Crypto Trading Strategies for Beginners

What is Crypto Trading Strategy?

A trading strategy is a way of trading in markets dependent on rules and norms that guide trading decisions. A cryptocurrency strategy usually consists of the following.

Also, each trading transaction consists of important parts like:

Top 7 Simple Bitcoin/Altcoins Strategies

Here are a few of the Bitcoin/ Altcoin strategies that can be adapted and practiced by beginners.

Day Trading

Day trading

Day trading is a trading strategy where traders take a position and exit within 24 hours or on the same day. In day trading, the trader’s goal is to earn profits during intraday price movements in any cryptocurrency of their choice. This trading strategy usually requires investors to depend on technical indicators to know the entry and exit points.

Day trading in itself has some sub-strategies, and they include

Momentum Trading – This involves a trader taking a position on crypto whose price is moving up.

Scalping strategy - Here, the idea is that small wins can sum up into a lot of money at the end of the day. The trader sets the buy and sell target and keeps it to predetermined levels.

Pullback Trading Strategy - Day traders that use the pullback trading strategy usually look for cryptocurrencies with an established trend and then monitor the trend until there is a price decline.

Breakout Strategy - In this strategy, a trader enters a market as early as possible in a trend, expecting the price to break out from the previous range. Breakout trading is based on the idea that when a market brake through an important resistance or support level, it will lead to significant volatility. This is why bitcoin traders try to enter the market at these key points hoping that they can ride the trend from start to end. Determining resistance or support levels requires technical indicators, such as the moving average convergence divergence (MACD) or RSI. Also, bitcoin traders use volume levels as confirmation signals.

When the support and resistance levels are identified, the traders can open a position.

Range Trading

Range trading

Experienced analysts give out support and resistance daily, and most market players depend on the information provided by these analysts. Resistance is the point up to which the price of a cryptocurrency may rise, making the resistance level a price above the current price. Also, support is the level below which a cryptocurrency isn't supposed to fall, and the support level is usually below the current price.

In range trading, a trader identifies a range at which a cryptocurrency will rise or fall, buying or selling over a short period. The important thing about range trading is the risk factor which requires perfect market timing. This means you need to know when and for how long a cryptocurrency might trade between two prices. This can lead to losses if the cryptocurrency price does not move in the predicted direction and over your time horizon.

High-Frequency Trading

High-Frequency Trading

This is a type of algorithmic trading strategy used by quant traders. It involves developing trading bots and algorithms that help enter and exit a crypto asset. Although creating this kind of bots and algorithms is more advanced complex and requires a deep knowledge of mathematics and computer science, beginners who are fortunate to know and have access to advanced traders can use this trading strategy.

There are many sub-strategies employed by traders who use High-Frequency Trading.

Trading on Buy and Sell-Side - In this strategy, traders place both buy and sell orders using limit orders above or below the current market price. The difference between the two orders is the profit they make.

Providing Liquidity - This is a strategy where traders play the role of market makers by creating bid-ask spreads.

Statistical Arbitrage - This strategy involves looking for price discrepancies between cryptocurrencies on different exchanges. They capitalize on these minor fluctuations by making ultra-fast transactions.

Dollar-Cost Averaging

Dollar-Cost Averaging

It is a very challenging task to perfectly time the market. That is why Dollar-cost averaging is the next best strategy. This involves investing a fixed amount at a regular interval, which helps traders make up for the challenge of timing the markets.

The problem with the DCA is the exit strategy, as it requires a careful study and understanding of the market cycle and trend. To exit at an appropriate time, you'll also have to read technical charts. Before taking a call, crypto traders are advised to monitor oversold and overbought regions.

The goal of dollar-cost averaging is to decrease the impact of volatility on the price of a cryptocurrency, as the price will vary every time one of the regular investments is made. With dollar-cost averaging, the mistake of making a poorly timed lump sum investment is avoided.

