Cryptocurrency trading strategy
What is cryptocurrency trading
Crypto trading is a type of activity that is aimed at extracting profit from the processes aimed at analyzing and predicting the price of digital currencies. A person who earns on the implementation of speculative operations with cryptocurrencies is called a crypto trader.
Trading can be carried out in various ways, but the most common are:
- manual trading - when a trader independently makes transactions;
- algorithmic trading is carried out with the help of specially designed programs (robots).
Based on the chosen direction and tactics, traders make short-, medium-, and long-term transactions. But, all these types of transactions are united by one goal - to squeeze the maximum out of the current market situation.
The first guides to the world of crypto trading were exchanges that made it possible to trade digital currencies, which in most cases were paired with fiat currencies. But over time, the industry has developed, and now you can buy one virtual coin for another.
After cryptocurrencies became more popular, companies began to pay attention to them, which until then provided the opportunity to trade only currencies, stocks and raw materials. The peak of the popularity of digital currencies was the moment when trading in bitcoin futures was allowed by top commodity exchanges.
Now you can easily and quickly open a demo account with any brokerage company and try your hand at crypto trading. Almost all companies have already added major coins to the list of trading instruments.
The process of registering an account usually takes no more than 5 minutes, and using a demo account will allow you to avoid any risks associated with the loss of funds.
The main instrument used in Forex trading is currency pairs, this is the name of the asset for which orders are opened in the trader's terminal. Cryptocurrency pairs are a new phenomenon, let's see what it is.
After the advent of electronic money, a new asset appeared - these are cryptocurrency pairs, in which the electronic currency is the basic component, and the currency in which the calculation is made is quoted. Currently, the US dollar is used as the quoted currency in most cases, and only with rare exceptions the euro.
That is, the bitcoin quote for the US dollar will look like BTCUSD.
Trading virtual pairs is very similar to trading regular currency pairs, but there are still some peculiarities.
The popular pairs are:
- BCHUSD-Bitcoin Cash;
- XRPUSD – Ripple;
- LTCUSD - Litecoin;
- ETHUSD - Ethereum;
- DASH USD - Dash.
It is they that can be found in almost every broker that allows you to trade virtual currency and it is for them that the most attractive trading conditions are present.
You can register a free demo account right now and try your hand at trading cryptocurrency and hundreds of other instruments. The demo account is completely free. TEST YOUR CRYPTOCURRENCY TRADING STRATEGY RIGHT NOW.
Types of cryptocurrency trading analysis
Technical or fundamental analysis are two main ways to analyze the market, and not only the cryptocurrency market.
TECHNICAL ANALYSIS. Technical analysis relies on historical market data, because history develops in a circle and much repeats itself. It includes an overview of past pricing trends.
Technical analysis aims to identify recurring patterns and make calculated forecasts for rising or falling trends. The underlying assumption here is that prices are not random and can be foreseen by looking into the past.
While technical research done correctly can be very useful and effective, it doesn't always work. In most cases, the success of such analytics depends on the person conducting the research. This is why some prefer fundamental analysis.
FUNDAMENTAL ANALYSIS. This analysis aims to capture a somewhat broader picture than mathematical analysis. It takes into account both qualitative and quantitative factors that can affect value in order to understand whether an asset is overpriced or undervalued compared to its current market price.
Since there are no auditable public financial statements for the digital money market, such analysis is more difficult to conduct, especially for beginners. The volume of transactions, user activity, unique features of the currency, and even some global economic events that can significantly affect the market should be taken into account.
It is better for a beginner to learn how to use both methods.
List of main technical indicators
Technical analysis indicators, which have appeared quite a lot during the development of financial markets, help traders achieve maximum accuracy of forecasts, because there are also user modifications that can be finalized in the right direction. But at the initial stage, it is better to use the classic tools that underlie the cryptocurrency trading strategy.
What are these indicators? For example, these can be: Moving average, Exponential moving average, Stochastic oscillator, Moving average convergence divergence (MACD), Bollinger bands, Relative strength index (RSI), Fibonacci retracement, Ichimoku cloud, Standard deviation, Average directional index and many others.
All these indicators can be used in creating a cryptocurrency trading strategy. They can play the role of a kind of filters, or act as the main generator of trading signals.
Indicators are a graphical expression of historical quotes. They are superimposed on the graph of the cryptocurrency rate in relation to another crypt, stablecoin or fiat money.
Indicators help determine the following important points for a trader:
- Possible turning points. They are important in order to find out the moment of opening a position or, conversely, closing a lot. The more precisely the moment of change is determined, the greater the potential profit the trader will receive.
- Support and resistance lines. Psychological levels at which a price rebound or breakout is possible. That is, when approaching such levels, the trader should be ready to make a decision to open a short or long position, depending on the movement of the chart.
