If there’s a secret behind the story of successful traders, it’s the strategy. This is generally about how and when you trade the assets to generate profits. You have to be clever in choosing which cryptocurrency to hold based on market trends and then decide when is the right time to trade it.
That sounds like a simple thing but think again. There are millions of crypto traders worldwide, yet very few of these people have ever become millionaires. Granting all of them know the formula to success, then why is it that not everyone earned the same results? That’s where the mystery lies.
Strategies that each trader employs are not the same. They may have similar ends in mind, but they are different in approach and execution. It seems as well that luck is an element that can’t be removed in an industry that’s known to be highly speculative. But that doesn’t mean that the trading platform works like a casino.
Essentially, when you conduct trades with other crypto users, you are both thinking the same way: the asset you buy would appreciate over time and give you some dividends. In this case, there are indicators that you can consider to make a favourable decision. Still, the risks are present, and the best way to deal with them is to have a set of effective strategies, which are discussed below.
Why are Trading Strategies Important?
A systematic methodology employed by traders when buying and selling their assets is what constitutes a trading strategy. This is generally based on predefined rules and criteria to come up with trading decisions. Depending on the market, it can be simple and complex in nature. There are certain considerations in the process, however. Among the most common include the market cap, risk tolerance, holding period, and tax implications.
Traders can devise a trading strategy using objective data and analysis. This tool needs to be re-evaluated and modified according to the evolving trends and goals. Most of these strategies, so far, are based on technicals and fundamentals that consider quantifiable information that can be backtested to determine accuracy. It is deemed critical in the context of cryptocurrency because the market is becoming more competitive than ever.
How to Develop Sound Trading Strategies
There are various types of trading strategies, but they are commonly based on either technical or fundamental aspects. Quantifiable information is used in creating them to ensure accuracy. However, in the case of technical trading strategies, technical indicators are considered to generate trading signals. The proponents believe that all information about given security is contained in the asset price and that it moves in trends.
On the other hand, fundamental trading strategies focus on fundamental factors. For instance, investors may have to use screening criteria to generate more opportunities. These criteria are usually developed by analyzing such factors as revenue growth and profitability.
In recent years, a new trading strategy has gained prominence, called quantitative trading strategy, that is somewhat similar to technical trading. It employs data from the stock to make a purchase or sale decision. The mix of factors considered in the process is considerably larger compared to technical analysis. There are also several data points that a quantitative trader needs, including regression analysis and price, to determine inefficiencies in the market and conduct quick trades.
Effective Trading Strategies in the Crypto Market
Whether you admit it or not, you’ll likely find cryptocurrency trading more challenging than it seems. And since it involves some portion of your wealth, there’s nothing to be taken for granted. You need to find a trusted platform like bitcoin revolution and learn the basics of the industry, and that includes the following strategies.
- Technical Analysis
This strategy involves analyzing mathematical indicators and chart patterns to predict which direction prices will move next. There are some technical indicators that are generated using a computer program, while others should be identified by the trader through examination of relevant charts.
- Range Trading
Under this approach, the trader assumes the prices to move within a certain range. This presumption is founded on the examination of candlestick charts, support, and resistance levels. Those traders employing this strategy might buy assets when the prices reach a support level and sell them when it hits resistance level.
- News and Sentiment Analysis
One of the most popular trading strategies among crypto traders today is analyzing news and market sentiment. There are headlines that trigger prices to move quickly and can affect the assets of investors. However, traders should be particular about some websites attempting to manipulate market sentiments to mislead consumers. You need to make sure that your source is accurate and reliable.
- Bot Trading
Also called high-frequency trading, it involves the use of algorithms and trading bots that can be programmed to perform large volumes of trades in a quick manner. Traders need advanced knowledge in programming to execute this method. Also, it’s important to understand that trading bots generally come up with a specific strategy, develop a program to execute it, employ constant monitoring, backtesting, and updating of the algorithms to keep up with the changing market trends.
Some traders want to profit from minimal price movements over a short period of time. This strategy is also called scalping, wherein traders take advantage of tiny price changes. Scalpers would usually trade using leverage like future contracts to increase their gains. However, in the process, this might also amplify the potential losses. Traders who choose this strategy should be careful about managing the risks involved.
Trading strategies are used to avoid behavioural finance biases and acquire desired results. However, profitable ones may be hard to develop, and there is a risk of becoming over-reliant on a particular method. It is not unusual among crypto traders, and some of them may have false confidence in a particular scenario.
Some strategies may also work well in theory, but their past performance may not guarantee future success in present market conditions. If one day you get into this business, make sure you understand the whole process. Likewise, never downplay the fact that cryptocurrency trading is highly risky, and not all given strategies may work in your favour under all circumstances.