What Is Trading In Cryptocurrency – Crypto trading is potentially the most profitable way to make money with cryptocurrencies. However, there is a key to making consistent profits from trading cryptocurrencies: a trading strategy. In this article, we will review the best and most popular crypto trading strategies and explain how to use them.
Crypto trading is a way to make money on cryptocurrencies by buying and selling crypto assets at a bargain price. This is a risky way to make money. Although cryptocurrency trading is similar in many ways to trading more traditional financial instruments, there are a number of differences. The main reasons for these differences are the young and under-regulated nature of the crypto market, as well as the relatively low trading volume.
What Is Trading In Cryptocurrency
When trading cryptocurrencies, you cannot rely on chance. You must have a clear strategy for effectively opening positions and making a profit. A trading strategy is a set of rules that describe your trading activity. It usually includes the following:
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Experienced traders tend to use different strategies depending on the market situation, improving and refining them as they go.
Since there are many different conditions that affect the choice of a trading strategy, there is no single universal best strategy for crypto trading. In addition, the choice of a trading strategy also depends on the duration of holding a trading position. Thus, even all other things being equal, the best crypto day trading strategies will differ from the best position trading strategies. Below we will explain some of the most popular cryptocurrency trading strategies.
Range trading is a fairly simple strategy used during sideways price movements. When the price moves sideways, it sets identical or almost identical local highs and lows, creating resistance and support levels. While lower volatility reduces profit potential, the relative predictability of these ups and downs can mean less risk.
Before opening a position in spread trading, it is important to confirm the spread first. This means that the price must have made at least two identical highs and lows without breaking higher or lower at any intermediate point. Once a range is established, the simplest trading strategy is to simply buy near support and sell near resistance. Experienced traders also often go short near resistance and close short positions near support, profiting from price moves in either direction.
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Stop loss when trading in a range is set outside the range. However, it is worth watching for signs of an impending failure, such as an increase in trading volume.
A variation of trading in a range is trading in a channel. However, the basic principles remain the same. However, it is not trading in a horizontal range, but in a channel formed by dynamic support and resistance lines. Unlike range trading, this strategy is used when there is a clear bullish or bearish trend.
Breakout trading is a very popular cryptocurrency trading strategy due to its versatility. A breakout is when the price breaks through certain key levels. After an upward break, the old resistance level acts as new support. Similarly, after a down break, the old support acts as new resistance. Breakouts are common in the market. Typically, the most visible price movements are the result of price channel breakouts or price patterns such as triangles, flags, or wedges.
In breakout trading, a position is entered when the price crosses a key level, such as a resistance level or a trend line. The classic way to open a position is to enter at the opening of a new candle after a breakout. Stop loss is placed just below the broken level (or slightly higher in case of a short position). Take-Profit is often placed before the next key level. Sometimes a trailing stop loss is used as a take profit, which follows the price in the direction of the breakout.
How To Trade Cryptocurrency
It is important to be able to recognize a false breakout, i.e. a situation in which the price has broken through a key level, but soon returns to it. A common sign of a false breakout is low trading volume at the time of the breakout. Also, a large candlestick body is a good indicator that a breakout is true.
In addition, many traders prefer to minimize risk by opening a position after the price has returned to and bounced off a breakout level, rather than at the time of the breakout.
This is a very old and well-known strategy that often allows you to recognize a trend change. This strategy is based on the use of two moving averages (MA) with different time periods: one with a longer period and one with a shorter period. Traders who prefer swing trading often use 50 and 200 day moving averages. For day trading, moving averages with time periods of 9 and 20 candles are more suitable.
In order to at least partially weed out false signals, the RSI indicator is used. When the short MA crosses above the long one and the RSI is above 50, it is a signal to open a long position. Similarly, when the short MA crosses a long low and the RSI is below 50, it is a signal to go short.
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The position is usually closed either after receiving an opposite signal from the intersection of moving averages, or using Trailing Stop-Loss.
This strategy works best when there is a noticeable trend. It is not recommended to use when the price moves sideways. Also, since moving averages are lagging indicators, their crossover is not the best point to open a position.
MACD (Moving Average Convergence/Divergence) is one of the most popular trading indicators. However, it is impossible to build a consistent profitable strategy on MACD alone. This is why other tools such as Stochastic, RSI, Parabolic SAR, etc. are commonly used in conjunction with the MACD.
A fairly popular and simple strategy is to use the MACD in combination with the Parabolic SAR and the Exponential Moving Average with a period of 10 candles (EMA10). With this strategy, the signal to open a long position is a combination of the following conditions:
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Since this combination of indicators can still give false signals, it is recommended to use Stop-Loss.
MACD is not suitable for trading on lower timeframes. It works best on timeframes of one hour or more.
The price of the same cryptocurrency on different exchanges varies. Usually the difference is small, but during periods of high volatility it increases and can reach several percent. The strategy of inter-exchange arbitrage involves working on two exchanges at the same time. This strategy, unlike the previous ones, does not require knowledge of technical analysis and is quite simple:
However, despite its apparent simplicity, this strategy is quite demanding and stressful. When looking for trading opportunities, you need to consider withdrawal, transaction, and exchange fees. In addition, there is always a risk that the price of a cryptocurrency will change dramatically due to high volatility, and you will both lose profits and incur losses. This is especially true for cryptocurrencies with slow transactions.
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Given the amount of information that needs to be processed and the speed required to exploit emerging arbitrage opportunities, this strategy is very difficult to implement without the use of trading bots.
Choosing a trading strategy is an individual decision. It depends on many parameters: the amount of time that the trader is willing to devote to trading, the experience of the trader, stress resistance, discipline, self-control, readiness to learn, goals that he strives for, etc. In order to choose the best crypto trading strategies for themselves, beginner traders should ideally try out many different strategies. Later, as they gain experience, traders usually try to improve the chosen strategy and adapt it even more to their preferences.
There is no single cryptocurrency trading strategy that is the most profitable of all. The same strategy used by different traders gives different results. Therefore, each trader has his own most profitable trading strategy.
Perhaps the simplest crypto trading strategy is to use technical analysis tools like MACD, Stochastic, Bollinger Bands or others along with a simple risk management tool like stop loss. Technical analysis platforms like TradingView are very easy to use. However, the use of only one indicator gives too high a percentage of false signals, so it is still better to use more complex strategies.
A Complete Guide To Cryptocurrency Trading For Beginners
It is worth noting that all the crypto trading strategies listed here are quite simple and suitable for beginners, with the exception of arbitrage between exchanges.
Today, there are many crypto trading strategies, both simple and complex. Advanced strategies usually require specialized knowledge or a deep understanding of the market. Such strategies include, for example, using the Ichimoku indicator or trading based on news.
Before using a trading strategy, study it thoroughly and make sure you understand how to apply it. Determine if it suits you and your trading style. Then retest this strategy on the assets and timeframes that you plan to implement, taking into account the current market trend. If the backtest is positive, try trading using
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Originally posted 2023-06-21 08:29:39.