Crypto Trading Strategies you need to know
“With renewed interest in cryptocurrencies amid higher regulatory glare and mainstream Media coverage, trading crypto has become more than just a tempting money-making gig.”
According to a recent news report, more than 100 million Indians hold cryptocurrencies. This number could be even higher this festive season.
However, similar to trading stocks and commodities, crypto trading comes with risks and pitfalls. In order to profit from crypto trading in the long term, market enthusiasts need to develop a strategy that makes trading fun and safe at the same time. Let’s start by going through the strategies that can help you earn favorable returns.
This trading strategy involves entering positions and exiting them on the same day. A trader’s goal when taking on such a trade is to book profits amid intraday price movements in a cryptocurrency of their choice. For successful trading, investors often rely on technical indicators to find entry and exit points for specific cryptocurrencies.
Market participants also rely on experienced analysts to provide daily support and resistance levels. “Resistance” refers to the point to which price can rise and therefore a resistance level is a price above the current price. In contrast, “support” is a level below which a crypto price should not fall, hence a support level is always below the current price.
This trading strategy involves using increased trading volume to generate profits. Although there is a risk, a smart trader takes care of the margin requirement and other important rules to avoid a bad trading experience. Scalpers analyze crypto assets, trends and past volumes, and choose an entry and exit point within the day.
High-Frequency Trading (HFT)
HFT is a kind of algorithmic trading strategy used by quant traders. This includes the development of algorithms and trading bots that help get in and out of a crypto asset quickly. Developing such bots requires an understanding of complex market concepts and strong knowledge of mathematics and computer science. Therefore, it is more suitable for advanced traders than beginners.
When it comes to finding the perfect entry and exit point in a crypto market, it is best to assume that market timing is near impossible. A pretty sane way to invest in cryptos is Dollar Cost Averaging (DCA). DCA refers to investing a fixed amount on a regular basis. This strategy helps investors avoid the cumbersome work of timing the markets and building wealth over the long term.
However, the exit strategy could be difficult even in DCA style. It requires studying the market trend and understanding the market cycle. Reading technical charts can also help you exit at an appropriate time. Crypto investors should monitor oversold and overbought regions before taking a call. You can refer to WazirX live charts to better understand the technical charts of different cryptos.
Build Balanced Portfolio
Crypto trading is still in the development phase. While several countries are welcoming crypto trading, some remain skeptical about it. Central banks around the world are working on better ways to regulate digital currencies and as such trading cryptos is often a risky proposition. However, there are strategies that can help investors stay away from extreme volatility. Building a balanced portfolio that includes different cryptocurrencies like Bitcoin, Dogecoin, and Ethereum could go a long way in combating volatility.
Besides, investors can also maintain a fixed amount of regular investments in different cryptos. This systematically increases the willingness to take risks and helps your portfolio to achieve favorable long-term returns.
Avoid making Trading Calls based on Hype
Relying on social media for news about cryptocurrencies is one of the mistakes new investors tend to make. Investment decisions should never be based on hype generated on social media. Since digital currencies are a hot topic, misinformation on the subject spreads very quickly.
One of the most important trading strategies is primary research. You don’t have to be a trading expert to primarily research the value of the asset you want to buy. This includes keeping you up to date with all the news about the crypto industry. WazirX helps you do this quickly by compiling all the messages you need to read before your day starts.
Also, you need to assess your own finances and set an investment goal before placing a bet on a volatile asset class like crypto. You can research Bitcoin, Ethereum, Tron, Ripple, Litecoin, etc. and invest on WazirX.
Arbitrage refers to the strategy where a trader buys crypto in one market and sells it in another. The difference between the buy and sell price is called the “spread”. Due to the difference in liquidity and trading volume, traders may find a way to book profits. To take advantage of this opportunity, you need to open accounts on exchanges that have a big difference in prices for the cryptocurrency you are trading on.
Betting on Bitcoin Volatility
It’s no news that crypto is among the most volatile asset classes currently traded. Recently, bitcoin prices fluctuated nearly 30% in a single session. You can bet on volatility by trading Bitcoin futures. The way to do this is to buy a call and a put option at the same time. The strike price and expiration date must also be similar. To get out when crypto prices fall or rise sharply, you need to sell the call and put option at the same time too.