Cryptocurrencies have enjoyed wider adoption since the ICO year— 2017. The cryptocurrency market revenue almost reached $35 billion in 2022, a strong indication of the massive growth the sector has witnessed. Much of this adoption and valuation has come from individuals and corporations trading and investing in these assets.
Crypto trading has attracted much interest from both experienced and beginner traders. Usually, traders adopt different strategies when trading or investing in crypto assets. These strategies help them become profitable.
While an experienced trader may adopt an advanced strategy due to his expertise, beginner traders are advised to trade with more straightforward and efficient strategies to avoid losses. An efficient strategy will prevent traders from making impulsive and rash financial decisions.
In this article, we have examined trading strategies beginner traders can adopt to profit from the cryptocurrency market.
The day trading strategy is a method that involves entering and exiting a position in the market on the same day during trading hours. Because trades are often started and completed within a single day, it’s also known as intraday trading. Traders leverage little price movements during the day on any trading pair and profit from them.
Day traders develop trading strategies utilizing technical analysis, but it is a time-consuming and risky method best suited to advanced traders.
The HODL Strategy
HODL (hold on for dear life) is an investment strategy in which people purchase cryptocurrencies and ‘hold’ them for a long time. It is derived from a misspelling of hold. This strategy allows investors to profit from the price increase of an asset.
HODLing allows investors to profit from long-term value appreciation when investing for a long time. The HODL approach can help investors avoid the risk of selling low and buying high since they are not exposed to short-term volatility. However, the HODL strategy has its downsides. Given cryptocurrency’s volatility, an asset may not appreciate even when held for long. In other cases, the crypto asset may lose value, being able to cause a significant loss.
The crypto futures trading strategy comprises two parties agreeing to buy and sell a specific amount of an underlying cryptocurrency, such as Bitcoin (BTC), at a predetermined future price on a predetermined date and time.
Futures trading allows you to trade in various cryptocurrencies without holding any of them. Individuals can capitalize on futures to hedge against market swings.
Futures trading enables traders to profit from any direction of the market. When a downtrend is expected, a trader can ‘short’ the market and profit from that price movement. A trader expects the market to move in the opposite direction by shorting.
On the other hand, a trader can ‘long’ an asset, expecting the market to move in a positive direction. However, beginner traders do not consider trading the futures market due to the high risks involved.
In this strategy, traders rely on arbitrage opportunities to make money. Arbitrage is a trading strategy in which a trader buys cryptocurrencies in one market and sells it in a different market. The difference between the buy and sell prices is known as the spread.
Due to the difference in liquidity and trading volume on the two markets, traders may be able to benefit. Using this strategy, they open accounts on exchanges with a substantial price difference for the cryptocurrency they’re trading.
As with other trading strategies, arbitrage trading poses risks such as deposit, trading, and withdrawal fees. Exchanges charge users for these activities. Thus, an arbitrage trader may emerge with a loss after completing the whole trading cycle. At other times, the expected profit may reduce.
Dollar-Cost Averaging (DCA)
The DCA trading model involves investing a specific amount of money in tiny amounts at regular intervals, allowing traders to profit from market advances without putting their assets at risk.
To use the dollar-cost averaging technique, traders simply choose a defined amount of money to invest in their preferred cryptocurrency over a set period. Then, irrespective of market fluctuations, they continue to invest until the limit is reached.
Traders employ the dollar-cost averaging technique to buy in at both the highs and lows of the market. Furthermore, DCA smooths out your investments over time, allowing investment in the selected cryptocurrency. They avoid being affected by extreme highs or lows if they buy in all at once.
However, the only downside to this strategy is that traders must pay fees throughout each trade. This means more trading fees than they would pay in a single trade.
Scalp traders benefit from cryptocurrencies by taking advantage of market inefficiencies. The scalping trading approach requires trading in large volumes to generate profit. Before deciding on an exit or entry, scalpers observe previous trends and volume levels.
Scalp traders like extremely liquid markets since it is relatively easy to determine when to enter and exit the market. This approach is typically used by whales or huge traders for significant trade positions.
Range Trading Strategy
Range trading is an active investing strategy in which the investor chooses a price range to buy or sell cryptocurrency for a limited period. For instance, if BTC sells at $24,000 and a trader expects it to rise to $28,000 in the coming weeks, he can expect it to trade in a range of $24,000 to $28,000.
Using this information, traders might attempt range trading it by purchasing Bitcoin at $24,000 and selling at $28,000. The trader performs this strategy until they believe Bitcoin will not trade in the predicted range any longer. Another option is to use other currencies to buy or sell crypto, such as the Australian dollar (AUD). Check the current Bitcoin price AUD chart to make a suitable investment.
Swing traders engage in a week or month-long observation of market volatility. They develop trading strategies based on fundamental and technical indicators. The strategy allows traders to monitor a crypto asset’s price.
Swing trading typically needs quick decisions and execution, which is not ideal for a beginner. Furthermore, traders must remain active daily and evaluate the market, making it a sophisticated and time-consuming technique.
Crypto trading requires various skills that some investors still have to improve or even develop. While there are several trading strategies, it is advisable to master one strategy, depending on a trader’s preference. This article provides a slew of trading approaches to select from. Now, let the trading begin!