Crypto Guide – The most popular trading strategies
Every day there is a person who decides to become a trader. The cryptocurrency market looks especially attractive for beginners. However, believing that money is earned easily, quickly, and without much effort is a fatal mistake. Yes, buying some Bitcoin or Ethereum is technically easy. Exchange Ethereum to Polygon – too. But trading will have to be learned; objectively, it is an endless process.
After mastering the basic knowledge comes the understanding of the need to delve into the technical and fundamental analysis and then the choice of strategy.
What is a trading strategy?
A strategy is a certain algorithm of actions in the market. The implementation of this algorithm is aimed at making a profit. No strategy gives a 100% guarantee of success, but its absence guarantees 100% failure.
To simplify orientation in a variety of strategies, they can be divided into two types: active and passive. This is a rather conditional division; strategies of different types are often similar to each other. Depending on your risk tolerance and goals, you can choose the one that best suits your desires and goals. It is possible that over time you will develop your own plan of action, which will combine elements of different approaches.
Let’s take a closer look at some popular active strategies. This group includes scalping, arbitrage, swing, and index investing.
This is the most famous active trading strategy involving entering and exiting positions within one trading day. However, trading on cryptocurrency exchanges is conducted non-stop, and the concept of a trading day is not applicable to them in the classical sense. Therefore, day trading is a strategy in which transactions remain open for no more than 24 hours.
Day traders use technical analysis to formulate trading ideas. Cryptocurrency day trading can be profitable, but it can be difficult for a beginner.
Swing trading is a longer-term strategy where positions are held for several days or weeks. It occupies an intermediate position between day trading and trend trading. Swing traders formulate their trading ideas using volatility waves, fundamental analysis, technical indicators, and chart patterns. This strategy is more convenient for beginners because it gives them more time to decide. As a result, decisions are made less hastily and more rationally than in day trading, where the speed of making and executing decisions is often critical.
This strategy is very similar to the previous ones but requires the use of smart orders such as Stop-Limit and Trailing Stop-Loss. It provides good control over risk and return and helps you plan your opening and closing positions. That is why this strategy is very popular.
Mastering this strategy, you need to learn how to use only 2 orders: take profit and stop loss. Stop loss is used to limit losses, and stop limit allows you to open trades only under favorable market conditions. Take profit is used to ensure profitability when certain market conditions are reached. It is possible to combine multiple take profits with stop losses to manage trading risks and increase the chances of making a profit. This strategy is considered more simplified and safer for beginners.
Please note that on some exchanges, stop loss, take profit, and trailing stop are not supported or available in all of their versions.
One of the most sensational strategies is arbitrage trading. Arbitrage is a method in which a trader buys a cryptocurrency on one exchange and sells it on another. This sounds more complicated than it is, and it becomes clear after the first few transactions.
The process is to use price adjustment delay between different exchanges. However, there is one minus – commissions. To make a profit, it is necessary to use platforms with a low commission, as the commission may exceed the potential profit. In this case, everything depends on your spread, that is, the difference between the buying and selling prices.
Speed is also very important here. Go now, because the price can change very quickly.
This is one of the fastest strategies that focuses on reusing small moves, such as liquidity gaps or other market inefficiencies, to make small profits. Scalpers open and close trades in minutes or even seconds. This strategy is suitable for markets with high liquidity, where entry and exit from positions are predictable.
Scalping can bring profit in a price range that can be used. This requires a deep understanding of the mechanics of the markets, which is more suitable for experienced large traders. Percentage targets are usually smaller, so larger volumes are needed.