Cryptocurrency is no longer a taboo subject. In fact, with many jurisdictions levying tax on gains from crypto trading, it has generated much interest among the media which in turn has increased name recognition in the common public. Consequently, trading in cryptocurrency has seen a marked uptick in recent times.
While crypto and stock trading have a lot of differences, one thing which is common is that there is risk and return tradeoffs. In order to win in this tussle between risk and return, one needs to resort to tried and tested trading strategies. These are strategies that have been used by traders and have yielded results in some form or the other.
Let us take a look at the top 5 crypto trading strategies that you should be aware of.
- Day Trading – As the name suggests, in day trading one takes a position during the day and squares off the same before the end of the day. For instance, if you make a purchase of bitcoin during the day, in intraday trading, you would be selling the same quantity before the end of the day.
However, intraday trading for crypto works a bit differently than day trading for stocks as stock markets are available for trading only during working hours whereas crypto trading can be done at any point in time. The sole intention of any day trading is to book profit but one needs to be intelligent about it.
- Scalping Trading – This trading strategy is similar to day trading described above but it involves larger sums of money. In short, it is day trading with high stakes. Since huge sums are involved, it is easy to make profits even if the price rise after purchase is comparatively marginal.
Scalping works best when combined with margin facilities available with some platforms. Rules associated with such margin facilities as well as research on trading volumes and entry and exit point of such crypto coins. Trading platforms like Bitcoin prime can help you trade with ease.
- Range Trading – When we talk about range trading, we refer to a price range between two extremes – the support price at the bottom and the resistance price at the top. The support price is the level that is below the current price but a price below which the stock should not fall during the day as per the analysis.
Resistance price is the level that is above the current price up to which the price might rise during the day as per assessment. Both these assessments are carried out by experienced traders who share their range with the public through various channels so that newbie traders can reduce their risk.
- Arbitrage Trading – Arbitrage trading refers to purchasing crypto in one market and selling it in another. This is profitable because there is always a difference in prices of assets in different markets so what an arbitrage trader does is purchase the asset in a market where it is priced lower and sell it in the market where it is priced higher, thereby making a profit.
The difference between the two prices is known as the spread. This spread arises because of two main factors which differ across markets. One is liquidity and the other is trading volumes. Prices may also differ because of information asymmetry in the markets.
- Fundamental Analysis based Trading – In this kind of trading, you need to first figure out your trading goals. Once you have done that, you should do your own research and analyze all the available cryptocurrencies in the market. There are lots of online tools which help you do exactly that.
In crypto trading, a core part of any strategy that you adopt has to be following the news about cryptocurrency in general and the coin that you are trading in particular. Something as obscure as an online blog can make or mar your investment.