Essential Crypto Trading Strategies for Beginners and Experienced Traders

When either day trading or scalping, many trades will result in both wins and losses. That concludes our write-up, giving you five different trading strategies to work with as you embark on your journey in the crypto markets. For example, Bonnie purchases $250 worth of Ethereum every Tuesday, for the entirety of 2023, investing a total of $13,000.

• Nothing mentioned in this article constitutes any type of solicitation, recommendation, offer or endorsement to buy and sell any crypto asset.
• This means that while you didn’t probably, on average, buy at the best lows, you also likely didn’t buy all the highs either.
• For example, when the RSI makes higher lows while the price pushes for a lower low, this is seen as a strong bullish signal.
• Other perks to holders of some cryptocurrencies include restricted ownership and voting rights.

Be it between crypto-assets or between crypto and fiat assets, the exchange rate is a point that can be made profitable when utilized at accurate trade moments. Exchange rates are also beneficial when planning on a bulk trading strategy. Hawk-like monitoring will give you the lowest possible market rates in a day, which would be the most profitable point to make a big purchase. These blocks can be either traded on another platform for higher returns or converted into more profitable assets.

Strategies Used in Crypto Trading

Crypto day trading can involve various methods like chart analysis, technical indicators, sentiment analysis, and High-Frequency Trading. Given the crypto market’s unpredictability and volatility, backtesting trading strategies on historical data, before using them, can reinforce solid ideas and weed out weak ones. In this article, we’ll explore some of the different active and passive crypto trading strategies, how to start trading cryptocurrency, and how to decide which trading strategy is best for you.

• There are different kinds of risks, and in this section, we will discuss those related to cryptocurrency trading.
• As a result, the overall value of your investment portfolio will go up alongside those asset values.
• Arbitrage in crypto is when traders buy a cryptocurrency on one exchange and make a profit by selling it immediately on another exchange at a higher price.
• Normally, both the price and the RSI move in roughly the same direction.

You’ll often hear people refer to cryptocurrencies as “cryptos,” but both terms mean the same thing. This name stems from the process in which crypto is kept safe and secure using digital encryption techniques. Check out this EarlyBird guide to find out about the best trading strategies.

Smart Trading

It is also referred to as « intraday trading », reflecting the fact that trades are typically opened and closed within the same day. Passive investment strategies enable a more hands-off approach, where the management of the portfolio requires less time and attention. While there are differences between trading and investment strategies, trading ultimately means buying and selling assets in the hopes of making a profit. The term “day trading” stems from the traditional markets, where trading is open only during specific hours of the day.

• Most technical analysis tools are lagging indicators, slowing traders in their decision making and leaving them susceptible to sudden market changes.
• There are plenty of trading strategies out there and several platforms that some of the most popular day trading strategies are range trading, scalping, and arbitrage.
• You can also click on “style” and change the colors (blue arrow) so you can distinguish between the two lines.
• Conversely a bearish signal is generated once the price action crosses from above to below the 20-day SMA.

Profiting with crypto trading is about making correct predictions about price fluctuations in the market. “Buy and hold” is a passive investment strategy where traders buy an asset intending to hold it for a long time, regardless of market fluctuations.

Swing Trading Crypto Strategy

That means they can’t be regulated by politicians, and they aren’t affected by common monetary issues like inflation. EarlyBird helps parents, family, and friends collectively invest in a child’s financial future. So don’t bite your head off if you’re playing cautious and miss one, and don’t chase the gazelles that have already run off of the farm. Trading is more than anything an emotional journey — you must keep a clear head and stick to your chosen strategy through thick and thin. However, there are also some Telegram signal groups that provide free signals and training.

• This is the only problem with the trading strategy, but the average gains tend to outweigh any losses incurred from periods of low volatility.
• Their goal is to help investors achieve financial freedom through cryptocurrencies and successfully guide them through the current markets.
• If you rely on your preferences, allocate your funds using at least three of the above-listed strategies.
• Therefore, to juggle all their investments and trades, they need specific tools to be efficient while trading.

Additionally, by adopting a buy-and-hold strategy, investors can benefit from certain tax advantages in some jurisdictions. Long-term capital gains taxes are typically lower than short-term capital gains taxes, potentially allowing investors to retain more of their profits when they decide to sell. One major advantage of long-term holding is its potential to generate substantial profits over time.

Differences between the stock markets and crypto markets

Crypto day trading is the buying and selling of cryptocurrencies within the same day, to profit from short-term price fluctuations. Traders rely on technical analysis, make – frequent trades, and manage risk to capitalize on market volatility. Generally, traders employ 4 hour, 1 hour, or even 15 minute time frames to inform their decisions.

