7 Best Crypto Trading Strategies in 2024

Over the last few years, the crypto market has become more preferable to investors than the traditional stock market. The gradual shift towards crypto investments is due to the market’s decentralised nature, trading freedom, and numerous available options. 

However, cryptocurrency’s flexibility does not mean you should mindlessly invest your capital. Instead, you must learn about different crypto trading strategies for various market conditions to maintain a healthy portfolio.

Best Crypto Trading Strategy in 2024

1. Momentum Trading

Momentum trading in the crypto market begins with buying digital assets that have shown an upward trend in price and selling them when the trend reverses. It depends on the principle that an asset moving intensely in a particular direction often continues moving in that direction for a while.

Let’s consider a hypothetical scenario to understand this better:

Suppose you have been studying a particular cryptocurrency. Let’s call it ABC Crypto. Over the past few weeks, ABC Crypto has been showing a consistent upward trend. Its price has increased steadily, and the trading volume is also high, suggesting a strong investor interest.

You choose to invest in ABC Crypto, anticipating the upward trend will persist. After buying, you closely watch the price and market indicators. A few days later, you observe ABC Crypto’s price stabilizing, accompanied by declining trading volume. This indicates the upward momentum may be slowing down.

You decide to sell your ABC Crypto holdings to profit from the price increase.

Sometimes, what appears to be momentum can be a price ‘blip.’ ‘This can lead to false signals, causing traders to enter trades that don’t turn out as expected.

ALSO READ: Everything You Need To Know About Momentum Investing And Its Strategies

2. Moving Average Crossovers

A Moving Average Crossover involves two moving averages: a short-term moving average (SMA) and a long-term moving average (LMA). The SMA responds more quickly to price changes, while the LMA responds more slowly. A ‘crossover’ occurs when these two moving averages intersect.

ALSO READ: Top 10 Technical Indicators For Crypto Day Trading In 2024

Let’s take an example of this. 

Suppose you have been tracking Bitcoin’s price for a while. You draw a 7-day SMA and a 30-day LMA on a chart. At first, the SMA is positioned above the LMA, signalling a bullish market. This reflects recent prices being higher than older ones, according to the SMA and LMA.

Over time, you observe the SMA declining and eventually crossing below the LMA. This crossover indicates a possible shift from a bullish to a bearish trend, suggesting it could be a suitable moment to consider selling. Conversely, if the SMA crosses above the LMA, transitioning from bearish to bullish, it may signal a potential opportunity to buy.

Remember, while moving average crossovers can provide valuable insights, you should not use them in isolation. 

3. Arbitrage Trading 

This strategy takes advantage of the price differences between two or more cryptocurrencies. The strategy is further classified into simple, triangular, and correlated. Let’s understand each of them through an example. 

Suppose you are at a market where vendors sell apples. One vendor sells an apple for $1, while another sells the same apple for $1.10. You could buy an apple from the first vendor and sell it to the second, making a 10-cent profit. This is the basic idea behind the Arbitrage.

In the crypto market, things work similarly. Bitcoin trades at $10,000 on Exchange A and $10,100 on Exchange B. You buy Bitcoin from Exchange A and sell it on Exchange B, making a $100 profit. This is known as ‘Simple Arbitrage’.

Now, let’s introduce a third cryptocurrency, Ethereum. 

Suppose 1 Bitcoin is equivalent to 30 Ethereum on Exchange A, but 1 Bitcoin is equivalent to 31 Ethereum on Exchange B. You buy 30 Ethereum with 1 Bitcoin on Exchange A, transfer the Ethereum to Exchange B, and then trade it for 1.03 Bitcoin. This is known as ‘Triangular Arbitrage.’

Correlated Arbitrage takes this concept further. It involves tracking the price movements of multiple cryptocurrencies and executing trades when their prices diverge. For example, if Bitcoin and Ethereum usually move in the same direction, but suddenly Ethereum’s price drops while Bitcoin remains stable, you could buy Ethereum (expecting its price to rise) and sell it (expecting its price to drop).

