An exponential rise in crypto trading platforms in recent times has shone a light on the viability of crypto trading. With a market capitalization of $2.5 trillion, there is room for everyone to play and win.
Crypto trading is not all sunshine and rainbows; the crypto market can be unforgiven without the right trading strategy. It is pertinent to understand crypto trading strategies before placing your horse in the crypto race.
What is crypto trading?
The first step to understanding crypto trading is understanding cryptocurrencies. For starters, cryptocurrencies are like the digital equivalent of fiat currencies.
Unlike the traditional fiat currencies, cryptocurrencies are not created by a central banking authority established by law. They are mined through decentralized blockchain technology and secured by cryptography.
Simply put, crypto trading is the act of buying cryptocurrencies when prices are low to be sold when they increase.
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How does crypto trading work?
Crypto trading is not as technical as experts pretend it is. You can approach crypto trading through exchange platforms or a CFD trading account.
While beginners will find the exchange platform route easier, understanding the CFD trading account can be advantageous. Here is how crypto trading works:
Understand the crypto market: The crypto market is notoriously volatile. An upward or downward price swing can make or mar your profit. An understanding of the crypto market will assist you in deciding the best trading route and strategy to use.
The cryptocurrency exchange route: In sharp contrast to the CFD trading route, the cryptocurrency exchange route allows you to buy and sell cryptocurrency through an exchange platform. To trade cryptocurrency through the exchange route, you need a cryptocurrency wallet and an account with a crypto exchange platform.
Decide your preferred trading route: Taking the CFD trading route allows you to enter into a contract obligating you to exchange crypto price differences at the first opening and closing position. Trading through this route does not allow cryptocurrency ownership; instead, you engage in price speculation. Suffice to say, if a cryptocurrency increases in value and you open a long position, you make a profit and vice versa.
Open an account: You can either open a CFD trading account with a leveraged trading provider or create an account with an exchange platform.
Choose your strategy: Selecting the best trading strategy determines how profitable trading will be.
Top crypto trading strategy
Popularly called Hold on for Dear Life among crypto geeks, enthusiasts and investors, this strategy originated sometimes in 2013 from the misspelling of HOLD. HODL, as the name suggests, is a trading strategy that involves holding cryptocurrency for an extended period.
Users of this trading strategy have learnt to overcome the fear of missing out (FOMO) and impulsive trading. No matter the seeming price fluctuation, adherents of the HODL strategy maintain their long-term approach to crypto trading.
This strategy is also borne out of the sheer conviction that cryptocurrency will eventually replace the traditional fiat currency rendering exchange rate between them irrelevant.
Cryptocurrencies Swing Trading strategy.
This involves taking advantage of the crypto market price swings or movement within a period ranging from a few days to weeks. The cryptocurrencies’ swing trading strategy users try to make the most from an upward price swing. Timing is at the core of the crypto price swing strategy. A good trader must know when to enter and exit the market or risk being swept away by the tidal waves of the crypto market volatility.
There are two dimensions to the cryptocurrencies price swing trading strategy. They are the technical analysis dimension and the fundamental analysis dimension.
Technical analysis involves retrospective analysis of cryptocurrency data to predict future price swings. It also involves the historical study of crypto market trends, patterns, prices, and volume.
On the other hand, Fundamental analysis involves the analysis of a cryptocurrency’s real or intrinsic value. It uses economic indicators, market capitalization, institutional demands, total supply, and other qualitative factors.
It is best to combine the technical and fundamental analysis dimensions with the crypto swing trading strategy.
Cryptocurrency day trading strategy
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The cryptocurrency day trading strategy is a short-term strategy that involves the completion of many trades daily. The goal is to generate profits as quickly as possible.
Day traders are averse to holding a crypto asset overnight. They trade for a few minutes, gather their profit, and exit the market only to re-enter some few minutes and exit shortly afterward.
While this strategy may not be ideal for making huge profits, it is suitable for newbies testing the water. It gives them room to understand the psychology of crypto trading.
Regarded as one of the most popular crypto trading strategies globally, it also involves close monitoring of the crypto market and a lot of technical analysis.
Cryptocurrency scalping strategy
The cryptocurrency scalping strategy is a day trading strategy on steroids. This short-term trading strategy involves profiting from the minutest price increase by exiting the market as soon a cryptocurrency gains a price increase.
Users of this strategy aim to accumulate small profits on a short-term basis by taking advantage of tiny price movement. Like the day trading strategy, this strategy involves heavy technical analysis making it unsuitable for newbies.
It involves the analysis of candlestick chart patterns, price action, trading volume, moving averages, relative strength, index, and other technical indicators.
Different types of crypto trading
There are about four types of crypto trading viz; crypto spot trading, future crypto trading, crypto margin, Crypto ETFs, and indices.
Spot trading means continuous buying and selling cryptocurrencies at the spot market for immediate settlement. They typically buy cryptocurrencies hoping that they increase in value to be disposed of once they do.
Also known as the cash market, a spot market allows traders to get paid instantly on every transaction as they have to make an upfront payment before trading.
Suffice to say, spot trading is the act of selling off a cryptocurrency once its price increases and repurchasing when the price decreases. Most exchange platforms have a spot trading facility.
Crypto future trading
Crypto future trading is a double-edged sword. It is high risk and high reward. Traders are not required to purchase or sell cryptocurrencies to trade futures. Future trading allows them to sell or buy a futures contract based on the speculation of a cryptocurrency value at a specific date in the future.
For starters, the futures contract is an agreement to buy or sell a cryptocurrency at an agreed date for a specific price. Crypto future trading allows traders to take advantage of leverage to maximize profits. Leverage is essentially the act of borrowing to trade.
Crypto margin trading
Crypto exchange platforms with margin trading facility grants traders access to trading funds in the form of leverage. Like futures trading, margin trading is highly rewarding.
Assuming a trader opened a margin position with a 4X leverage and his cryptocurrency gained a 10% increase in price. He would make a 40% ROI instead of the 10% ROI he would have made if not for margin trading. Needless to say, if the cryptocurrency sheds 10% of its price, he would also record a loss of 40%.
Crypto ETFs and Indices
Crypto exchange-traded funds (ETFs) can either consist of cryptocurrencies or a series of assets (indices). Instead of actively trading, the crypto ETFs and indices professional managers analyze a wide range of cryptocurrencies and trade profitably on your behalf.
Think of crypto exchange-traded funds as crypto-based funds managed by professionals to save you from the stress of trading.
A beginner’s guide to learning crypto trading
While it may seem that the earliest birds have caught the biggest crypto worm, the ship has not sailed. You can still profit from crypto trading. Here is a step-by-step guide to crypto trading:
Create a crypto brokerage account: You should select a brokerage firm with a friendly user interface to make registration easy.
Fund your brokerage account through your credit card or wire transfer. Some brokerage platforms do not charge for funding your account.
Conduct extensive research on cryptocurrency before beginning.
Select your preferred cryptocurrency. You may want to prioritize Bitcoin and Ethereum over the dark horses.
Test the water with a demo account.
Select a winning strategy.
Favorite Asked Questions.
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Does crypto trading bot work?
Although crypto trading bots can be pretty expensive, they generally work.
How does crypto trading with leverage work?
An exchange platform gives you a loan in the form of leverage. This loan allows you to maximize your profit.
How are taxes paid on profits from crypto trading?
The same way taxes are paid on stocks and other similar assets.
Do crypto trading signals bring anything?
Only if they come from a genuine source.
Is it possible to test crypto trading on a demo account?
It is highly advisable to test crypto trading on a demo account.