You will encounter several popular crypto trading strategies when you start trading in the crypto market. Each trading strategy differs from the other, and it’s up to you to determine the best trading strategy for beating the market. In this article, we will discuss some of the most helpful crypto trading strategies to point you in the right direction to build your trading plan, test new trading approaches, or even modify your previous trading strategy.
You can also look at the Ultimate cryptocurrency investment strategy, which can help you explore different crypto assets and get into the daily habits of a trader.
Four Common Crypto Trading Strategies
Scalping Trading Strategy
The scalping trading strategy buys and sells very short-term trades with small price shifts and is a popular way to take advantage of a periodic run-up on a crypto asset. It aims to scalp on small moves that frequently occur, with measured transaction volumes.
This trading strategy has a disciplined exit strategy as a significant loss can discharge many other profits that have grown slowly and steadily, and traders using this strategy look for relatively liquid markets to boost the frequency of their trades.
A scalping trading strategy attracts traders because it exposes them to more trivial risks and offers more significant trading timeliness. They can fight greed since they target minimal returns.
Benefits of Scalping Trading Strategy:
- Most scalp trades only last for a few minutes, suggesting no overnight positions risk involved.
- As scalpers have to trade for a short timeframe, this trading strategy is suitable as a hobby.
- Traders do not need to know much about the assets, and it is ideal for people who want to trade flexibly.
- One can use this strategy efficiently if the market goes up or down, as minimal market risk is involved.
- You can comfortably automate the trading scheme that is being practised.
Range Trading Strategy
Range trading strategy is the most common crypto trading strategy, identifying a range for the crypto trader to buy and sell quickly. For instance, a crypto asset is trading at $270, and you believe it will rise to $390; trading in a range between $270 and $390 over the next few hours can be beneficial.
It pinpoints stable low and high prices on the candlestick chart as support and resistance levels, where the ideal time to buy a crypto asset is at the bottom(support), and selling it is at the top(resistance).
You can place a start-loss point just above the resistance and support trend lines to avoid losses from high-volume breakouts by assuming the prices that tend to move within a specific range.
Benefits of Range Trading Strategy:
- Minimises losses with the help of its clearly defined entry and exit points.
- You can take advantage of its normal range where markets are trending.
- It is easy to invest and place stop losses once the range is determined.
- It is a flexible approach as range trading chases smaller profits across a shorter timescale.
- You are not limited to specific hours, as one can apply this trading strategy to any exchange.
Arbitrage Trading Strategy
This trading strategy involves buying a crypto asset on one exchange and promptly selling it on another exchange for a higher price.
In arbitrage, a trader needs to spot the difference in the pricing of a crypto asset across two or more exchanges and implement a series of transactions to take advantage of the difference.
For instance, suppose the price of Ethereum is $4000 on the Coinbase cryptocurrency exchange and $4200 on Kraken. In such situations, a crypto trader might spot the difference in the rates and buy Ethereum on Coinbase and sell it on Kraken to earn a $200 profit.
Benefits of Arbitrage Trading Strategy
- Traders can earn more by finding higher price spreads for the same crypto-asset among less-popular and less-frequently invested forms of crypto.
- You can use software applications that track the hundreds of cryptocurrency exchanges in real-time and save yourself a significant amount of time and effort.
- You can alleviate the impact of high transaction fees by placing good holdings of crypto assets on multiple exchanges at once.
- It is profitable and involves little or no risks, as price varies because investor demand for an asset differs slightly on each exchange.
- It creates liquidity in the financial markets for the fair and impartial assets being valued differently by facilitating a steadiness for markets to function equitably.
Trend Trading Strategy
This trading strategy indicates that investors should buy crypto assets when their price trend goes up and sell them when the movement goes down, expecting price moments to continue.
It is intended to take advantage of an uptrend, where the value of the assets tends to make current highs, or downtrends, where the price tends to reach new lows.
In addition to looking at uptrend and downtrend, investors should closely observe other factors such as trend lines, moving averages, and technological indicators. It helps them to pinpoint the trend direction and potentially implement trade signals.
Benefits of Trend Trading Strategy:
- Trend trading is a high-profit, low-loss crypto trading strategy that traders of all experience levels can use.
- Long-term traders widely follow it because of its simplicity in identifying and trading.
- Traders can easily understand the strength or weaknesses of a particular crypto asset compared to the other exchange in the market.
- This trading approach intends to reduce human errors by focusing on technical analysis and data.
- It is less risky than day trading and allows you to focus on trends within different crypto assets and cryptocurrencies.
What’s Next in Your Crypto Trading Journey?
Now that you have discovered these four crypto trading strategies, the next step for potentially benefiting from the fintech markets is to test these strategies in real-time. You can get your hands on one or many of the techniques mentioned above. However, before engaging in these strategies, look at the top trading mistakes to avoid for crypto beginners.
Once you understand the strategy you want to use, you can visit the many Crypto Trading Bots on Mudrex to choose the one with the strategy you wish to use or create your own automated trading bot.