3 Trading Strategies Every Cryptocurrency Trader Should Know

Are you ne to crypto? Here are some trading strategies that every cryptocurrency trader should absolutey know. Get an in-depth understanding of the factors to consider, the trading practices to follow and choose your own unique style.

Cryptocurrencies are an investment that requires good thought. And to say that cryptocurrencies are growing in number every day is an understatement. ​​Bitcoin alone reached around 400,000 daily transactions in early January 2021 (source). Coupling this number with the transactions made in other coins would give you an idea of how exponential the market is. Being a cryptocurrency trader in the present day and time comes with many risks and many benefits. To reap the benefits, one requires to develop a piece of good market knowledge and research.

Since there are so many sources that share different information, it is always important to learn from a credible source. For a beginner trader who may just be starting out, it is important to know about the market trend, and understand which trading strategies would fit his or her trading style. If nothing, this will help to reduce the stress associated with cryptocurrency trading.

Before you start to trade, you should make a decision on which strategies to adopt. Let us dwell a bit on what really affects the cryptocurrency market. 

What factors should be considered when trading cryptocurrency?

  • Market Capitalisation: Market caps are easily explained as perceived values. The values may depend on many overlapping factors and therefore fluctuate. As a general rule, you can derive any coin’s market cap by multiplying the total number of coins that are currently mined by the price of a single coin at any given time. 

  • Supply: While bitcoin is considered as the digital gold, modelled in the same way as real gold (from an economic point of view), supply plays a super important role in understanding how the system works. The total number of coins available plays a huge role in creating value. Some coins have limited supply(like bitcoin, litecoin, etc) while some have an unlimited supply. This means that they will have a supply forever. Along with other factors, this is an important consideration for their overall fluctuation. Another thing that is of significance in our discussion of supply is the rate at which these coins get released, destroyed and lost. However it is practically impossible to lose a coin physically, it is very much possible that the owner forgets the key to his wallet and so his part of the coins are now not undergoing any transactions. 

  • Media: Adoption and knowledge are very important for cryptocurrencies. But so is the hype. More the demand, more the hype (figuratively, subject to the kind of hype in question). Just like any commodity, for cryptocurrencies to have a definite and growing value, they should be in demand. Media creates hype and makes buying, selling or trading crypto even more worthwhile. Good traders always keep an eye on the currencies that are being talked about. For example, dogecoin was much talked about in the news with famous celebrities posting or sharing about it and thus the value skyrocketed for a short while.  

  • Integration: With adoptions seeing a snowball effect, integration takes the front seat in understanding the crypto market performance. Paypal, Apple, and many more renowned brands are looking for ways to integrate crypto into their systems. While choosing a cryptocurrency to trade or invest in, it is important to look at how it integrates with existing infrastructure and payment systems. If a currency looks promising, it may be a valuable one to look at.

  • Current Events: The cryptocurrency market is always surrounded with controversies, discussions and technological as well as procedural advancements. It is important to look at the current world events – security breaches, regulatory updates, economic setbacks, etc. and then see a pattern they may be leading to in terms of the future of the currency you are considering.

1. Day Trading

The term “day trader” comes from the stock market where trading is only active during the day. Even though most cryptocurrency exchanges are 24/7 available, meaning that you can trade any time, the term ‘day trading’ still retains its significance from stock market to the crypto markets.

A cryptocurrency trader can basically choose between active and passive trading options. While the active trading options require more know-how to make profits on the go, the passive trading methods require a longer planning. 

Day trading is an active trading strategy since it involves entering and exiting positions within the same day. It is also called intraday trading for the same reason. A day trader needs to understand the market well and have some trading experience to make timely decisions.  

Analysis and research go a long way in helping day traders make a decision and create some trade ideas. It is important to keep in touch with the current status of the market and use trade volume, chart patterns and technical indicators as identifiers. 

Two important considerations in day trading are liquidity and volatility. Day traders profit from volatility. Cryptocurrencies being highly volatile, give a good window for this trading strategy to be implemented. However, it is still very important to do your analysis well and therefore this could be something an advanced trader would be better at. 

2. Trend Trading

Trend trading is a strategy based on recognising trends, as the name may already indicate. Traders analyse the momentum of an asset and then base their decisions on this analysis. A cryptocurrency trader who wants to follow this strategy would have to identify uptrends and downtrends. The trader can then make an informed decision based on the trend analysis. Typically, when the trend is upwards the trader would want to buy and when the trend seems to go downwards the trader might want to sell. 

Since cryptocurrency is not centrally regulated by any government and there are a lot of little events shaping the way they move, it is also important to keep abreast with the latest news of the market. 

In general, trend trading can give you a better result and more profits than buying out of FOMO (fear of missing out) or FUD (fear, uncertainty and doubt) because you are analysing the moments and the history of a particular market.

A good way of predicting uptrends and downtrends are by looking at the charts. But if you aren’t able to create these predictions on your own, there are experts around the corner to help you understand the trends.

(data relevant at the time of writing)

Whether trend trading is for pros or for beginners is still something that may vary individually. 

One little tidbit from history that shows trend trading worked well in traditional markets with newbie traders is from the 1980s. In an experiment, Richard Dennis and Bill Eckhardt effectively put the practice of trend trading in the limelight. 

They gathered a group of newbie traders and taught them how to use trend trading. The purpose was to give newbie traders enough insight and prove that trend trading could work successfully even for newer traders. 

The group of newbies was called the Turtle Traders, because of the Turtle trend trading strategy they were taught. Incidentally, they wound up making over $100 million in profits. Richard Dennis, one of the founders of the Turtle Traders, raked in $400 million by applying his strategy to the futures market. Not surprisingly, the methods used by the Turtle Traders represent some of the fundamental tools of trend trading today.

Even though this example is from a long time ago, it gives a good hint about the beginnings of the practice of trend trading. In the crypto world, it might have different implications than the example above, but it is still a strategy to consider if you are starting out. 

3. Scalping

A very active trading strategy that is pretty common in the crypto world is scalping. Scalping is about making fast profits, and involves quick decision making. You make quick trades and fast profits off reselling. A trading strategy for adrenaline junkies. 

Scalping requires a trader to have a strict exit strategy because one large loss could eliminate the many small gains the trader worked to obtain. A cryptocurrency trader should be always active in a short period of time. The idea is not to make one huge profit but to make small profits over and over.

When traders usually choose scalping, the idea is to compound small gains and the profits will add up over time to a significant amount.  In terms of analysis, scalping strategy does not particularly require a trader to go through fundamental analysis but rely more on technical analysis. Just to differentiate, fundamental analysis deals with bigger aspects of the trade while technical analysis may deal with the price movements and data interpretations. 

In terms of technical analysis, scalpers are the traders who look at lower time frames of the charts. These could be any short charts, intraday charts, 1 hour or 15-minute charts and even 5 minutes or lower. Some really active scalpers would even look at time frames lower than a minute. This just goes on to tell how ‘on-the-spot’ the buying and selling decisions have to be in this particular strategy. Cryptocurrency’s volatility does help in creating an even more active scalping exercise.

For absolute beginners, or a newbie cryptocurrency trader, scalping could be too much to take care of. As you advance into the world of active trading and understand how to trade more effectively, you will start to recognize the small patterns and whether you have a knack for making profits out of them. 

If you think you want to already start trading in cryptocurrencies and are looking for an exchange that would suit your needs, go ahead and visit CoinField!


Please note that this is not trading advice. We recommend you to carry out your own research before making any trading decisions. This article is for informational purposes only.

Read More