Having a well-developed and proven strategy while trading cryptocurrencies is a very important thing for surviving in the crypto market. Today, we are going to go through some of the most widely used trading strategies that you can use to trade cryptos. Each of these strategies are used by traders every day and also have unique risk management and profit balances.
Based on your risk tolerance and final goals of trading, you can choose the strategy that fits your trading ventures and goals the most. Being successful through crypto trading is all about making the right predictions about price fluctuations in the market.
For this, having a strict set of rules, principles, and knowledge will help you make the right decisions. The ZuluTrade blog post page can help do this because it has plenty of guides, content and the latest news for crypto. Be sure to check them out here.
Table of Contents
Strategy #2: Sentiment-Based Trading
Strategy #1: Copy Trading
What if there was an easy way for novice traders to enter the crypto market and capture some of the best opportunities without the trading skills, time, and analysis needed to keep track and manage risk? Enter Copy Trading.
Copy Trading allows traders to copy trades executed by other investors in a financial market. It harnesses the power of social networks and trading platforms together, to provide transparency over positions and performances of traders and the trade on a day to day basis. ZuluTrade sees this as the best strategy but let’s take a look at what the pros and cons are…
Copy Trading Pros
Invest with limited market knowledge and time – You don’t need to have the time to know everything about Bitcoin/Ethereum or even the crypto markets to start your trading journey. You simply follow the Traders who have experience with the markets and when they do well, you do well. It’s just that simple.
Build a passive investment – Copy Trading is easy to monitor and doesn’t require a lot of forethought or effort: follow the Trader after assessing their strategy, investment levels and risk appetite. Best of all, it’s something to do whenever it’s convenient for you.
Learn how others succeed – Copy Trading is a great way to learn how global markets operate. Learn from other experienced Traders who have their signals strategies with trading forex, stocks, crypto or other financial instruments.
Copy Trading Cons
Different investment goals – Your financial goals are completely different from that of the Trader you are copying. An Investor may have a completely different investment horizon from what you have.
The wrong move – If the Trader you have invested in has underperformed, it means you have underperformed too. This also goes both ways if they perform well in their trades.
Strategy #2: Sentiment-Based Trading
Sentiment-based trading is another popular day trading strategy, using data sourced from public information like news sources, social media, or even Google search trends to find the entry or exit points for their trades.
For example, Elon Musk tweets about Dogecoin. You could set up notifications for the moment that type of tweet goes live, with the potential of getting ahead of the game. The quicker you can receive and act on new information, the higher your potential to make trade decisions ahead of everyone else.
Sentiment-Based Trading Pros
Likely pumps – If the trends are followed and all is timed right, you are able to buy crypto when low and sell them when they’re a higher price. The higher the exit point the better the profit.
Sentiment-Based Trading Cons
It may take a while – It sometimes just doesn’t happen… You could be waiting months for Elon Musk to tweet about Dogecoin for it to pump… Or he might never will. The main thing its risky to trade based on trends because you just never know when they come to a sudden end.
Strategy #3: Scalping
Scalping is the shortest-term trading strategy followed by many experts to boost their win rate. In this type of trading, people use leverage products, CFDs and hold on to coins for a few minutes or even seconds. However, the gain is not as much as other trading strategies.
The purpose of scalping is to achieve small profits which are accumulated throughout the day. The optimum time to execute the trade is when the market is super busy, then the chances of getting profit are maximum. Certified cryptocurrency traders and experts actively practice scalp trading to profit from the small price movements.
Scalping Pros
Learn first hand – If you’re making a handful of trades per day, making a few gains per trade can quickly add up to a substantial sum. This results in time being devoted to watching market moves and trading monitors, and as a result, lessons (both good and bad) are quickly learnt. It’s also easier to have a more stable result/income monthly.
Scalping Cons
No room for hesitation – For any trader, managing more than one trade adds complexity to the process. In such a volatile, fast-moving market, the stakes are amplified. Succeeding as a day scalper demands unwavering concentration, steady nerves (especially in a downtrend), and impeccable timing. If a trader hesitates to buy or sell in a certain period they can miss their profit window and dwindle their resources.
Strategy #4: HODL
Those who “hodl” a cryptocurrency keep hold of it through thick and thin. If it sounds like a typo, that’s because it originally was – the term originates from a typing mistake on an early bitcoin forum. But it is often retrospectively explained as standing for Holding on for Dear Life. If it’s going up, If it’s going down or whatever the direction HODLers are in it for the long run. Their philosophy is if you keep it long enough the digital silver may just turn into digital gold. Then we’ll all be driving those Lambos…
Hodl Pros
You don’t have to do anything – HODLing may be the perfect entry strategy for new investors. HODLing is just simple. It doesn’t have as steep a learning curve and doesn’t require a full-time commitment, unlike some of the other strategies.
Hodl Cons
You could be earning more – There is the issue of HODLers not taking full advantage of bitcoin’s volatility. If done correctly, other trading strategies have the opportunity to yield more profits as they rely less on hoping for bitcoin’s price to spike. Instead, they rely on the keen eye of traders and their ability to see profit opportunities in the market.
