As with any investment, profiting from the crypto market has never worked solely based on luck. While going with your intuition may result in gains once in a blue moon, true expert traders clinch their wins with a well-designed crypto trading game plan. Indeed, there is no one-size-fits-all approach since your chosen strategy should ultimately be aligned with your goals, risk tolerance and trading skills. However, taking a leaf off the books of professional investors can certainly save you considerable time and increase the odds of profitable trades. In this article, BIT explores the top strategies used in crypto trading, and how to execute them effectively.
1. Day Trading Crypto with a Breakout Trading Strategy
Day trading, which involves buying and selling financial instruments within the same day to profit from small price changes, is a lucrative way to earn gains from the crypto market quickly. However, with the liquidity and notorious volatility of the crypto space, high risk comes hand in hand with rewards for this venture. Thus, skilled traders increase their chances of success by employing a breakout trading strategy when they day trade.
A breakout happens when an underlying asset’s price moves out of its support and resistance levels. A support level is like a floor price, while a resistance level is a level where the price is unable to continue to increase for some time. The objective of this crypto trading strategy is to catch the market volatility at that moment. This is because when prices exceed these key levels, it is a sign that the price has the momentum to climb or drop further. As such, you will be able to profit from appreciation or take advantage of price falls.
2. Scalping when Day Trading Crypto
Apart from breakout trading, scalping is another strategy crypto traders use in day trades. How scalping works is that you make small, frequent trades to gather profits from small price movements. This trading method helps you reap good earnings quickly at the end of the day. Cryptocurrencies with excellent liquidity and high trading volumes are the ideal choice for scalping. The strategy can then be complemented by leverage, which is the use of borrowed funds to enable a better trading position that amplifies gains.
To be an effective scalper, traders often need the discipline to sell their day trade even when it is reaping significant gains. They also need to set up tight stop-losses to sell their asset when it hits a particular price point. It is also beneficial to have good knowledge of charting and price prediction tools alongside the ability to spot trends, interpret indicators and make decisions quickly. Thus, the need for extensive knowledge makes it easy for individuals to make misjudgements and incur losses. Therefore, scalping is more suited for more experienced and rational crypto traders.
3. Swing Trading Crypto
Like scalping, swing trading is a strategy that aims to capitalize on crypto price movements and involves interpreting technical indicators to facilitate this. The exception is that swing trading plays out over a longer time frame, ranging from days to weeks. Since traders will not have to monitor the market as frequently, swing trading is a relatively passive crypto trading strategy compared to scalping. Besides this, swing traders only need to focus on more significant price movements that bring in sizable returns with just a few winning trades rather than short-term small moves. Thus, swing trading can be a friendlier strategy for new traders.
4. Position Trading Crypto
Position trading involves buying an asset to reap profits when its price soars in the future. But unlike scalping and swing trading, traders hold their assets for an even longer period under this crypto trading strategy. Because of the long holding duration, position trading is highly suitable for investors with more commitments outside of the crypto space and novices less experienced to make swift judgments on their trades. However, this is also a downside of the strategy, as substantial capital is required to get started and keep your investment position for extended periods.
When making savvy position trading decisions, traders often rely heavily on technical analysis and fundamental analysis, which examines if the cryptocurrency has an intrinsic value that can affect its future worth. Beyond this, macroeconomic factors such as market trends and historical price performance are also considered.
5. Margin Trading
If you are a risk taker, margin trading may be up your alley. Margin trading means trading crypto with leverage. How margin trading benefits you is by offering the potential to multiply your profits while using up the least amount of capital from your funds. For example, if you have US$200 and trade with a margin of 5:1, you will get an additional $800 of borrowed funds, making your total trading capital $1,000. Consequently, this increases the potential profits you can reap as you are essentially investing more money.
However, the high rewards come alongside greater risk. This is because an amount of margin deposit is required to open a leveraged position and part of it covers your lender if your trade incurs a loss. Thus, your margin drops when the price of your underlying asset falls. When this loss dips into the margin used to account for losses, you will need to top up additional funds to restore this margin to its original level. Failing to do so can lead to the closing of your position, which leads to significant losses proportional to the amount of leverage you use. In light of this, margin trading is more suitable for traders with a strong understanding of the crypto market and individuals with robust risk management strategies.
Experiment with Crypto Trading on Your Terms on BIT’s Platform
There are undoubtedly many other trading strategies that you can explore when treading waters in cryptocurrency. When starting out, it is preferable to go for swing and position trading to take advantage of the longer time frame they afford, which allows you to think through your investment decisions more thoroughly. After gaining more experience, you can then try more adventurous approaches like scalping, day trading and margin trading. Ultimately, finding the best method requires careful consideration of your goals, experience, and personality. Regardless of your chosen strategy, it is crucial to always have an exit plan and remain rational during decision-making.
Aside from this, it would be equally wise to match your prudent choice of strategy with a crypto exchange sporting supportive features that set you up in the best position to trade. To help crypto investors new and seasoned trade easily and confidently, BIT offers a trading platform built with a unified margin system. With BIT, you can conveniently manage all financial instruments under one account and trade in your total U.S. dollar holdings, facilitating a quick and fuss-free trading experience. This is augmented by BIT’s Portfolio Margin model, which takes a more thorough approach to evaluate your portfolio risk before determining your margin requirements. Supported by these features, you can play with different strategies while keeping risks controlled and maximize capital efficiency to supercharge your trades. Kickstart your journey to success in the crypto world today with BIT!