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Cryptocurrency Trading Strategies

Thu, 03/19/2020 - 22:03

Every day, someone gets tired of sitting at a desk and decides to become a trader. Many people think that the cryptocurrency market is a very easy niche to begin with. This is the first and main reason for their failure.

However, many people learn how to trade. After receiving basic knowledge, they understand the necessity of strategies. Traders cannot win with technical analysis or fundamental analysis alone. It is a must to learn different tactics and learn how to implement them.

A cryptocurrency trading strategy is a set of actions aimed at creating interest on the cryptocurrency market. No one can give you a 100% guarantee that you will always have income. Howbeit, a trading strategy will guarantee that you won’t fail.

Crypto Trading Strategy

Why is trading so popular, but the world is only aware of a few really successful and rich stockbrokers or cryptocurrency tradesmen? This is because of the mass of information that you have to absorb. Moreover, you have to use all of this material when choosing the strategy.

Don’t follow someone else’s ideas. Follow the market situation and try to understand its cues

First of all, while using or creating a trading strategy for crypto, you must understand that this is the most unstable market. You may see price fluctuations between 20-30% in just a few days. For instance, if you were selling stocks on NASDAQ, it is almost impossible that indexes would shift in a day. However, the cryptocurrency index might change by 100% or even more. Secondly, Bitcoin is “the father”. Hence, prices very often follow its trend. If you are going to trade altcoins, the most important part of your strategy should be to “check Bitcoin’s situation”.

Usually, cryptocurrency traders don’t mine coins. Nevertheless, they are always aware of the cost of mining. For example, Bitcoin Cash was very valuable since hard-forks (1 August 2017), because miners need many resources to find new blocks. If the mining cost increases, the price ratio also rises.

Mining cost curve

Mining cost curve
Source: zerohedge

Lastly, you have to follow all political and economic news. They have a great influence on this market. For example, when Iran attacked the US military bases in Iraq, the Bitcoin price ratio rose from $8,000 to $8,300. This situation created an uptrend for the whole market. You cannot be a successful trader if you don’t follow the news.

These are the three main principles of cryptocurrency trading. From these points, tradesmen have created several strategies.

  1. Buy&Hold. It is more about investment than about trading. People buy an asset and hold it for a long time. They try to predict prices for months and check charts for long periods of time. This strategy is mostly based on fundamental analysis.
  2. Swing trading. This cryptocurrency trading strategy is about using the correction during the formation of a trend. Traders have to enter the trend at the time of correction. Swing trading means to wriggle after the trend.
  3. Day trading. The style of this strategy refers to its designation. It means trading on the exchange within one trading session during the day. Positions opened on this day are not transferred overnight to the next session.
  4. Scalping. It is a “high-speed” and “high-frequency” trading. A tradesman opens and closes positions within a period of 1 to 15 minutes. Each deal ideally brings a small profit. In sum, a small profit from each transaction gives great income.

Day Trading Strategy

Most “day traders” spend their lifetime gaining profit from cryptocurrency deals. They make dozens of exchanges and transactions every day. You can earn enormous rewards, but you need a lot time (months or even years) to become a successful day trader.

An exchange with lots of distinctive pairs of cryptocurrency is the first thing that you should find.

A pair indicates two coins or tokes that are being traded. For example, if you think that the Litecoin price might rise against the price of Litecoin, you have to find a XMR/LTC pairing

The next requirement is a high-liquidity platform. It is your guarantee for a permanent connection with the buyer/seller. Otherwise, you won’t be able to close the deal when the price is falling.

Very often, people try to associate day trading with an easy path to wealth. In fact, this rarely happens. It is a very hard and long path to a billion dollars in your bank account. SEC warns: “Day traders tend to face serious financial losses in the first month of trading”.

You have to analyse a lot of information and be ready to connect each trap with bearish or bullish trends. As a trader, you must go deep into understanding price fluctuations and use them for personal gain.

Day Cryptocurrency Trading Tips

Day trading may provide both large incomes and losses. If you are interested in the first one, you should remember that it is not “free money”. You have to be stress resistant and cool-headed, in addition to following all your tactics.

Before day trading, you should check for high volatility of traded crypto. This provides more opportunities to make deals, allowing you to gain a bigger profit.

The traded cryptocurrency should be liquid. You therefore have to check this for the exchange platform and the coin (token). How do you do this? You can go to Coinmarketcap and look for the 24-hour volume of cryptocurrency.

Day Trading Tips

Day Trading Tips

Trading Strategy for Beginners

Beginning is the most difficult stage in every niche. On the other hand, it is also the simplest stage, because you have to do very little to get your first achievements. Tradesmen say that ‘HODL’ is the easiest scheme for beginners. ‘HODL’ is holding assets for the long-term with the belief that the price will rise in the future.

It is very simple because a trader only needs a little knowledge for it to be rewarding. Why? Simply because all cryptocurrencies have enormous growth over the long-term. Moreover, you can also invest in popular coins or tokens to minimize risks.

So, what should you do? Buy perspective cryptocurrency and hold onto it for months. For instance, you could buy 100 Ethereum and just check the index within 3 years. The probability that it will be higher is almost 100%.

