Crypto is well-known as an investment with big risks but also promises big profits if you master the trading strategy. Not only for profit, but trading strategies are also useful for overcoming the highly volatile crypto market. Thus, if there is a sudden change in the market, you can minimize the losses that may occur.
So, what are the best crypto trading strategies that you can follow? Here are some choices you can learn before you try.
1. Day Trading
Day trading is a strategy to buy and sell cryptocurrencies in one day. In other words, a day trader will take a position and exit on the same day. The profit that traders get through this short transaction is indeed small. However, if done regularly, the results will be quite tempting.
A person who chooses this strategy usually aims to record profits in the middle of the price movement of the cryptocurrency they choose in a day. To be successful using this strategy, an investor relies on technical indicators. So, they know the entry and exit points for a particular cryptocurrency.
2. Range Trading
Range trading is a trading strategy on a market that has a limited range. This strategy is used when the cryptocurrency is in an unclear position, between the upper and lower limits for a certain time. Usually, the lower and upper limits are defined as support and resistance levels.
The range trading strategy is independent of market trends. When the market does not have a clear direction, the range trading strategy will try to bid for extreme limits. Traders with this strategy usually want to buy at the bottom of the range and sell at the top of the range later when the market is more predictable.
Scalping is a strategy for taking advantage of small market movements. This strategy controls the speed of entering and exiting positions in a day, or maybe even an hour. The purpose of the scalping strategy is to make as many positive small trades as possible while avoiding losses.
In a scalping strategy, you don't need high returns per trade. The goal you have to set is to maintain a higher ratio of a win than losses. Usually, the chances of winning and losing trades are almost the same. Therefore, you have to win more to make a profit.
A scalper trader usually tries to avoid high volatility. For them, high volatility makes trading movements unpredictable. Therefore, the best situation for a scalper is a calm market with little or no volume.
4. High-Frequency Trading (HFT)
HFT is the most popular crypto trading strategy. This strategy enables automated trading and investing due to large transaction volumes, fast trade execution, order-to-trade ratio, ultra-short-term positions, and high turnover rates. This strategy involves complex trading algorithms and powerful computers. Also, it needs advanced servers and technology to make high-speed trades based on market data.
Besides utilizing algorithms, HFT also utilizes trading bots that help investors to enter and exit crypto assets quickly. The problem is that developing this kind of bot requires a deep understanding of complex market concepts. In addition, it is also necessary to support a strong knowledge of mathematics and computer science. Therefore, HFT is less suitable for novice traders and more suitable for advanced traders.
5. Dollar-Cost Averaging
Dollar cost averaging is a conservative investment strategy. A person who uses this method will avoid the temptation to buy when the market price is high or sell when the market is low. In other words, this strategy is based on the assumption that timing the market is nearly impossible.
The way the DCA strategy works is by investing a fixed amount regularly. This strategy helps investors avoid the hassle of timing the market to build wealth in the long run. To master this strategy, a trader needs to learn about market trends, market cycles, and technical charts.
6. Build Balanced Portfolio
By building a balanced portfolio, investors can avoid the extreme volatility that may occur while investing in cryptocurrencies. You can do this strategy by making an investment portfolio that includes various cryptocurrencies, such as Bitcoin, Dogecoin, and Ethereum.
In addition, you can also make regular fixed investments in various cryptocurrency assets. In this way, your risk appetite will increase systematically. This step will also help your portfolio provide profitable returns in the long run.
Avoid Making Trading Calls Based on Hype
One of beginner investors' biggest mistakes is relying on social media to monitor news about cryptocurrencies. Usually, they will be stuck with the hype and make decisions based only on the trends on social media. Of course, such a condition is dangerous.
Therefore, make sure you only monitor market conditions through qualified sources. That way, you can avoid false information that can cause you to make rash decisions.
Research is one of the main strategies in crypto trading. Before buying an asset, make sure you have done your research and continue to monitor any news updates regarding the crypto industry. If you have trouble doing it yourself, you can also take advantage of cryptocurrency exchange platform.
Also, evaluate your finances to properly set your investment goals before placing a bet on any crypto asset class. By doing primary research on each cryptocurrency, you will know all the risks you face when investing.
Arbitrage is a strategy that allows traders to buy crypto in one market and sell it in another. In this case, the term "spread" refers to the difference between the purchase and the selling price. Meanwhile, traders can get profit from differences in liquidity and trading volume.
If you are interested in trying this strategy, you will need to open an account on an exchange platform. That way, you can monitor the big difference between the prices for the crypto you trade.
Betting on Bitcoin Volatility
Bitcoin is one of the most volatile cryptocurrencies. Not so long ago, the price of Bitcoin fluctuated almost 30% in a single session. Seeing the potential in the future, you can try betting on the volatility of Bitcoin.
You can buy calls and put options at the same time. Make sure the deal price and expiration date are the same. After that, you can exit when the crypto price drops or rises strongly. Also, make sure you sell calls and put options at the same time as well.
Related Article: What Determines Bitcoin Value? Here are the 7 Factors
Those are some of the common trading strategies crypto traders use. From the options above, which are the best crypto trading strategies? The answer depends on your capabilities and risk profile. Therefore, before investing in crypto, you should first learn how it works and each choice's risks. This investment requires patience and discipline to monitor the market before making a decision continuously.