Cryptocurrency Trading Strategy Guide

Key takeaways

• Short-term trading strategies include day trading and scalping, which offer high potential profits but also carry high risk

• Swing trading involves holding cryptocurrencies for a few days or weeks to profit from short-term price changes, using technical analysis to identify trends

• Long-term trading strategies like position trading focus on holding investments for months or years, relying on fundamental analysis and offering the least risk

• Dollar-cost averaging is a strategy that involves regularly investing a fixed amount of money, reducing risk by distributing purchases over time and allowing for accumulation and portfolio diversification

Crypto trading strategies you need to know

Cryptocurrency trading involves a wide range of strategies, each of which carries its own risks and rewards.

To maximize your chances of success, it is important to understand the different strategies that can be employed. These include:

• 1

  Day trading and scalping

• 2

  Swing trading

• 3

  Position trading

• 4

  Dollar-cost averaging

• 5

  HODLing

• 6

  Arbitrage

• 7

  High-frequency trading

Each strategy has its own approach and goals, so it is important to research and choose the one that aligns with your trading style and risk tolerance.

1 Day Trading & Scalping

Day trading and scalping are two of the most popular cryptocurrency trading strategies used by experienced traders to capitalize on short-term market fluctuations. The strategies involve buying and selling cryptocurrencies within the same day, and traders rely on technical analysis to identify trends and patterns in the market.

Source: Tradingview.com

However, these strategies are also very risky, as they require the trader to be able to quickly react to the changes in the market. Furthermore, it requires more time, effort and diligence from the trader, as they need to be ready to make moves at a moment’s notice. Even something as simple as going on vacation and not having access to the Internet could be problematic.

To learn more, our article on strategies to day trade cryptocurrencies provides an in-depth guide on the best ways to approach day trading.

2 Swing Trading

Building on the strategies of day trading and scalping, swing trading is another viable option for traders looking to capitalize on market movements in the medium short term.

It involves holding cryptocurrencies for a few days or weeks, or even months, with the goal of profiting from price changes.

Source: Tradingview.com

Swing trading requires traders to use technical analysis to identify medium-term trends and patterns in the market. It is less risky than day trading, as it allows traders to benefit from larger price movements. On the flip side, it also doesn’t hold the potential for significant everyday profits that day trading does.

Swing trading can be a great way for traders to make profits from cryptocurrency markets, but it requires dedication and knowledge of how to read and interpret charts correctly.

3 Position trading

Position trading is the longest-term of all cryptocurrency trading strategies, and is often favored by experienced traders who prefer to take a more sophisticated approach to the markets. It involves holding investments for months or even years, and requires traders to use fundamental analysis to identify crypto assets with strong long-term potential.

Position trading is the least risky of the three strategies, but comes with its own unique challenges:

• It requires traders to have a long-term vision and to be able to stomach short-term volatility, both financially and emotionally

• Ability to identify and capitalize on market opportunities in the long run is required

• Traders need risk management skills to minimize losses and maximize profits

4 Dollar-cost averaging

Carrying on from position trading, dollar-cost averaging (DCA) is another strategy that experienced traders can leverage to capitalize on market opportunities in the long run while reducing the risks.

Dollar-cost averaging involves investing a fixed amount of money into cryptocurrencies on a regular basis (for example, every week, or every month) regardless of the price. This helps to reduce risk by distributing the purchase price over time.

Source: Tradingview.com

It is a great choice for those who don’t want to try and time the market. This strategy gives investors the ability to buy more units of cryptocurrency when prices are both low and high, thereby effectively lowering both risks and potential profits. It also requires very little time and effort, so it’s a fairly simple strategy to follow.

DCA is a good way to accumulate cryptocurrency over the long run and can be used to diversify a portfolio.

5 HODLing

HODLing one’s crypto investments is a strategy that requires patience and faith in the long-term prospects of the crypto market. Simply put, HODLing means holding your crypto assets for the long term. This is usually the strategy of choice for investors who believe the prices of cryptocurrencies will generally rise over time, regardless of short-term fluctuations.

HODLing has some key advantages:

• No need to monitor markets constantly, as is the case with other strategies

• Short-term volatility doesn’t affect you

• Low-risk but potentially high reward

HODLing is a simple, low-stress strategy that doesn’t require any special knowledge or skills. It’s also a great way to build a long-term portfolio.

However, it can be risky if you’re not willing or able to wait for the long term, as cryptocurrency prices can be unpredictable. Therefore, if you’re on a timer, it’s best to look at other strategies that can provide more short-term gains.

6 Arbitrage trading

Arbitrage trading is a popular trading strategy for cryptocurrency traders looking to capitalize on the price differences between different exchanges. It requires traders to identify and execute price differences quickly.

