As various cryptocurrencies continue to enter the market, the enthusiasm for trading this asset remains high. You can explore our list of strategies below to find the cryptocurrency trading strategy that suits you best.
When it comes to crypto trading, it's essential to understand that cryptocurrencies are traded on decentralized markets, meaning they're not issued or supported by a central authority like a government. Instead, they're run across a network of computers known as a blockchain. Because of this decentralized nature, cryptocurrencies are free from many of the political and economic concerns affecting traditional currencies.
However, this doesn't mean cryptocurrencies are free from external factors. In fact, they're unpredictable and affected by factors like supply and demand, media presence, integration of e-commerce payment systems, and key events. This makes it crucial for your cryptocurrency trading strategies to focus not only on navigating volatility but also on diversifying your portfolio. Trading a diverse range of asset classes, including cryptocurrencies, helps to mitigate risks and boost returns.
Moving Average Crossovers
To trade using moving average (MA) crossovers, you must have a good understanding of MAs and the strategies involved in crossover trading. A moving average is a technical indicator that lags behind the market, combining price points of a financial instrument over a specific time frame, dividing by the number of data points to provide a single trend line.
This single trend line helps you identify the current trend's direction while reducing the impact of random price spikes. It also allows you to analyze support and resistance levels by examining previous price movements.
To incorporate this indicator into your cryptocurrency trading strategy, one of the primary methods used is called "crossovers." A price crossover occurs when the asset's price crosses above or below the MA, indicating a possible change in trend.
A different approach is to add two moving averages to the chart: a short-term and a long-term one. If the shorter MA crosses over the longer MA, it suggests the trend is moving upwards, called a golden cross, and can be seen as a buy signal. Conversely, if the shorter MA crosses below the longer MA, it indicates the trend is moving downwards, known as a death cross.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum-based technical indicator that helps identify overbought and oversold market conditions. It is useful in detecting signals of divergence and hidden divergence in financial markets, and is often used in trend trading strategies.
The RSI is a technical indicator that measures momentum and identifies overbought or oversold market conditions, as well as signals of divergence and hidden divergence in financial markets. It's calculated as a percentage based on profitable and unprofitable price closes using the formula: RSI = 100 – (100 / [1+RS])
A lower percentage often indicates an oversold position, while a higher percentage typically reflects an overbought position.When it comes to trading cryptocurrencies using RSI, the best strategy depends on your risk tolerance and trading style. The RSI can be used to identify both short and long signals in range-bound markets. However, since markets often move in trends, using the RSI to identify trends for entry and exit can be useful for determining when to engage in trading activities.
A cryptocurrency's value can be influenced by its media presence or the media presence of a particular crypto exchange. This trading strategy focuses on using these events to your advantage. This approach is particularly popular among novice traders.
It is important to note that news coverage can affect not just cryptocurrencies, but also other assets like forex pairs, stock indices, and commodities. Many experienced traders take advantage of this influence.
In general, traders should wait for the market to show a consolidation pattern before a significant news release, such as an earnings report. Once a market breakout occurs, the trader can take action. However, due to the unpredictable and volatile nature of cryptocurrencies, it may be necessary to wait until after a news release before initiating a trade.
Scalping is a short-term trading strategy that involves opening positions in line with a trend and quickly entering and exiting the market multiple times as it develops. Trades are typically held for only a few seconds to a few minutes, making it one of the most short-term strategies.
This approach is well-suited to active day traders who focus on minute-to-minute price changes, which are often driven by quantity. When a trade becomes profitable, it is quickly closed to lock in gains. There's no waiting for the market to establish trends, as trades must be executed swiftly, and any losing trades closed immediately. The more volatile the market, the more effective scalping can be.
DCA (Dollar Cost Averaging)
If you're seeking a cryptocurrency trading strategy that doesn't rely on indicators, dollar-cost averaging (DCA) could be worth considering. DCA is a well-liked approach among both novice and seasoned traders.
Rather than investing all of your money into a single asset at once, you spread your investments into smaller sums. These sums are then distributed over a prearranged time frame and invested regularly on a specific day and time of the week.
To apply the cryptocurrency trading strategies discussed, follow these steps:
Open an account or log in to your existing account on a cryptocurrency trading platform.
Learn how the cryptocurrency market works and choose a coin to focus on. Remember the importance of diversifying your crypto portfolio.
Build a trading plan based on the strategies discussed, selecting one that aligns with your personality and risk tolerance.
Choose a reliable cryptocurrency trading platform with around-the-clock support, such as our award-winning* and cutting-edge platform.
Open, monitor, and close your first position. Alternatively, you can practice your cryptocurrency trading strategies with virtual funds by opening a demo account.