take months or even years of loses before you actually graduate into a profitable daytrader.
In the crypto market, daytraders must stick to the charts and follow the price movements closely. Be prepared to cut losses, turn in breakeven trades and switch your biases often as to avoid bull or bear traps and loses. As a daytrader, you need to befriend cryptocurrency price fluctuations and literally live off them regardless of which direction market is going. For every price move, there is also a counter trade at its reversal point - an excellent opportunity to increase your bags.
Day trading is all about quick sharp decisions that are meant to minimize your exposure to risks and maximize your profits. Of course, no trader is 100% right all the time, so be ready to close positions in significant losses, too. Learn to identify possible support and resistance levels, re-enter your trades at the right time, set goals as well as tight stop losses and sooner or later you’ll graduate the day trading university of crypto.
Several excellent day traders to follow on Twitter and learn from are:
These are the main cryptocurrency trading strategies that you can use. All of them differ in the level of involvement, required experience, TA skills, fundamental analysis, ability to make sharp decisions, and mitigate risks. Regardless, you can learn all of these skills if you’re willing to dedicate enough time and effort to cryptocurrency trading.