There are multiple ways of making profits in the cryptocurrency market. At the same time, there are multiple ways of losing money. Trading losses can occur for several reasons. Two of them being
- Having the wrong cryptocurrency trading strategies
- Wrong execution of the right cryptocurrency trading strategies.
In this guide, we cover the types of trading strategies as well as how to execute them properly. This will help maximize your profits and make you a better trader overall.
Cryptocurrency Trading Strategies 101
Every successful trader should be familiar with financial analysis. How to analyze the market and fish out trading opportunities. Properly executed analysis shows you when to buy, when to sell, and when to stay away from the market altogether.
The two main forms of analysis are
- Fundamental analysis (or analyzing the news and other sources)
- Technical analysis (reading charts and other technical tools used in financial analysis)
It is important to understand the difference between the two types of financial analysis, as some trading strategies work better after analyzing the news, and some work better for people with good to great technical analysis skills.
How To Use A Cryptocurrency Trading Strategy
A trading strategy is a fixed plan that you follow when you trade. Strategies are designed to maximize profits and are more like guides than actual rules.
If something unexpected happens in the market (unexpected things happen a lot), an undisciplined trader might attempt to jump in, ending up losing a fraction or all of their margin.
A good strategy protects you from unnecessary trading decisions that might take you from one loss to another. Good examples of these strategies include
This trading strategy deserves the top spot. Day trading can be very profitable if done right. At the same time, it can be challenging for novices.
Day trading is an active trading strategy that involves entering and exiting trades within a single day. This means that none of a day trader’s trades spills over into the next day.
A day trader may use any other short-term trading strategies to achieve their trading goals. The only distinguishing factor of day trading is that all trades start and end on the same day.
Swing trading differs from day trading, in that swing traders analyze the market for long-term price movements. Swing traders take positions on the strongest support zones and may hold trades for weeks or even months.
The only downside to this is that swing traders cannot monitor their trades as close as a day trader can. Swing traders are vulnerable to risks when unexpected market reversals occur.
Scalping is arguably the quickest trading strategy. Scalping is a short-term trading strategy that involves a trader taking multiple positions a day, to take advantage of small price movements.
A person who uses this strategy is called a scalper. Scalpers make a small amount of money per trade, but multiple trades can add up to a substantial amount at the end of the day.
A downside, however, is that scalping is one of the most high-risk strategies out there. scalping can lead to huge losses if not executed properly.
HODLing is also known as the ‘buy and hold’ strategy. It is a passive trading strategy that involves buying certain cryptocurrencies and refusing to sell regardless of market conditions.
People who buy and hold do so, expecting a greater financial reward when the market makes strong moves to the upside.
HODLing may return the least amount of profit compared to day or swing trading, but it is by far the safest trading strategy available, as long as the coins bought are properly researched.