Cryptocurrency trading can be risky but profitable—especially if you know the right trading strategy. Coins such as Bitcoin and Ethereum are quickly emerging as a digital asset class that promises good returns in the long term.
Crypto can be traded the same way as stocks. It’s simple to get started but difficult to make money if you don’t have a plan. Cryptocurrency is highly volatile, and it’s easy to get swayed by opinions and market sentiment.
A trading strategy will help you stay focused amidst the constant overflow of data, news updates, and market events. You must follow a system to ride the highs and lows of the market. So, which trading strategy is best suited for you? Let’s find out.
What Is Crypto Trading?
First, let’s understand what’s meant by “crypto trading.” Cryptocurrency trading means speculating on the fluctuating prices and trying to make a profit with it.
Note that crypto trading is different from buying coins on an exchange and holding them in your wallet. Trading means actively buying and selling to book profits.
The crypto market is a decentralized network that works through a system of peer-to-peer transactions. Whenever you buy or sell a cryptocurrency, the transaction is stored on a blockchain—a digital ledger that records all such data. This makes crypto trading secure and ensures your privacy.
How to Trade Crypto
There are two ways to trade cryptocurrency. The first method is to buy coins on an exchange and store them in your wallet until you’re ready to sell.
The second way is to trade derivatives. In this method, you don’t have to buy the coin. Instead, it’s a smart contract between the buyer and the seller, where you exchange the difference in value between the opening and closing trade.
Whichever method you choose, you would need to develop a trading strategy to take “long” (buy) and “short” (sell) positions.
Most beginners make the mistake of following the crowd without thinking of a strategy. This can lead to huge losses. However, a sound trading plan will minimize your risk.
Top Crypto Trading Strategies
An efficient trading strategy can reduce the risk of financial losses. It will stop you from making impulsive and uninformed decisions that can cost you a lot of money. Following a strategy will also make trading more fun.
Here are some of the most common strategies that generate favorable returns:
How it works: Day trading simply means buying and selling on the same day to extract profits. Day traders track intraday price movements to figure out how they can buy low and sell high. Successful day traders rely heavily on charts and technical indicators.
Pros: The crypto market is open 24/7. This means you can place a trade at any time. Also, there are no clear laws on government taxation, which makes day trading very cheap.
Cons: Since the market is open 24/7, there are fewer patterns to follow that help you track the best time to trade. As a day trader, you’ll need to pay close attention to charts all day to spot the right time to enter the market.
How it works: Range traders hold their trade longer than day traders. They buy at a set price and wait to sell at their expected price. For example, if Bitcoin is currently trading at $17,000, but range traders expect it to jump to $20,000, they will keep the trade open until then.
Pros: Once you set a range, you will have clear entry and exit points.
Cons: Speculating when the market will be within range is difficult. Perfect timing is essential to generate a profit.
How it works: Scalpers draw profits from tiny market fluctuations. They analyze past trends and trading volumes, then do a technical analysis to choose small variations in price as their entry and exit points.
Pros: Even if a coin’s overall trend is downward, scalpers can profit from small fluctuations throughout the day.
Cons: The profit margin is low, so scalpers trade high volumes to reap a good profit. Whales and large traders use this trading strategy.
How it works: Dollar Cost Averaging, or the DCA trading strategy, is a safe bet for those new to crypto trading. Investors buy a fixed amount of crypto at regular intervals. They don’t follow daily market trends and believe it will build wealth in the long term.
Pros: You can buy in both bullish and bearish markets as DCA is a long-term strategy.
Cons: Planning an exit strategy can be tricky with DCA. You would need to understand the market cycle to decide when to sell. Also, the more frequently you buy, the more fees you have to pay.
How it works: Arbitrageurs make use of different prices of the same coin on different exchanges. They purchase a coin in one market and sell it in another. Traders book profits due to the different trading volumes and liquidity on each platform. Some trading platforms, however, discourage this trading strategy.
Pros: Arbitrage traders don’t have to wait for hours or days to book profit. They can make money by keeping track of the same coin on different exchanges.
Cons: You will have to pay the deposit, withdrawal, and trading fee twice.
Crypto Trading Tips You MUST Know
While this list is not exhaustive, these tips will give you a push in the right direction. Use them as a starting point for your crypto trading journey:
- Diversify Your Portfolio: Spread your investment over different currencies. This way, you won’t risk overexposure.
- Set a Profit and Loss Target: Before opening a position, first decide the level of loss you can absorb and the amount of profit you would be happy to take. This is a disciplined approach. Beginners often fall prey to greed and hold positions much longer.
- Join a Trading Community: You can learn from experienced traders and find like-minded peers to discuss strategy.
- DYOR: Doing your own research is the only surefire way to understand the market. Do a technical analysis and practice reading charts to identify trading patterns. But remember, everyone has their own opinion. Be wary of taking tips from other traders and always do your due diligence before investing.
- Don’t Buy Because the Price Is Low: Low prices aren’t always indicative of a good investment. This is especially true for new coins. Check how the coin is progressing on its road map as well as its trading volume. A low price can sometimes indicate the project is in trouble.
Start Your Trading Journey With The Funded Trader
There’s no secret formula to crypto trading. Only two things can set you on a path to success: constantly improving your trading knowledge and not getting discouraged by losses. To play the long game in trading, you must learn every day and persevere through your missteps.
The Funded Trader is a hub for beginners, professional traders, and crypto enthusiasts all over the world. It can provide you with missing capital to trade with if you pass one of their evaluation programs. You can also become a part of the huge Discord community where you can ask questions and interact with other traders.
Join our powerful trading community and immediately start improving your crypto trading strategies. Whether you’re a beginner or an expert, The Funded Trader program will give you some of the best growth opportunities in the market. Contact us now and start trading today.