It is a low-risk strategy that offers diversification and low capital requirements. On the other hand, traders may face high competition and the need to use technological and organizational solutions to achieve the necessary speed in conducting trading operations on different crypto exchanges.

Traders should also be aware of the risks associated with this trading strategy, such as market volatility, liquidity, and the need to monitor the markets closely. With the right approach, arbitrage trading can be an effective way to make profits in the cryptocurrency market. Therefore, choosing the right crypto arbitrage strategy is key to achieving success.

7 High-frequency trading

High-frequency trading strategy involves using computers to execute trades at very high speeds and uses algorithms to identify trading opportunities and then place orders automatically. High-frequency trading is very risky and is only suitable for experienced traders with access to high-powered trading software who have the technical know-how.

Some of the advantages of high-frequency trading include quick execution of orders to capitalize on small price differences, lower transaction costs due to the speed of execution, and the ability to detect and act on trading opportunities in real-time.

However, there are downsides to this strategy. These downsides include a high risk of loss due to the speed of trading, the potential for a trader to become overwhelmed, and the difficulty in detecting and capitalizing on longer-term trends.

If this strategy sounds appealing to you, our article on the best crypto trading bots will be a useful read.

Read also: Aggressive entry strategies for fast moving cryptocurrency markets in the TU article.

Best crypto exchanges

1

9.4/10

Go to broker

Your capital is at risk.

Minimum deposit:

$1

Review

The Binance exchange is one of the largest cryptocurrency exchanges in the world with its headquarters in Hong Kong. According to the CoinMarketCap cryptocurrency portal, Binance holds the top spot in terms of aggregate indicators of the platform's daily turnover, the number of novices and active users, liquidity, and web traffic (ranking, queries, statistics in search engines, etc.). The exchange is also a cryptocurrency startup that has its own “native asset” used in the Binance ecosystem as the “basis gas” (payment internal unit). More about Binance Card

Pros/Cons

•low commissions due to liquidity and trading volumes.

•high platform performance;

•proprietary BNB Coin which allows Binance to reduce the commission size;

•a proprietary cold wallet guarantees the security of your crypto assets by storing them.

•complex verification procedure;

•the exchange is not licensed by a regulator;

•The platform can go offline without warning;

•there are complaints about the technical functionality of the platform;

•there is an intricate mechanism for calculating commissions and rewards (grid system Maker/Taker).

Study Review

2

9.2/10

Go to broker

Your capital is at risk.

Minimum deposit:

₮1

Review

The BitGet crypto exchange provides traders with the opportunity to trade in spot, futures, and cryptocurrency. Cryptocurrency is used exclusively as instruments at the exchange: BTC (₿), LTC (Ł) ETH (Ξ), USDT (₮) and others. Trades are carried out on the crypto exchange’s own platform, which is available as a web terminal and an application for mobile devices. BitGet's fees are lower than its competitors in the market, with maker fees of 0.02% and takers of 0.06%. The commission can also be paid with bonus funds that each BitGet client receives upon registration, verification, and a trading account replenishment. There are no fees for maintaining an account, but a commission is charged upon withdrawal, the amount of which depends on the cryptocurrency in which the withdrawal is made. For investors, BitGet offers its own service for copying trades, and it is available at the exchange and at an affiliate program. Novice traders can use demo accounts to hone their trading skills, but there are no educational materials on the website. The BitGet cryptocurrency exchange provides services on an international level and cooperates with traders from different countries.

Pros/Cons

•availability of demo accounts;

•convenient ways to contact the support service;

•a wide range of cryptocurrencies for account replenishment;

•service of copying trades for receiving passive income;

•ability to reduce commissions using credits earned in the bonus program;

•ability to engage in algorithmic trading;

•the exchange uses hot and cold cryptocurrency wallets to store client funds.

•Deposits and withdrawals in fiat currencies are not available.

•There are no educational materials for novice traders on the exchange website.

Study Review

Tips for choosing a crypto trading strategy

When it comes to choosing the right cryptocurrency trading strategy, it is important to consider the risk-reward ratio, trading frequency, and capital commitment. The following table outlines the key factors to consider when selecting a crypto trading strategy:

It is important to start small (even with a demo account, especially for completed beginners) and to not invest more money than you can afford to lose. Diversifying your portfolio is also key, by opening positions not just on CRYPTO/USD pairs, but on CRYPTO/CRYPTO pairs as well. That way, you are not solely relying on one specific cryptocurrency’s performance.

Finally, using a stop-loss order and taking breaks can help to limit losses and to avoid impulsive decisions. By making sure to consider the risk-reward ratio, trading frequency, and capital commitment when choosing a crypto trading strategy, traders can make more informed decisions.

If you’re a beginner, we have an article about crypto trading strategies for beginners that you may find beneficial.