Cryptocurrency trading has become a career for many traders. Financial institutions, including digital assets in their portfolios, have intensified. Although the market is too volatile, for traders, the sudden difference helps them make great returns.
However, those who have little or few ideas about the market, or are unaware of what is happening in the ecosystem, would speculate on the prices in the market. But they must understand that the digital ecosystem brings immense opportunities to make a fortune.
If someone is looking to start crypto trading, then there are a few things people need to consider before stepping into the market.
Most significantly, traders should always know their risk appetite, and simultaneously they should choose a strategy. Strategies are the base of any trade that helps to generate profits. Traders should know different strategies and always stay stuck to them.
Is cryptocurrency trading beneficial?
Similar to trading in the traditional financial market, digital assets are fraught with risks and pitfalls. But those who are already involved in the market claim that with high risk, the market gives more opportunities to make a fortune.
Trading cryptocurrency brings a lot of opportunities. The volatility in the market that forces many to speculate can give the traders an immense profit. However, there is no doubt that the market associates assets with high risks, like a sudden downward price trend leading to loss. Still, if any trader calls for the right strategy, then they can make some notable gains.
On the other hand, the digital ecosystem does not sleep. Being a decentralized market and not physically operating from a single location, the market is open 24/7. No involvement of mediators of financial institutions is one of the prominent advantages that the industry brings. This is disrupting the need for intermediaries and has lowered transaction costs.
Strategies are significant to survive in the market
To garner long-term benefits from the cryptocurrency market, traders must develop strategies that would safeguard their trades. Let us explore some of the popular strategies in the digital assets industry that helped many to generate looming gains. If you also want to start in the market and get favorable returns, you are right.
Cryptocurrency Day Trading
Cryptocurrency day trading involves buying a crypto asset in the market and selling the same asset on the same day within the crypto trading hours. It is something similar to intraday trading that we do in the equity or traditional market. This is because the trades typically begin and close within the same day.
However, many are concerned about whether we can day trade in such a volatile market. Notably, day trading is the best option in such a volatile market. It is like playing with the volatility of the virtual asset of your choice over the same day.
The entire point of day trading is generating notable gains from even the filthiest market movements. The most famous crypto volatility is making day trades pretty rewarding for traders. However, a trader will need to devise what is happening in the market, so it is a bit of a time-consuming strategy.
Suitable mainly for advanced or veteran traders.
Scalping is a trading strategy that uses trading volumes to book profit. Using this strategy, traders exploit the inefficiencies, and the strategy itself entails increasing trading volumes to make a profit. This exploitation is done by scrutinizing the past trends and volume levels before determining to buy or sell within a day.
Despite the risks in the market, a savvy cryptocurrency trader pays attention to the required margin and other crucial rules. Being attentive would avoid having a terrible trading experience. Significantly, high liquid markets are more comprehensive for scalpers as they are predictable for traders, and it is easy to determine when to buy and sell the market.
Scalping is mainly suitable for crypto whales or large traders who are trading large positions.
Cryptocurrency Range Trading
Range trading is opted by traders trading cryptocurrency for a short period. This strategy is an active approach where the buyers or sellers determine a price range to enter or exit the market over a short period of time.
Mostly, traders rely on experienced analysts who share support and resistance levels as per their studies. Here 'Support' is a level that would hold a cryptocurrency price from further fall. And 'Resistance' is the price level where the current price could surge to hit before further fall. Indeed, following the experienced analysts' predictions, most traders buy the cryptocurrency above the support level and sell the assets as the resistance level is hit.
Dollar-Cost Averaging (DCA)
Dollar-Cost Averaging (DCA) is one of the most preferred trading strategies in this volatile cryptocurrency market. Most veteran traders, institutions, and individual investors are using these strategies to make considerable gains. Using this strategy, traders invest their funds in different time intervals and price points rather than investing all the funds at once.
Differences between the acquisition with small extension help traders to profit from market improvement without putting their hard-earned funds under market risks. Using DCA, traders buy both the rise and fall of the market. Furthermore, the strategy smooths out the positions to invest in preferred cryptocurrency over time. Moreover, it safeguards our funds from extreme highs and lows.
This strategy is mainly for investors looking at the longer timeframe. Indeed, DCA is a long-term strategy, and we have to pay more fees.
Cryptocurrency High-frequency Trading (HFT)
High-Frequency Trading (HFT) is algorithmic trading. This strategy entails the creation of trading bots that aid in the peaceful buy and sell of a cryptocurrency. The design of such trading bots integrates the comprehension of complex market principles. These principles include a solid base of mathematics and computer science. Hence, making such bots is more suitable for experienced traders and not for freshers in the market.
Notably, the set algorithms could react to a market condition, resulting in expanding the trader's bid-ask spreads during volatile markets or temporarily halting trading.
This strategy is mainly suitable for quant traders.
Cryptocurrency Arbitrage trading
Arbitrage is a strategy under which a trader enters one market and sells in the other. Using this strategy, the traders profit from the difference between the buy and sell price, which is also known as "spreads". Arbitrage traders rely on opportunities to earn through the differences in prices on different platforms.
Because of the difference in liquidity and trading volume on different trading hubs, there is a difference in the price of assets in different platforms. To make a profit from these differences, traders create accounts on different platforms and keep an eye on the difference.
However, arbitrage trading becomes way risky because the traders need to pay deposits, withdrawals, and trading fees twice. First, these fees are reducing the take-home profits. Secondly, capitalizing on the opportunity will vanish if the price changes when the trader is transferring the funds.
This strategy can be opted for by anyone, but the stakes are too high.
Cryptocurrency Index Investing
A cryptocurrency index fund is a financial instrument that holds a portfolio of assets and is derived from a pool of funds committed by the investors. Index Investing is an indirect investment in the crypto industry. Here the traders do not pour their funds directly into any project. Rather, they invest in exchange-traded funds (ETF) and crypto-based indices.
Notably, these indirect investors are also given a seat to vote on governance recommendations for the underlying protocols without leaving them. As the fund replicates its underlying benchmark, it does not require a large team of analysts to assist the funds in selecting the investment opportunities.
Index Investing is much more riskier than investing in government bonds or fiat.
Cryptocurrency Trend Trading is also known as Position trading, where usually the traders enter into short positions when they anticipate downward signals. Using this strategy, the entry is for a longer timeframe if there are chances for the asset to grow more over the period. Hence, the traders invest for the long term after foreseeing an uptrend in the market.
Traders just need to consider the trend reversals using indicators like moving average convergence divergence and other oscillators. Consideration of these signals helps to enhance the success of the investment strategy.
This strategy is mainly for beginners.
Conclusion on cryptocurrency trading
The volatility of cryptocurrency is something that has attracted many. Some speculate, and some see it as an opportunity to make notable gains. As we can witness that the ecosystem is yet in its infancy, trading is mostly skeptical for many. But still, many have set an example by making millions and billions of dollars through trading in this volatile market.
It is comprehending that there is no best or worst way to trade cryptocurrency. Moreover, no best platform would help us make profits. The only thing that helps us make great gains is the financial or investment objective that we set.
If you are looking to start trading crypto assets, then first familiarize yourself with what is happening in the digital ecosystem, and learn about projects. Amid this, watch your risk appetite, choose the best suitable strategy for yourself from the abovementioned strategies, and always stick to it.
Another noteworthy factor is that they never follow the hype in the market. Relying on what is going on on social platforms is something that every new investor mistakes.
Investment decisions should never be based on the hype being created on social platforms.