- Overbought or oversold zones. These are chart movements during which it goes beyond a certain level. As a rule, such an indicator is not superimposed on the course, but is located next to it. As soon as the market enters one of the zones, you should expect a reversal in the opposite direction.
- Direction and strength of the trend. The safest trading strategy is to open positions with the trend. But for this you need to determine the prevailing price direction. These indicators make it possible to solve the problem.
- Trading volumes. That is, the number of transactions that all market participants perform with this asset in a certain time. The higher the volumes, the greater the interest of investors in a particular asset.
Most often, the user selects several indicators and places them on the chart depending on the chosen cryptocurrency trading strategy. Further, he monitors the given signals, and also opens positions.
Basic cryptocurrency trading strategies
Let's look at the most popular and profitable strategies that give traders an advantage in the form of a deliberate, carefully analyzed scheme of actions that bring profit.
The main advantage of all the described strategies is high profitability and minimal riskiness. It is impossible to trade cryptocurrency without risk at all, since there is always a possibility of a sudden collapse of the virtual money rate.
The best trading strategies:
- Scalping. The strategy can be called classical. It was first used on the Forex exchange and was accepted with pleasure by both amateurs and professionals. The essence of this strategy is as follows: a trader enters a large number of transactions in a short period of time, and then closes them after a few minutes (in some cases seconds). The tactic is very simple, but it is not recommended to invest too much in scalping, because the crypt can collapse and thereby introduce a trader into losses. It is best to scalp currencies of the second or even third tier, as they can rise by several percent in a few minutes, thus bringing very good profits in the short term.
- Arbitration. An even simpler trading scheme on crypto exchanges. The meaning is this: You buy a digital asset on one exchange at a low price and sell it on another at a higher price. This is a very simple and profitable strategy that requires only regular monitoring of exchange rates. But, when calculating possible earnings, you need to take into account the commission that this or that exchange takes. If the difference in the exchange rates of one currency on the exchanges is 2% or more, then it is profitable to sell it. If the exchange rate difference is less than 2%, then the profit will be minimal or not at all due to the commission.
- Static arbitrage. Similar to the previous strategy, the type of trading crypto assets on the exchange. It has a slightly more complex scheme, but is also designed for the short term. Technically, the strategy looks like this. First, one coin (x) is exchanged for another coin (y) and withdrawn from the exchange. Then, on another exchange, virtual money (y) is exchanged for coins (x) and sold for fiat currency.
- Formation of a crypto portfolio. A complex cryptocurrency trading strategy, entirely based on an assessment of the analysis of the state of affairs in the cryptocurrency market. It is necessary not only to monitor the situation on the crypto market, capitalization of currencies and announcements of new ICOs. It is necessary to monitor the macroeconomic situation in the world and keep track of news related to virtual money.
- Bought and keep. If the two previous strategies are effective in the short term, then this is, on the contrary, calculated for months (or years). The essence of this strategy is extremely simple. You simply buy the chosen crypto, and keep it in your wallet until it rises indecently in price. In order to fit this strategy, you need to carefully study the currency market and have nerves of steel. The fact is that any cryptocurrency in the long run gives a price adjustment, and this leads to rate drawdowns. At this time, there is a strong craving to get rid of the crypt and get your money back. To prevent this from happening, you need to set a certain price for yourself. After the rate of the crypt reaches this value, it must be sold.
This is only a small part of the cryptocurrency trading strategy or the directions in which you should move when creating your tactics, your trading strategy.
Creating cryptocurrency trading strategy
Every trader at the beginning of his journey faces one important question: how to start trading profitably? Opening a deal after a deal, many noticed that it was quite difficult to stay “in profit” for a long time. Sometimes this turns out to be impossible.
Many traders after a month, six months or even a year of work happily declare that they have not lost anything in the financial market. Of course, this can also be called an achievement. However, without losing anything, they could not gain anything, that is, start trading profitably.
The main mistake of most beginners is that they trade at random for a long time. For example, after reading materials related to technical analysis indicators, they begin to randomly install their various auxiliary tools in their trading terminals.
As a result, a trader, without even understanding the essence of this or that indicator, begins to open deals on them. At best, its result will be the preservation of the original deposit. At worst, his loss.
And only after some time, the novice currency speculator will come to the conclusion that his trading lacks a system.
When creating a trading system, first of all, decide on the answers to the following questions:
- What time frame are you going to use for trading.
- What strategy will it be – trend, channel or other.
- What aids are you going to use - technical indicators, charting tools, candlestick patterns.
- How your chosen indicators and other aids will work in combination.
- What factors can influence the results of your trading.
It is with these points in mind that you need to build a trading strategy.