Strategy #5: Day Trading
This type of cryptocurrency trading involves the holding of assets for a day. Day Trading is also known as “intraday trading,” where traders enter and exit the position within the same day. In this type of trading, you need to consider basic technical analysis using technical indicators that can help you determine current market conditions and identify the trends.
Day Trading Pros
Time flexible – Day trading might suit people who desire flexibility with their trading. A day trader might enter 1 to 5 positions during the day and close all of them when objectives are hit or when they are stopped out.
24/7 market access – Can trade any time of the day or night, any day of the year. The market never closes. So trade when it suits you, not when it suits the market.
Day Trading Cons
Must have discipline – Similar to other short-term styles, intra-day trading requires discipline. Traders should utilise a predetermined strategy, complete with an entry point and exit, to manage their risk. There’s also the possibility of flat trades, This is when some positions do not move within the day, which is to be expected.
Strategy #6: Swing Trading
In the Swing trading strategy, people hold the position for several days or a few weeks. This trading type follows shortly to intermediate-term trends ranging typically between 1-30 days. The person who is not active on a daily basis and dedicated their time to their jobs can implement this type of trading strategy.
Here, you do not need to worry about the daily ups and downs because in swing trading you will not hold the cryptocurrency for just a day. However, keeping up with the trend and checking the daily analysis will help you gain the optimum profits.
Swing trading Pros
Great for new traders – Swing trading can be more suitable for people with limited time and for people not wanting “a lot of action” in comparison to other trading strategies. However, it does require some research to understand how oscillation patterns work.
Swing trading Cons
Requires lots of research – A lot of research is required to understand how to analyse markets (most cryptos are barely even 2 years old), as technical analysis comprises a wide variety of technical indicators and patterns.
Strategy #7: Arbitrage
Arbitrage involves buying cryptocurrency in 1 market and selling it in another market at a higher price. The difference in the buy and sell price of an asset is known as the “spread.” As a generally unregulated market, crypto allows anyone to create an exchange. This can lead to major differences in the spread because of the differences in asset liquidity and trading volume.
In the crypto market, traders usually hold a portfolio on an exchange they are trading. To start an arbitrage opportunity, open accounts on exchanges you believe will show significantly different prices for the same asset.
Arbitrage Pros
Low risk – As we’re buying and selling the asset simultaneously, there is no risk involved as there is in the long-term investments.
Flourishes in volatile markets – Arbitrage trading is a good way to trade the volatile markets without taking too much risk.
Not reliant on bull or bear markets – You can money regardless of market direction. That said, there will be more arbitrage opportunities during massive bull markets. This is because traders are more focused on riding the bull run than arbitraging.
Arbitrage Cons
Transaction fees – Exchanges mostly make a profit from the transaction fees they impose on traders. While someone as a swing trader doesn’t bat an eye on the transaction fees, it can hurt the arbitrage trader and bring his profit to minimum amounts.
Exchanges and cryptocurrencies are unpredictable – Most of us can remember a moment when a crypto exchange freezes or crashes on us in times of high volume. Not to speak of some transaction times and cost issues. An exchange might shut down and take all your capital with them too.
Strategy #8: Range Trading
Range trading is a great crypto day trading strategy that has the potential for profit while mitigating the downside when markets move sideways. Range trading basically works by setting a range between support and resistance levels.
The key in this strategy is to buy after the price of an asset hits the support level and sell when the price hits the resistance line. This technique has some limits as the asset will inevitably break out from the range.
Range Trading Pros
Clear stops and targets – The trend trader never knows how far the market will run … or whether they are looking at a minor correction or a full-blown reversal. But the range trader can quickly spot when the price has moved out of their range, and quickly knows when to cut losses.
No waiting around – The more time our funds sits in a crypto trade, the greater the risk it’s at. So, if we can hit our profit target quickly, and get that cash back into the safety of our account, that’s always a good thing.
Range Trading Cons
Rapid decision-making – The tighter the range you’re trading, the more important it is to be ready to act at the exact moment the market has swung, so you can maximize your profits. This requires confident, fast decision making… which can be very tough when your funds are on the line.
Pin-point entries & exits – This is linked to the last point, about needing rapid, confident entries and exits. But it’s important to note with trading tight ranges that getting your entry or exit just a point or two out, will make a huge percentage difference to your profitability (often tipping you into the red).
Now Over to You
As you can see there are many strategies out there for day trading cryptos. All of them work differently, so you just need to find the one that works best for your goals.
That being said, you should remember that all crypto investments do carry risks and we can’t stress enough that you should always carry out your own research before investing in any asset, digital or not.
We hope you enjoyed this edition of the knowledge crunch blog just as much as we enjoy writing them! Stay tuned for more and be sure to check out our other helpful blogs with advice and tips to reach your investment goals with ZuluTrade.
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Disclaimer: The views expressed do not constitute investment or any other advice/recommendation/suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in this article do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance which does not constitute a promise or a certainty for a future one.