Cryptocurrencies have enjoyed wider adoption since the ICO year— 2017. The overall crypto market cap reached $1.09 trillion in 2023, 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 (TA), but it is a time-consuming and risky method best suited to advanced traders. They take into account various indicators, such as volume, chart patterns, and price action. This way, traders manage to identify trade entry and exit positions.
Basically, day trading focuses on small profits based on market volatility and quick movements. Thus, you have to invest some time in this strategy if you want to see some significant profits.
The HODL Strategy
HODL (hold on for dear life) is an investment strategy in which investors purchase cryptocurrencies and ‘hodl’ 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.
It is extremely important what cryptocurrency you choose to hold long-term. Some tokens might not appreciate in time as some expect, and the excitement from when a new crypto is launched can influence some users into choosing some tokens that would not bring too much profit. Those who choose to hodl Bitcoin (BTC), for instance, may hold it for a longer time because they believe that BTC might reach tremendous value.
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.
This trading strategy comes with some significant advantages. For instance, futures trading is pretty simple to follow. In some cases, you don’t even need to create a wallet (e.g., when trading BTC). Furthermore, futures trading is safer than simply owning crypto, as you are less exposed to risks such as market volatility.
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 be reduced.
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.
Automated (or algorithmic) trading is a type of trading that uses computer programs to make trading decisions. These programs follow a set of predetermined rules in order to place buy and sell orders. Algorithmic trading is often used by institutional investors, such as hedge funds, to trade large volumes of securities.
It can also be used by individual investors who want to automate their trading strategies. Algorithmic trading is generally faster and more efficient than traditional trading methods. It can also help to reduce transaction costs and eliminate the need for manual intervention.
Risks of Algorithmic Trading
Algorithmic trading is a strategy that uses computers to automate the process of buying and selling stocks. Proponents of this strategy claim that it allows traders to take advantage of opportunities that would otherwise be too difficult or time-consuming to exploit manually. However, there are also risks associated with algorithmic trading.
One of the most important risks is the potential for errors in the code that runs the algorithms. If there is a mistake in the code, it could lead to trades being executed incorrectly, which could, in turn, lead to massive losses.
Another risk is that algorithms may inadvertently create or exacerbate market bubbles. For example, if a large number of traders are using similar algorithms, they may all sell at the same time during a downturn, leading to a sharp decline in prices.
How to Stay Secure When Trading Crypto
While crypto trading can offer many advantages, it is important to use these strategies in a secure and responsible manner.
1. Only Use Trusted and Reputable Platforms
When choosing a crypto trading platform, it is important to choose one that is trusted and reputable. There are many scams and bad actors in the space, so it is important to do your due diligence before selecting a platform.
You should pay attention to the countries and crypto it supports, how long the verification process is, what it implies, and what other investors say about the platform. Usually, it is highly recommended to research multiple platforms before choosing the right one for your needs and strategies.
2. Use Strong Passwords and Two-Factor Authentication
In crypto (and not only), safety and privacy are key concepts. You should always ensure that you are protected when trading crypto, as this will also protect your funds. Many thefts left users with little to no crypto, and taking some extra steps in the beginning to secure your accounts will most surely help you along the way.
When setting up your merchant account, be sure to use strong passwords and enable two-factor authentication (if available). This will help to protect your account from unauthorized access.
You can also encrypt your crypto wallet so that it requires a password when withdrawing funds. Choose a different password from those of other accounts, and include various characters, such as punctuation marks, letters, numbers, and capital letters. Create a combination you can remember but no one else can figure out. You may also want to use cold storage, such as a hardware wallet. Some of the most popular cold wallets at the moment are Ledger and Trezor.
3. Understand the Risks
Crypto trading involves some risks, so it is important that you understand them before getting started. Be sure to test your system thoroughly before live trading.
Try to invest just how much you can afford to lose. This tip will help you when dealing with crypto, but especially in the beginning when you are just learning what crypto trading implies. Don’t go in with too much, as losing it due to various factors will make it harder to recover. Instead, try to invest a small amount, learn how the platform works and what strategy suits you, and when you are confident enough, try to increase your investment.
Also, try to spread your funds to multiple wallets. This will help you in case of hacks and thefts. If a hacker accesses a wallet, they will get only a small amount of your funds, as all the others are stored in multiple wallets.
Furthermore, keep your wallet keys safe, as once you lose them, it is close to impossible to recover your crypto. When you create a new crypto wallet, try to write your private key and recovery phrase somewhere where only you can access them.
4. Monitor Your Account Regularly
Once you have established your account, be sure to monitor it regularly. This includes monitoring your positions, performance, and account balance. Doing so will help you spot any problems early on and take corrective action if necessary.
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.
Following some simple tips will help you use crypto trading securely and responsibly. You should always look for a trustworthy platform and test a strategy before putting too many funds into trading. This way, you will manage to truly benefit from the crypto trading strategy you choose.
Now, let the trading begin!