As well-known financial institutions like BlackRock continue to explore crypto, many individuals are now showing interest in this nascent industry. So, how can beginners make money from the crypto markets? In this article, we have discussed several trading strategies to employ during this bull run. Stick around!
Crypto Trading Strategies
The following are some of the most popular strategies among cryptocurrency traders:
Day Trading
This crypto trading strategy involves placing and closing trades within the same day. Also referred to as intraday trading, day trading is ideal in a highly volatile market, which enables traders to profit from small price movements.
Those who plan to adopt this trading strategy should know how to conduct a thorough technical analysis so they can enter and exit the market at optimal levels.
HODL
Unlike day trading, HODLing doesn’t require traders to be knowledgeable about technical analysis. They simply buy and hold coins with massive potential. So, how do you book profits when using this strategy? You need to practice patience if you adopt HODLing as your strategy. That’s because you can only book profits when the value of your investment appreciates, and this may take some time. For example, those who bought Bitcoin at $73,700 earlier this year must wait for the coin to cross that mark to realize some profits.
Crypto Futures Trading
Like traditional brokerage firms, crypto exchanges allow traders to place leveraged trades in futures markets. While crypto futures trading can amplify your potential profits, it can also bring massive losses within a short time if your trades backfire. This calls for the need to apply proper risk management, such as using small leverage if your risk tolerance level is low.
Arbitrage Trading
Arbitrage trading is a technique in which traders purchase crypto from one market and dump it in another at a higher price. In other words, traders take advantage of the price discrepancies across various markets.
It is worth mentioning that profit per trade in arbitrage trading is tiny. Therefore, you need a substantial amount of trading capital to generate significant profits as an arbitrage trader.
High-Frequency Trading
High-frequency trading (HFT) involves the use of trading bots, which facilitate quick entry and exit from a crypto market. As an HFT trader, you are required to be knowledgeable about computer science and mathematics and understand complicated market principles to help you design an effective trading bot.
You can use the trading bots to explore arbitrage opportunities, which usually last only a few minutes.
Dollar-Cost Averaging
You don’t have to invest in the crypto markets at once. Instead, you can apply the dollar-cost averaging (DCA) strategy, which allows you to invest a specific amount of money at regular intervals, regardless of the price movements. That means you place buy orders at both the lows and highs of a particular crypto market.
Range Trading
This strategy requires traders to determine the price range of a certain crypto asset within a given time. For instance, if Bitcoin has been trading between $65,000 – $70,000 in the past seven days, then that becomes the identified trading range. Therefore, you can place buy orders at $65,000 and book profits at $70,000. Note that the trading range can be broken at any time, so it’s important to use proper risk management.
Index Investing
If you don’t want direct exposure to cryptocurrencies, consider engaging in index investing, which involves buying shares of investment vehicles like exchange-traded funds (ETFs) and index funds. Issuers of these funds invest in various cryptocurrencies on your behalf.
Swing Trading
In swing trading, traders do not trade frequently, meaning they can enter a position today and close it after a week or a month. Still, swing traders are required to monitor the markets daily. Like day trading, swing trading requires one to conduct a deep technical analysis.
Final Thoughts
The type of trading strategy you choose depends on various factors, such as your risk tolerance levels and trading experience. Remember that every strategy carries its own financial risk. So, use money you can afford to lose.
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