Crypto Trading is not a matter of luck. It requires deliberate planning and formulated strategies to succeed. This article will introduce the audience to crypto trading strategies and their types.
What is a Crypto Trading Strategy?
Crypto trading is a universe where it is easy to lose focus in the absence of a planned-out roadmap. Therefore, every cryptocurrency investor needs a trading strategy or plan to make sure that they remain on course at all times.
Crypto trading strategy accounts for important questions such as trading budget, type of trading position, time to take profits, time to increase trading position, etc.
Types of Crypto Trading Strategies
Here are the most important types of crypto trading strategies given as under:
Active and Passive Trading
Active trading takes place for a shorter duration and involves a portfolio manager picking investment products directly from the market. Active Trading requires extensive market experience, exposure, and knowledge and depends on detailed qualitative and quantitative analysis of the marketplace.
With Active trading investors can enjoy greater flexibility, get hedging advantages, and take advantage of tax management strategies to keep their tax deductions as low as possible.
On the contrary, Passive Trading involves creating trading positions for the long term. It means that the investors take advantage of a tried and tested trading portfolio such as indexes. This type of trading aims to create profits in the long term. It involves smaller trading fees, better transparency, and more tax efficiency for the investors.
Day Trading is a short-term trading strategy that aims to identify the smallest price fluctuations in an asset class and leverage that to generate profits. Day Traders often make several trades every day. It means that they open and close new trading positions several times during a single day.
This type of trading can involve HFT or high-frequency trading with or without leveraged trading. Here are the most popular Day Trading strategies:
Traders keep an eye on the resistance and support level of a given asset class. When there is a bullish signal for exponential price growth they invest heavily in the asset class to make profits.
Pullback Trading is the opposite of the breakout trading method. Rather than an exponential price incline, Day Traders try to infer the point of massive price drops. Such that they can make profits by creating short positions.
Scalping also means making trades various times per day but in this method, Day traders take small profits. Scalping can mean that investors create long or short positions from minutes to seconds. Using massive trading positions is the secret to making sizeable returns in this instance.
HFT stands for High Frequency Trading where Day traders depend on automated algorithms and bots to make voluminous trades. This type of trading uses specialized computers therefore it is often limited to institutional and HNW investors.
In this type of trading strategy, investors settle on a range of prices that could either break out or pull back. As the price nears the extreme ends of the range, day traders place their bets to make profits.
Day traders always keep an eye out on the stock market news and other channels to collect information about their targeted asset class. Any crucial development can tank or promote the prices of a given asset class. When Day traders create short-term positions based on the market information they are conducting news-based trading.
Dollar-Cost Averaging (DCA)
Dollar-cost averaging is one of the most popular methods of managing investments among individuals and commercial entities. It revolves around allocating a budget to invest in a given asset class.
However, rather than putting the whole trading budget into a new trading position at once, DCA allows investors to invest in smaller chunks with consistency. In this manner, investors continue to amend their trading positions with regular intervals over a long duration that can lead to a considerable or overall return.
Arbitrage is a type of crypto trading strategy that takes advantage of the price differences between different crypto trading platforms.
The investors can examine the bid-ask spread to find the cheapest possible asset acquisition market and then sell them for the highest possible returns using the same comparison.
Trading without a proper and well-defined strategy is like trying to find a location without a map. There are so many variable factors and developments in the crypto market that it is easy for investors to get side-tracked. Therefore, trading strategies are the best way to adhere to trading goals and perform trading in an organized manner.