Exploring The Most Common Cryptocurrency Trading Strategies

Developing the right trading strategy for cryptocurrencies is a challenging process. Many different factors need to be taken into consideration at all times. Even then, it all comes down to what one wants to achieve with this concept. 

Different Cryptocurrency Trading Strategies

Traders come in different shapes and have unique requirements to dabble in cryptocurrencies. Although everyone wants to make money in the end, achieving that goal is not necessarily straightforward. Some traders like to trade frequently, whereas others prefer a hands-off approach. Either of these options is valid, but the cryptocurrency trading strategies will differ significantly.

High-frequency Trading Requires Aggression

Cryptocurrencies are very volatile assets by default. Taking Bitcoin as an example, it is not odd to see price swings of several hundred dollars at a time. In some cases, the price can differ by more than $1,000 in a matter of hours. Such volatility is part of what makes Bitcoin appealing to speculators and high-frequency traders. 

As a high-frequency trader – or day trader – people commit to exchanging between Bitcoin and other assets at least twice per day. This type of trading requires placing buy and sell orders multiple times a day to gather quick profits. It is one of the more aggressive cryptocurrency trading strategies, but one that can yield decent returns. That said, it also introduces a lot of risks and demands a very aggressive mindset. 

As the cryptocurrency markets are open 24/7/365, day trading is a viable strategy. Entering and exiting different market positions throughout the day can be akin to a full-time job. Those who want to make a lot of money quickly – assuming they have the necessary market knowledge and paper trading experience – high-frequency trading is undoubtedly an option to explore. 

Scalping Is An Option

Many people are inclined to think day trading and scalping are the same, They share similarities, as both require traders to enter and exit multiple positions throughout the day. However, scalping is all about pocketing a small profit quickly and moving on. Exploring these small market shifts repeatedly is tiresome, but also one of the oldest cryptocurrency trading strategies that will work for most people. 

Scalping does not require traders to stock to one market or hold their position for too long. It is relatively easy to cherry-pick a market, scalp a small profit, and move to something else entirely. As there are thousands of cryptocurrencies to trade, traders have a lot of options to choose from. Not all markets lend themselves well to scalping either, as some assets have far less liquidity. 

For newcomers, this is not one of the cryptocurrency trading strategies to experiment with. Scalping requires vast industry knowledge and is often only successful after years of trading through other means. Traders cannot underestimate this trading method’s complexity, even though it is one of the most successful options. 

Swing Trading Requires Some Patience

The third popular cryptocurrency trading strategy that requires frequent trading is swing trading. It requires more patience than scalping or even high-frequency trading, yet users will often stick to their position for a week or less. This method is far easier to get into, but the timing at which one places bids and orders is critical.

This strategy’s main objective is to take full advantage of increases in volatility affecting a specific market. By charting the market trend – through technical analysis and various indicators-  it can often be straightforward to figure out when the momentum may change again. As traders can take days, if not weeks, to play out in full, it is relatively easy to keep track of their positions. 

For newcomers, swing trading can be a viable option. Exploring different cryptocurrency trading strategies always carries certain risks. With swing trading, there is a chance the market will head in the opposite direction for no reason. This can force traders to maintain their position for longer, reducing potential profit. 

Range Trading With Candlesticks

The final relatively common trading strategy is range trading. As the name suggests, it is not a complicated route to follow. It requires users to analyze Bitcoin’s current support and resistance levels and place positions within this range. Using this method is best done through a candlestick chart, as it makes it easier to determine these two crucial levels.

Ideally, one wants to buy the currency at the support level – or close to it – and try to sell it for as much money as possible. It can take days, if not weeks, for a range trade to play out in full. One aspect to watch out for is when the price breaks through the support level and keeps trending down. Setting a limit order may prove advisable when exploring this method. 

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