Cryptocurrencies are creating storms around the financial industry, opening new financial opportunities and redefining the scope of digital investments. Unlike traditional investments which are monitored by a central authority, cryptocurrencies are decentralized assets, and their features and way of functioning are quite different from centralized assets.
Crypto trading is not as easy as it seems, a newbie often feels overwhelmed while interacting with crypto, necessitating the need to know about the crypto fundamentals and trading strategies before entering the vast industry. In this article, we’ll let you know some popular crypto trading strategies every beginner should know.
Understanding Crypto Trading Strategy
Cryptocurrencies are decentralized assets; they are not issued or regulated by a central authority like the government. Being a decentralized asset, cryptocurrencies are free from political and economic hurdles that often come with fiat currencies. But it doesn’t mean that they are free from every economic factor, cryptocurrencies are highly volatile assets, and their price is highly affected by market demand, supply, media trends, etc.
The volatility and unpredictability of cryptocurrencies make it obligatory to use a trading strategy while making a market trade. Crypto trading strategy not only navigates volatility but also enables diversification of assets. An effective trading strategy prevents you from impulsive judgments and irresponsible acts and thus mitigates financial risks.
5 Best Crypto Trading Strategies For Beginners
Understanding different crypto trading strategies is important for effective and practical trading. Trading strategies allow traders to make informed investment decisions rather than rash and quick acts. Below are some basic trading strategies popular in the crypto industry.
1. HODL (Buy And Hold)
HODLing is a trading strategy in which investors hold their assets for a long time, enabling them to earn a profit once the asset value increases. Through HODLing, investors aim to take profit from long-term value appreciation, eliminating the risk of short-term volatility and selling at a low price while buying high. This strategy is widely adopted by crypto enthusiasts who foresee the wider acceptance of blockchain technology and crypto adoption. Actually, HODL is a misspelling of holding, and with time it became popular by the name HODL.
2. Day Trading
As the name suggests, day trading completes in a day, that is traders buy crypto and sell them in a single day, rather than holding them for long. Day trading aims to capitalize on short-term market fluctuations, traders utilize the small market movements to gain profit. Day traders evaluate the technical analysis of a coin and utilze it in their trade to make returns. However, this strategy offers small profits and requires quick decision-making. In addition, the transaction fee required for facilitating multiple transactions can sometimes be higher than the profit earned, making it a risky strategy.
3. Arbitrage Trading
The arbitrage trading strategy utilizes the price change in different markets to earn profits. Arbitrage is a trading method in which investors purchase crypto from one market and sell it on another market, capitalizing from the buy and sell price differences. With the difference in liquidity and trading volumes in exchanges, there can be minute variations in prices across exchanges, traders utilze this difference to make a profit. The requirement of paying a double entry fee, that is deposit, trading, and withdrawal fee, can sometimes eat the profit. Also, traders have to continuously monitor different exchange prices to take advantage of the price differences.
4. Dollar-Cost-Averaging
With the DCA strategy, traders invest a fixed amount of money at regular intervals but in small increments, allowing them to take advantage of market increases without risking their assets with market volatility. DCA enables users to purchase assets during high and low markets, mitigating the impact of market fluctuations and providing a consistent investment opportunity. It is a long-term strategy and investors have to pay more fees while trading cryptocurrencies.
5. Scalping
Utilizing market inefficiencies to make a profit, that is what a scalp trader does. Scalping is a high-frequency trading strategy where traders make a profit from small market movements by making numerous trades in a short time period. Scalpers utilize trading volume and historical trends to decide an exit or an entry point in a day. Highly liquid markets are selected for applying this strategy and large traders are found adopting this strategy more.
Bottom Line
Trading strategies are an important aspect of crypto trading, allowing investors to make profits while mitigating market risks. From day trading, capitalizing from short-term price movements to HODling, making profits from long-term holding, there are different types of trading strategies available, and investors have to choose according to their portfolio and interest. By diversifying crypto trading strategies and finding the appropriate one, investors can increase their crypto returns. However, it is important to note that not every strategy gains you profit, it depends on how and when you use the strategy.