ALSO READ: What Is Crypto Arbitrage Trading? How Does It Work? 

 4. Scalping 

The scalping strategy involves profiting from slight price changes. It requires a strict exit strategy, as one significant loss could eliminate the many small gains you have worked to earn. 

In this strategy, you place anywhere from 10 to a few hundred trades in a single day, believing that small stock price moves are easier to catch than large ones. 

Suppose you are monitoring the price of Ethereum, which is currently trading at $2,000. You notice a pattern of small but frequent price movements between $1,995 and $2,005. 

You decide to buy 5 Ethereum when the price dips to $1,995. Shortly after, the price rises to $2,005. You sell your 5 Ethereum, making a profit of $10 per Ethereum, totalling $50. This process is repeated throughout the day, taking advantage of the small price movements to accumulate profits.

Scalping success depends on technical analysis, such as candlestick charts and MACD, for execution. The key to scalping is timing. You must be able to spot market trends and fluctuations in real-time and must be able to react swiftly. However, remember that scalping is not suitable for all, as a high volume of trades requires a lot of attention and the ability to make quick decisions.

ALSO READ: Top Crypto Scalp Trading Strategies To Know About

5. Reversal Trading

As the name implies, you can use this strategy to identify resistance and support levels. 

A resistance level is a price point at which an upward trend is expected to pause due to a concentration of supply. Alternatively, the support level represents a price point where selling pressure tends to ease off, often because buyers see it as a good value and start purchasing, stabilising the price.

When the price of a cryptocurrency reaches these levels, it is likely to bounce back as a potential reversal.

Let’s take an example. Imagine Bitcoin has been falling in value for a while. You notice that the rate of decline is slowing down. Also, the lowest points are not as low as before. This might indicate a possible change in direction.

To verify this, employ RSI or MACD indicators. If these metrics suggest that Bitcoin is oversold, it adds weight to the possibility of a trend reversal.

At this stage, you purchase Bitcoin, expecting its value to increase. If the trend indeed reverses and the price rises, you can sell it later at a higher price and make a profit.

READ MORE: A Beginner’s Guide To Crypto Technical Analysis

6. Dollar Cost Averaging

Dollar Cost Averaging helps reduce the volatility impact on large purchases of digital assets. Instead of investing all your money at once, you divide the capital you want to invest into equal amounts and then make regular purchases regardless of the price. 

Dollar Cost Averaging is a simple, set-it-and-forget-it strategy that does not require constant monitoring of market conditions. You can adjust the amount and frequency of your investments to fit your budget and risk tolerance.

READ MORE: What is DCA in Cryptocurrency? 

Here is an example for better understanding.

For example, if you wish to invest $1000 in Bitcoin, instead of buying $1000 worth of Bitcoin all at once, you might buy $100 monthly for 10 months. This way, you buy more Bitcoin when prices are low and less when prices are high. This trade activity lowers the total average cost per share of the investment.

A Dollar Cost Averaging strategy can be suitable for beginners as it automates the investment process and can help reduce the risks identified with short-term price fluctuations in the crypto market.

READ MORE: How To Get Started With Crypto SIP?

7. Staking  & Yield Farming

Staking is participating in a proof-of-stake (PoS) blockchain network by holding and locking up a cryptocurrency in a wallet to support transaction validation, security, and governance. In return, participants may receive staking rewards as additional units.

Yield farming, on the other hand, is a practice common in decentralised finance (DeFi). It involves lending your cryptocurrency assets to others through smart contracts. In return, you earn fees or interest, often in the form of additional cryptocurrency. 

Yield farming is comparable to depositing money in a bank savings account and earning interest, but is done with cryptocurrencies instead. 

For example, you could lend 50 XYZ Crypto units to a DeFi platform. This platform uses smart contracts to automatically lend your ‘XYZ Crypto’ to borrowers who pay interest. The interest you earn is your ‘yield.’ Since you actively use your XYZ CryptoX to earn that yield, the process is called ‘farming.’