RSI divergence crypto trading strategy

RSI divergence

RSI stands for Relative Strength Index. It is a chart indicator that measures momentum by computing the average gains and losses in 14 days. This is a more technical strategy, but it can be relevant in timing trend reversals right before they happen. This is the point the trend starts moving in an opposite direction, either from a downtrend to an uptrend or from an uptrend to a downtrend.

Although the RSI divergence strategy system can be used as a simple crypto trading strategy, it gives occasional false results. For example, the RSI has sometimes shown that a crypto asset is overbought, indicating a buy signal, but contrarily, the price continues downward. The RSI is more advanced than a simple trading strategy. It is used as a predictive measure to know when the price trend of a crypto asset will change direction before it happens. This is done by searching for discrepancies between the price and the RSI indicator.

Hedging bitcoin

For investors who already own bitcoin, hedging involves taking strategic positions to reduce the risk of previous or existing positions. This is done when investors believe there will be a short-term decline in the market price.

In this strategy, an investor opens a position to short bitcoin, which is the process of selling the asset at its current market price with the expectation that it will decline. If and when the market price falls, they'd repurchase it at the lower price and profit from the difference. This profit would eradicate any loss to your original positions.

Some financial instruments are available to bitcoin traders who would like to hedge their bitcoin exposure. However, various traders prefer to hedge with contracts for difference (CFDs). Since CFDs are a derivative product, there is no need to own the underlying asset to trade. This means you wouldn't have to sell your positions to place a short trade.

Trend Trading Bitcoin

When a market trends, it consistently reaches higher highs or lower lows. This strategy is ideal for different timeframes. You are expected to hold your position open for the duration you believe the trend will continue - this could be hours, days, weeks, or months. Bitcoin is a trend as it has experienced surges in popularity which has led to an increase in its price.

However, being a volatile asset, bitcoin has also lost a lot of its value. Majorly, trends are driven by the fact that people don’t want to miss out on the possibly profitable investment, otherwise known as the Fear of Missing Out (FOMO). As a trend trader, you must stay on top of all news and events that could influence the price of bitcoin or altcoins.

Strategies built on trends use technical analysis to indicate the direction of the market momentum. Popular indicators include the relative strength index (RSI) and the stochastic oscillator.

Best Crypto Trading Strategy Alternatives

There are also opportunities for passive income in the Crypto market, an excellent alternative for beginners. Here are a few of the alternatives;

Copy Trading

Copy-trading involves mimicking the trades of professional traders. This allows the new traders to shorten the steep learning curve while keeping full access to their trading accounts. For example, suppose an expert trader buys a cryptocurrency when there is a fall in its price. In that case, you will also buy the cryptocurrency, trusting the professional to expect the price to increase in the foreseeable future. Crypto copy trading platforms are developed so that new investors can expedite their learning years while minimizing their risks.

Staking/Farming and other passive incomes

Staking or Proof-of-Stake (POS) staking is the consensus method used in blockchain technology where networks decide on valid transactions. This typically involves a process where large amounts of a token are locked up for a time. Crypto staking is a good alternative and replacement for mining. Some blockchain networks require their users to commit their resources to the network. Then validators from the pool of users are selected. As a return, the validators earn interest on the amounts they stake.

Yield farming is another alternative, and it involves investors depositing tokens into a special smart contract known as a liquidity pool. The investors who contribute to this liquidity pool receive a share of the fees generated from traders accessing the pool.

Also, another passive income alternative for crypto investors is lending. Here, traders loan their cryptocurrency to others in exchange for a fee. The amount earned typically depends on the duration of the loan, the interest rate agreed, and the value of the crypto being lent. There are four types of crypto lending: Margin lending, peer-to-peer lending, decentralized lending, and centralized lending.

Crypto Signal Providers

Crypto signals are a set of instructions sent from a signal provider to a group or an individual indicating what cryptocurrency they should buy, the price to buy at, the target sell price, and finally, the price to set the stop loss at.

A typical signal would also tell you the percentage of your crypto holdings to place on the trade. Although the most popular way of receiving crypto signals is through Telegram, there are other ways to have crypto signals delivered to you, like email. Before you invest in a signal, you should ensure the source and provider of the signal, the main components, and the support of the provider.