Having a trading strategy for crypto trading has become almost essential and trading without a strategy is not very wise. Due to the importance of the topic, I will tell you how to use some of the best currency trading strategies. By using these trading strategies, you will have smarter purchases and sales.
What is a trading strategy?
A trading strategy is a systematic methodology for buying and selling in the stock (or digital currency) markets. This type of strategy is created based on a series of predetermined rules and criteria and is used to determine trading decisions. This is a very important part of learning to trade cryptocurrencies or any asset in general.
A trading strategy can be simple or complex and include things like investment style (growth or value based), market cap, technical indicators, fundamental analysis, portfolio diversification, investment duration, and risk tolerance. This type of strategy should be based on data and unbiased analysis and followed carefully. Of course, even the best digital currency trading strategies will have changes according to the market situation and investor's goals.
The importance of having a strategy for crypto trading
The belief that the events of the crypto world are random and that one should only trade on instinct is not very true. However, sometimes the transactions that are done in this way have a lot of profit. But on the other hand, we will rarely see such deals and the probability of success in trading without a strategy is small.
Professional digital currency traders always use accurate buying and selling strategies. Because they know that the price fluctuation of this type of asset most of the time follows a predictable pattern. Therefore, it can be said that learning about digital currency trading strategy is a must for professional trading.
Getting to know the best trading strategies
Having a proper trading strategy can reduce the financial risk to a significant extent. Following such a strategy will prevent you from trading in haste and not losing your capital due to a momentary decision. The trading strategies you see below are very popular among crypto traders.
Day Trading
In daily trading, the trader chooses a trading position and exits it on the same day. These types of transactions are usually completed within a few hours, and the purpose of doing them is to profit from the smallest market movements. As you know, crypto-currency assets mostly have a lot of price fluctuation, and for that reason, they will be a good option for daily trading.
Traders who are looking for these types of trades usually use technical analysis training. At the same time, do not forget that daily trading is one of the riskiest digital currency trading strategies and therefore it will be more suitable for professional traders.
HODL
Hodel is a type of long-term investment method in the world of digital currency, where a trader holds an asset for a long time and sometimes asks other users to do the same!
This trading strategy is done with the hope that the target asset will increase significantly in value. Of course, it should be kept in mind that every cryptocurrency project will not be successful and even the future of the world's largest digital currency is not guaranteed. Therefore, this strategy also has its own risks, and the user must have chosen the currency he/she is trading with complete care.
Arbitrage
Arbitrage is one of the most widely used digital currency trading strategies, based on which a trader buys an asset from one market and sells it in another market. For example, some users register in two exchanges that offer a digital currency (at a certain time) at a different price and try to make a profit from this price difference.
It should be noted that it is not very easy to make a profit from this strategy of buying and selling digital currency, and since both exchanges will receive their own fees, the amount of profit will decrease. In addition, the time when the price difference reaches its maximum will be short and if you do not act in time, you will not make a significant profit. Therefore, the profitability of this trading strategy depends on quick action and especially on the use of robots.
High-Frequency Trading
High frequency trading or HTF allows the user to buy and sell at a very high speed by using trading algorithms and robots. To design such a robot, in addition to having sufficient knowledge in the fields of mathematics and computer science, you must also have a complete understanding of the complex principles of the trading market. Therefore, only the most professional traders should go for this type of transactions.
Arbitrage, Liquidity Detection and Momentum Trading are 3 of the most well-known types of HFT strategies. As mentioned above, arbitrageurs look for the difference in the price of an asset in different markets and make a profit by buying at a low price and selling at a high price. The high speed of making such transactions makes the arbitrageur reach the maximum possible profit. Momentum trading is also used to detect price differences in the short term and gain profit from it. Liquidity detection systems also have the ability to identify transactions of other traders (especially orders registered by active institutional traders). In other words, it can be said that the main purpose of this type of digital currency trading strategies is to make transactions similar to other traders.
Finally, remember that algorithms and bots can react to the current state of the market. Therefore, in a situation where market volatility increases, they may increase their offer price gap to a great extent or temporarily stop trading, reduce liquidity and increase volatility. So pay attention to this point in your trading strategies.
Dollar-Cost Averaging
In the Dollar Cost Averaging or DCA strategy, a small and specific amount of money is invested at predetermined time intervals, and the trader will no longer put his assets at risk all at once. For example, a user can choose a crypto like Solana (SOL) and then make incremental investments over different time frames, regardless of market movements, to reach their predetermined goal.
This means that if the user follows the DCA trading strategy, he has to buy the digital currency at a predetermined time, at a high or low price. As a result, his investment will not be affected by big ups and downs and will provide him with a suitable amount of assets over time. However, keep in mind that dollar cost averaging is a long-term trading strategy and your fees will be higher. Therefore, before choosing a currency, consider its blockchain fee rate.
Scalping
Scalping is essentially a method of profiting from market inefficiencies. Of course, to make real profit through scalping, you need to increase your trading volume. Scalpers determine their entry and exit points in a day by examining historical trends and the volume of market transactions. In addition, it is said that this digital currency trading strategy is mostly used by market whales.
Despite the high risk of this trading strategy, professional traders who pay attention to margin requirements and other trading rules can make good profits. These traders usually go to markets with higher liquidity, because it will be easier for them to determine the entry and exit point.
Range Trading
In the swing range strategy, the investor sets a price range to buy or sell crypto and will follow it in the short term. For example, suppose the current price of Bitcoin is $35,000; Now, if you have predicted that the price will reach $40000 in the next weeks, that means you expect the trading of this currency to follow in the range of $35000 to $40000.
You can now buy Bitcoin at $35,000 and above and sell when it reaches $40,000, given this swing range. This method can be repeated until Bitcoin remains in this range.
Index Investing
A digital currency index investment fund is a trading instrument that holds a portfolio containing various cryptocurrencies and the assets in it are provided through an investment pool. To make an index investment, you can buy ETFs or invest in indices such as the DeFi Pulse Index, which somewhat reduces the risk.
Since an index fund follows a specific benchmark, it does not require a large research team to find the best currencies. In addition, users' capital will always be distributed in a wide portfolio. Of course, on the other hand, it should be acknowledged that investing in these funds is more risky than buying government bonds.
Trend Trading
To trade based on the trend line, you have to maintain the trading position for a few months in order to make a profit through market signals. Traders who use this currency buying and selling strategy will enter short or long positions according to the market situation. But in any case, they also consider the possibility of trend reversal and use indicators such as moving average convergent divergence (MACD) and stochastic oscillator (Stochastic Oscillator) to maximize the chances of investment success.
Since novice traders are usually more concerned about cryptocurrency investment risks, trading based on the trendline trading strategy will be suitable for them. Of course, this does not mean that the risk disappears and every user should take the necessary measures before investing.
Conclusion
In general, it is not possible to say which digital currency trading strategies are the best or worst. The appropriate strategy for each trader will be different according to his goals. Therefore, first determine your financial and investment goals, then choose one of the digital currency buying and selling strategies according to its benefits. At the same time, do not forget that some strategies are suitable for professional traders and it is better not to go to them until you have gained enough experience.
In addition, it is recommended to first familiarize yourself with the basic concepts of the crypto world and the methods of trading. Because without having enough knowledge about the world of digital currency, using a trading strategy will not lead to a favorable result.