The Most Viable Crypto Trading Strategies

The digital currency market is now attracting more and more people who want to make money. On the one hand, the question “how to trade on cryptocurrency” is of interest to the fans of innovative tools, on the other hand – to those who have heard that this market promises high profits in a short period.

Traders working in Forex or equity markets are also starting to consider top coins to diversify their trading portfolio. In this article, we will look at how to trade on cryptocurrency, action strategies, features of asset selection and exchanges.

How and Where to Trade Cryptocurrencies

In order to start trading cryptocurrency, you need to decide exactly where to do it. Both specialized cryptocurrency exchanges and CFD contracts for the top cryptocurrencies available in Forex brokers’ trading terminals can be suitable for this purpose.

Which is better: trading through a crypto exchange or through a Forex broker? The answer depends on your goals and strategies. If you are interested in digital assets as an additional trading tool to fiat currencies, commodities and stocks in your trading portfolio, a Forex broker’s list of cryptocurrency pairs is likely to be sufficient. For speculative trading tactics without token ownership, working through a Forex broker will also work.

If you want to get the most out of cryptocurrencies and have a wide range of tools for trading, then choose a cryptocurrency exchange. In this case, before you know how to trade on a cryptocurrency exchange, you need to find a reliable trading platform.

To do this, you need to study the list of specialized exchanges and evaluate them for reliability. First, the exchange must be time-tested. Familiarize yourself with the documents, find out where the control center is located and who is on the management team. It is also important to make sure that the web address of the trading site is secure (it usually starts with ‘https’).

It is also important to make sure that the chosen cryptocurrency exchange is supported in your country. The issue of personal data security and the reliability of storing your funds should also be investigated. The top 5 cryptocurrency exchanges by trading volume in 2022 include Binance, Bybit, Huobi, StormGain and PrimeXBT. Once the decision of where to trade cryptocurrency is made, you can start choosing a strategy.

How to Trade Cryptocurrency and Make Money

Depending on your goals, amount of time to trade, amount of capital and expectations, choose a strategy from four main categories.

The first is a group of investment models based on the “buy and hold” principle. Deals in this case are opened for the medium or long term. The main thing in such strategies is to find the assets that will increase in value over time, and buy them by allocating capital. If you choose a strategy from this group, consider the costs in the form of exchange commissions.

The second group of strategies refers to the “swing” style of trading. It works exceptionally well when there is a trend in the market, in the direction of which you can open transactions, by taking into account the prevailing trend on the pullback. The period of transactions depends on how long the trend is and what timeframe is chosen for work.

The third group of cryptocurrency trading strategies includes intraday trading. Here, all trades are opened and closed within a single trading day and are not carried overnight. They are good for those traders who like to “sleep well” without worrying about Asians pushing the price with an impulse against their position at night.

Finally, scalping strategies are suitable for use on cryptocurrency assets. Deals here are usually short (just a few minutes) and made on small price movements. But owing to the fact that there are a lot of such deals, the trader has a chance to increase his profit.

Below we will look at examples of strategies that will give you a basic understanding of how to trade cryptocurrency.

Portfolio Strategy

A portfolio trading strategy is more suitable for investors rather than speculators. Its main objective is to choose the coins that are currently undervalued but may grow in the future. If you are wondering how to trade cryptocurrency on an exchange but do not intend to spend much time on the process, consider this strategy.

Its main difficulty is that fundamental analysis, on which portfolio investing is based, does not yet have clear criteria for the cryptocurrency market. It is difficult to accurately predict exactly what and how it will affect bitcoin or other digital coins. Technical analysis can help here, but conducted on higher timeframes. Buying assets on a rebound from strong support levels is one of the working strategies. In doing so, levels of nearby strong highs or lows can serve as benchmarks for price movement targets.

Arbitrage Strategy

This strategy is suitable for those who have chosen to trade on specialized cryptocurrency platforms. The essence of cryptocurrency arbitrage is to track on which exchange the value of the selected coin is the lowest and on which exchange it is the highest. The cryptocurrency is then bought at a low rate and sold at a higher rate on another exchange.

The arbitrage trader needs to constantly monitor asset rates at different exchanges to see a trade opportunity in time. In addition, this strategy has pitfalls in the form of exchange commissions. They also need to be taken into account to make sure your trading operations are worth anything in the bigger perspective. Usually for arbitrage, the difference in exchange rates should be more than 2%, then the deal will be profitable.

In order to use these strategies on cryptocurrencies, it is better to have a special trading robot with a fast and competent trading algorithm. Digital asset markets are now the most suitable for this style of trading, while arbitrage on stock and currency market instruments is usually unavailable to private traders.

Bottom Line

If you are new to the market and are just wondering how to start trading cryptocurrency, education should be your first priority. At a minimum, you’ll need the basics of technical analysis and the ability to identify strong support and resistance levels.

As part of this beginner framework, you need to:

1. Conduct a comprehensive technical analysis of the chart of the selected cryptocurrency (e.g. Bitcoin, Litecoin, Ethereum, Ripple).
2. From a monthly timeframe to an hourly or 30-minute timeframe, draw strong horizontal levels on the chart.
3. Switch to the working timeframe and monitor the price behavior when approaching the nearest levels.
4. If price approaches resistance and bounces back down from it, you may open a sell trade. If breakdown occurs, and after the level is confirmed as support (ideally) – you should buy.
5. If the price bounced up when approaching the level of support, you must buy aiming at the target located at the next nearest level.