• As demonstrated in our subsequent output below, our SMA crossover strategy for Ethereum over the past year generated negative results.
• After all, a lot of cryptos have been known to fluctuate pretty dramatically, and you’ve really got to know your stuff to make an informed forecast about where prices are headed.
• Let’s say that you buy BTC,
• for this purpose include the Stochastic Oscillator and the Relative Strength Index.
• This can yield powerful results, but the market structure – as any tool – can provide false signals as well.

Divergences are a signal of the opposite, that short-term momentum is falling compared to the long-term momentum. Divergences arise when large numbers of traders decide to exit amounts the market and sell their assets. With this strategy you will be able to avoid the volatility of the market and survive the short-term price movements in crypto trading.

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Most technical analysis tools are lagging indicators, slowing traders in their decision making and leaving them susceptible to sudden market changes. Given this gap, traders use other strategies like options trading, to mitigate risk. When scalping, all you’ve got to do is take out a crypto position and then sell that position back onto the exchange based on small price movements. Unlike arbitrage trading, scalping doesn’t rely on monitoring every exchange on the globe and reselling elsewhere.

• They are also secured using complex cryptography coupled with a new form of online public ledger called a blockchain.
• The goal is to benefit from the potential appreciation in value over time.
• Emotional decision-making and impulsive trading can lead to poor outcomes.
• However, when a trend is losing momentum divergences can occur between the price and the RSI trendlines.
• The Fisher Transformation highlights when prices have moved to an extreme, based on recent data.

Traders must ensure that trades are being effectively managed, and conduct proper risk management practices. Depending on the exchange and asset, you usually can find anywhere from 3X to 200X leverage options, so the possibility to make amazing gains is certainly – on the table. This is why having specific “stop losses,” in your strategy is absolutely essential. If shorting sounds scary, know that you don’t have to expose yourself to infinite risk, but that’s what you are facing if you don’t have proper parameters set up.

Position trading (HODL)

Take the recent Bitcoin bottom for example – the market printed one of these bullish divergences right at the lows. The RSI divergence strategy is a more technical strategy but can be used to great effect for timing trend reversals before they happen. This is when the price starts moving in the opposite direction, from a downtrend to an uptrend or vice versa. When you use 2 or more take profits, you can spread the risk of trading, which will maximize your chances of making good profits.

• 74% of retail investor accounts lose money when trading CFDs with this provider.
• The exchange may take minutes, hours, or days to approve your identity verification.
• A crypto trading strategy is an established method of planning and making trades that you follow.
• An arbitrage trader would act to buy some on the lower market and via a crypto wallet, sell the asset on the higher value market.
• To correctly spot this, first, identify if your trend is to the upside or downside.

In swing trading, traders have enough time to keep track of a crypto asset’s price and make investment decisions. With careful analysis and risk management techniques, they can take advantage of short-term fluctuations to generate significant profits. Additionally, day trading offers the potential for quick returns, allowing traders to make profits within a short period. One popular strategy among crypto traders is long-term holding or HODLing.

Analyzing Strategy Results

The IRS now treats crypto as a regular asset, like property, stocks, bonds, or commodities such as gold. Similarly, cryptocurrency gains are taxed at different rates – either as income or capital gains. In this section, we will discuss some of the most common crypto trading strategies.

• The IRS treats crypto like an asset, so you really only have to pay tax on capital gains you make when you sell it.
• Passive investors don’t stress over short-term market movements or scramble to shift positions based on small price differences.
• Cryptocurrency trading signals can be based on several factors — news regarding a coin, technical analysis, and the current market climate.
• Having a good strategy for trading cryptos is a start, but it isn’t enough to make you successful.

He has been a writer since 2019, and his experience in the Fintech industry has inspired most of his articles. When Temitope is not writing, he takes his time to learn new things and also loves to visit new places. You need a proven strategy to consistently make money in the cryptocurrency market. Therefore, in exchange for simpler deposit and withdrawal options, you will have to pay a greater fee.

Crypto market vs. Stock market

Having a good strategy for trading cryptos is a start, but it isn’t enough to make you successful. From the offset, maintain a steady, conservative and determined approach to learning how to trade cryptos, and you stand a better chance of becoming a professional crypto trader. Cryptocurrency arbitrage opportunities are practically limitless because there are hundreds of spot market exchanges.

Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor’s financial circumstances. Become familiar with a handful of cryptos with good liquidity and map out zones on the charts where the price may reverse or take off with momentum. Oscillators work well if you can identify divergence with the price movement on the chart. At the least, look for one other confirmation for range trading, rather than relying on the indicator. There are two fundamental elements to help you get started trading cryptocurrency.