You are not obliged to check the prices very often. It is actually necessary to avoid checking it out, as you may sell your assets too early.

This strategy is one of the less effective ones. There is no guarantee that all cryptocurrencies will rise through the years. Nevertheless, trading is about statistics. Charts show that all the people who bought cryptocurrency during the bearish trend at the beginning of 2018 have a 100-200% increase in income today.

Best Trading Strategies for Cryptocurrency 2020

One of the most popular strategies among tradesmen is statistical arbitrage. It seems very complex, but after several deals, you will find that it is simple enough. The way this strategy works is you buy coins on an exchange, then sell them on another platform and, finally, you sell for fiat. The logic of this trading strategy is to abuse price correction lag amongst these exchanges.

The only difficulty is regarding the fee. You have to use platforms with low commission to get a profit. Be vigilant while using statistical arbitrage, because a fee can be even higher than the potential income.

Following the bears on the market for the last 2 years, many investors quit cryptocurrencies. Therefore, its volatility fell. This is a good thing for banks, but not for traders. Nevertheless, they will continue trading. Most of them say that HODL will be more popular in 2020 than in previous years.

Bitcoin Trading Strategy

Mostly people begin their trading path with BTC as it is the most traded and valuable cryptocurrency. That is why you have to be fluent with crypto trading methodology. While choosing a Bitcoin trading strategy, you should rely on your own experience and style.

If you are very emotional and tend to make mistakes, you have to use an algorithmic strategy. This means using formulas to identify points at which you need to place different orders. Today, such strategies are connected with using trading robots, but you have to configure them in an appropriate way to be successful.

If you are disciplined and can easily manage risks, you could try margin trading. This allows you to deposit less, but gain the same profit. However, it is necessary to place every order very carefully or you could stay in debt.

Trading Strategy for Bitcoin 2020

Your trading strategy for Bitcoin will be the same strategies used for alternative cryptocurrencies, like swing, day trading, scalping and others. Most of your tactics will be similar, but you will have more opportunities, because Bitcoin is the most popular digital currency.

However, if you have already invested in BTC, you may want to diversify risks with a hedging strategy. This is the practice of making tactical orders to decrease the risks of existing positions.

In this case, you will open a short to BTC, which involves selling the asset for the actual market value while under the pretence that it might decline. If it really fell, you would buy it back for a lower cost and margin the difference. This means that any loss to your first BTC position would be countervail by the income of this short.

Bitcoin Day Trading Strategy

Day trading has the same principles for each cryptocurrency. Nevertheless, there are some benefits when ‘day trading’ Bitcoin:

  • high supply and demand;
  • many exchanges allow leverage trading with BTC;
  • universal access – all exchanges have added BTC to their lists;
  • BTC-oriented exchanges provide lower fees and minimum deposits for BTC.

There are two highly popular day-trading tactics for BTC:

  1. Breakout. This opportunity comes up when the coin passes a certain level of support or resistance. Once the level is broken, the cryptocurrency is traded in the same trend. When you see the potential breakout, you have to open the position. The ‘stop-loss’ should be placed below the 1st resistance zone.
  2. Breakout retest. There might be an uptrend after the first breakout, but then, bulls will go back to this level to check the resistance. If the volume is higher at this stage, it means that prices will achieve a new maximum.

How do you become a successful cryptocurrency trader?

There is one simple answer – you must be full prepared. Some points were already mentioned:

  • understand the market;
  • manage your risks;
  • check the news;
  • check BTC charts;
  • be aware of the cost of mining.

One more important step is to build a trading plan. This should include your goals for each period of trading, style (how often you are going to trade) and attitude to risk. Check out other cryptocurrency traders’ Twitter. Very often, they give some useful information. But only use it only for your analytics, not for making deals.

Crypto trading strategy

Avoid all pump and dump groups. Many newbies in this market think that they can profit by connecting with such groups. In fact, they are strategies based on wrong statements and analytics. Therefore, you will have a bigger chance of losing all your money.

Lastly, just learn as much as possible. This market is very new, so there are many unknown ‘hacks’ and pitfalls. You should follow all the news about this market in order to be successful.

Choose a trusted crypto exchange

One of the most important rules every trader has is to only use time-tested exchanges. This will provide fast deals, high security and easy withdrawals. Moreover, your personal data will not be used for someone else’s purposes. How do you choose the exchange?

  • check for the everyday volume;
  • read documentation;
  • find out the information about its headquarters and the exchange team;
  • check for safe http-connections (web-address should begin with “HTTPS”).

Furthermore, try to use an exchange from your country. This may simplify compliance with regulatory changes. Please note that some platforms only support a limited number of countries.

Use a reliable platform for cryptocurrency trading

Nowadays, you can find many exchanges with different conditions. However, as previously mentioned, you should choose a trust crypto exchange. Here is a list of some popular platforms that provide good client service:

  • Binance
  • Kraken
  • Poloniex
  • StormGain

Remember this: if you choose a treacherous platform, you might not just lose your trading budget, but personal data too, including billing information.

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