The 5 Crypto Trading Strategies That Every Trader Needs To Know

June 28, 2023

Crypto Trading Strategies

Amidst stricter regulatory restrictions, better media glare, and renewed interest, many cryptocurrencies keep entering the market making crypto strategies a must-have. Cryptocurrency trading is a financial market that involves the purchase and sale of digital assets to make a profit. The main allure of cryptocurrency is its decentralized nature which makes governmental control difficult.

Notwithstanding the lack of state control, the market is still affected by external factors such as demand and supply, media, and major financial events. Because these factors have the potential of pulling the market in different directions abruptly, crypto trading strategies help to better navigate volatility and assist in diversifying your portfolio to cushion the effects of the turbulent market.

Here Are Five Prime Crypto Trading Strategies:

Crypto Trading Ideas

In this article, we have provided five crypto trading strategies you must know as a trader and they are explained below.

1. Moving average crossovers

For you to trade moving average crossover, you need a basic understanding of moving averages (MA). The moving average is an indicator that depicts the average market’s closing price over a determined period. It essentially helps distinguish the current market momentum from mere “noise”. For moving averages, there is a single trend line that runs along the charts which shows the random spikes and the support and resistance level per time.

Moving averages are incorporated into cryptocurrency strategy by the use of crossovers. A price crossover indicates when the price of a given asset crosses above or below the MA, signaling a change in the market trend. Hence, in going long or short in a trade, you need to wait for a price crossover. You can also apply two MAs into a chart one on a short term and the other on a long term basis.

2. DCA (Dollar Cost Averaging)

If you’re someone who prefers a strategy that does not involve indicators, then DCA is the best for you. It is an exciting strategy accepted and employed by beginners and experts alike.

DCA is a crypto trading strategy that inculcates risk management whereby you divide your investments into smaller amounts instead of investing all your fund into an asset all at once. It involves you spreading the divided amounts over a specific timeline. You also have to choose a day and time and invest said predetermined amount on the chosen day of the week and a specific time.

For example, if you plan to invest a certain amount over six months, you have to divide the amount by the number of weeks you have in six months. If your chosen day is Tuesday and by 2:00 am, you need to invest the divided sum every Tuesday by 2:00 am without fail for the next six months. This strategy helps you overcome market volatility.

3. Event-driven trading

Since cryptocurrencies now have a heavy media presence, events covered in the media can affect the market thus giving you an edge if you study the events closely. This is a popular and effective strategy for those new to trading.

You must note that news coverage of current events does not influence only crypto but also affects other instruments such as forex pairs, commodities, and stock indices. The key to this strategy is that whenever there is positive news announced, you need to go long by buying the cryptocurrency and go short when it’s negative news.

4. Scalping

Scalping is a strategy popular among day traders and it involves choosing entry and exit points multiple times in a short period. It is a short-term strategy that allows you to hold a trade for a few seconds or minutes per time. Hence, when you enter the trade, you wait till the trade becomes profitable and exit as soon as possible. Scalping is most effective in volatile markets.

5. Arbitrage

Arbitrage involves making a purchase of crypto in a market and selling it in another market for a higher price. We refer to the difference in the price of purchase and sales as the “spread”. Since crypto is largely unregulated, you can easily create an exchange. So, to use arbitrage, you have to determine an exchange platform that allows purchase for a lesser price and another exchange platform where sales of the same cryptocurrency are higher. The difference in the exchange rate can be due to different factors including geographical factors.

For arbitrage, take the fees of the exchange platform into account as they can cause your gains from the spread to reduce exponentially.

Final thoughts

Trading strategies are a big deal in the crypto market and will assist you in making profits in the otherwise volatile environment. Take note that there is no best strategy out there; the best strategy is the one that works perfectly for you and assists you in making tremendous profit. Trading strategies are essential in every financial market. You can learn and apply these crypto trading techniques on and make profits.

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Arnab dey

Arnab is a professional blogger, having an enormous interest in writing blogs and other jones of calligraphies. In terms of his professional commitments, He carries out sharing sentient blogs by maintaining top-to-toe SEO aspects. Follow more of his contributions at Finance Team

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Emily Johnson

3 July, 2024

This was a very insightful read. Thanks for sharing your expertise!