Cryptocurrency Trading Strategies


Before You Start Cryptocurrency Trading Read This!

Trading cryptocurrency offers a lot of opportunities for profit. Yet, before beginning, a trader should prepare themselves as well as implement good practices in order to create the best environment for themselves.


Trading Method

You can choose to purchase cryptocurrency on a trading platform where you can trade it against other assets of value or simply purchase it outright on an exchange.

Get Comfortable in the Market

Before beginning to invest, it is best practice to build comfort and gain confidence in the market’s activity. To accomplish this, begin watching the charts of the various cryptocurrency instruments you are interested in. It is best to select a few different instruments for investing, as diversification is good for balancing a portfolio. It is imperative to understand the underlying asset you will be investing in as well as not selecting those that you might not wholly understand.

You should read news publications over the general industry as well as on the specific instruments you are interested in purchasing or selling.

Select a Strategy

Experienced traders take different strategies based on the amount of time they have to perform research as well as trade. Some of these trading strategies include day trading, scalp trading, trend trading, swing trading, and position trading.

Day traders intend to make a living trading on the day to day. They typically employ sophisticated charting systems and utilize a lot of different technical analyses in order to assess various instrument’s potential profitabilities. From the data, they develop well planned strategies, that put caps on potential losses and then execute a variety of different trades throughout the day. In an effort to capitalize on daily pricing movement opportunities, they do not typically hold trades overnight.

Scalping traders look to make more overall profit than loss on a number of small trades that are placed to primarily take advantage of price movements. Since these price movements are the main means for profit, the trader will place numerous short term trades. Spread or commission is a particularly important consideration when using this trading strategy simply because the number of executed trades is high.

Trend traders aim to make profits off of trading on projected price trends. They execute trades when an asset’s general price movement obtains momentum in one direction or another. These traders rely on trend and average visualization chart tools. They then watch for price movements that illustrate the instrument’s pricing is pushing for higher highs or lower lows. It is that underlying shift in market momentum that the traders will execute trades on.

Swing traders seek to profit off of chunks of potential price movement. They project where an instrument’s directional price pivot points may be, in order to capitalize on the price swing. These traders rely heavily on technical analysis for getting the pivot points but also utilize fundamental analysis to assess instruments’ price patterns. When they expect prices to be around their highest point they will sell the instrument (execute a short trade) and when they anticipate prices to be at their lowest point they will buy the instrument (execute long trades). Swing traders tend to hold these trades over multiple days or weeks.

Position traders hope to gain profit by investing in assets through the manner in which the general trend indicates. These traders are identified as trend followers as their assumption is that the market’s trend is the rule to follow. Traders in this category might experience increased opportunity costs since their capital might be allocated for a longer term and can not be used for other investments.


Get a Handle on Inherent Risks by Making Sure to Utilize Limits and Losses

Losses are quite common in trading generally with any strategy. Experienced traders understand that in order to succeed in the long run, it is important to mitigate these. Therefore, risk management is essential to implement for any trading style. Hence, it is imperative that an investor or trader prior to trading, purchasing, selling or otherwise obtaining any asset, plans and establishes investment parameters before they start the process. In other words, an investor will need to analyze, consider and plan out how to manage an instrument’s natural performance uncertainty in the market.

To begin this process, investors should research and consider a potential investment’s likely corporate, government and environmental sector risks. Then, with these determined risks, they should construct qualitative and quantitative risk models for better considering these.

Many investors will start with a qualitative risk assessment. In this, they will subjectively consider the likelihood as well as potential impact power of each identified risk. They then rank these risks according to their perceived levels of possible impact, from highest to lowest.

Next, investors will apply quantitative risk assessments. Here they will more deeply look at the biggest risks. Then, investors will objectively assign number values (e.g. monetary cost, etc.) to each of the considered risks then utilize simulation or deterministic statistics for calculating then ranking the risks (i.e. with respect to their potential costs). With the results, investors can develop appropriate approaches to combat these risks’ potential cost effects.

There are various practices that can be adopted to manage any investment’s risks. Basic practices include strengthening your understanding of various factors that may impact an investment’s performance and value. It is also essential that any investor or trader be comfortable with common technical pricing behavior concepts in the market. These include support, resistance, etc.

If you are still learning these ideas, understanding them will come a lot easier to you when you are actively investing or trading (i.e. participating in the market).

Additional practices for good risk management include utilizing specific investment execution parameters. These might include specific levels at which an investment should be purchased or sold at, implementing market pricing limits, setting specific loss stop levels, etc.

If you would like to learn more information about any specific topic covered, please let us know here!