Things to Remember When Implementing Crypto Investment Strategy

Assess Your Goals

Before you start investing in cryptocurrencies, it’s crucial to understand your financial goals. Are you aiming for short-term gains, or are you focused on long-term investments? For instance, if trading is your primary income source, you might consider day trading with a well-defined strategy.

However, if you aim to build wealth over time for objectives like purchasing a house, concentrate on holding onto fundamentally strong crypto investments for 5-10 years.

Diversify Your Portfolio

Don’t put all your money into one investment. Diversifying your portfolio can help reduce risk. For example, allocate some of your capital to different investments or cryptocurrencies regardless of Bitcoin’s consistently high returns. If Bitcoin declines in the future because of strict government regulations or other reasons, spreading your capital ensures minimal loss.

Stay Informed

You can’t ignore market volatility when trading cryptocurrencies. The best approach is to stay informed about market trends and news. For instance, if there is news about a major e-commerce platform accepting a particular cryptocurrency as a payment method, consider investing in that crypto.

Use a Reliable Crypto Exchange

Many cryptocurrency exchange platforms are in the market, each offering something unique. For example, if you trade on Mudrex, you can benefit from features like backtesting, customisable strategies, real-time analytics, and more.

It is essential to choose a platform with a solid reputation, vital security attributes, and a broad range of cryptocurrencies.

Know Your Investment Budget

Limit your investments to the amount that you can afford to lose. For instance, if you have savings of $2,000 and $1,000 is earmarked for a medical procedure, it isn’t wise to invest the entire $2,000 and face a loss if the market turns unfavourable.

Consider the Use Case

Understanding the use case of a cryptocurrency is crucial. Know what problem the cryptocurrency aims to solve and how it is used in the real world. Increasing investment in assets with global adoption is generally a better idea.

Monitor Your Investments Regularly

Regularly monitor your investments to stay updated on market trends. Crypto tracking apps can help monitor cryptocurrency prices. Consider adjusting your strategy if a particular asset’s returns don’t align with your goals.

Avoid Market Hype

Don’t make investment decisions based solely on market hype. Research thoroughly before investing. For instance, just because a celebrity endorses a cryptocurrency doesn’t mean it’s a good investment.

Conclusion

Having a strategy is important when it comes to crypto investment. It outlines how much you can invest, which cryptocurrencies to choose, and when to buy or sell. This planning prevents impulsive decisions based on emotions, reducing the chances of losing money. 

Moreover, a strategy guides you in setting realistic goals and timelines, keeping your investments aligned with your financial objectives. 

Now that you have learned about the top 7 trading strategies, you can start your crypto journey with Mudrex today. Mudrex offers you a widre range of Cryptos to start your trading.

Frequently Asked Questions

Q. How should I manage risk in crypto investments?

To manage risk in crypto investments, spread your money across different types of cryptocurrencies and set limits on how much you invest in each. Stay informed about market changes, and don’t invest more money than you can afford to lose.

Q. What are the risks associated with crypto Trading strategies? 

Investing in cryptocurrencies comes with risks, like unpredictable price changes due to market volatility. Government rules could also change, affecting how cryptocurrencies are used. Cybersecurity threats like hacking or scams pose risks to digital assets. Plus, without a central authority, recovering lost funds can be tough. 

Q. How should I manage risk in crypto trading?

You can combine multiple crypto trading strategies to reduce risk and potentially increase returns. For example, you could hold some cryptocurrencies for the long term (HODL) while also engaging in occasional day trading or participating in yield farming. Combining strategies allows you to diversify your approach based on market conditions and financial goals.

Q. How do I store cryptocurrencies safely?

To store cryptocurrencies safely, use reputable hardware or software wallets. Hardware wallets are secure devices that store your private keys offline, protecting them from online threats. Software wallets are apps or programs installed on your computer or phone.