The unpredictable and volatile nature of cryptocurrencies makes it compulsory to have a trading strategy before trying to trade cryptos in the market. Usually, traders who adopt a trading strategy while trading crypto have better chances of making a profit than those who don’t. So if you are attempting to buy crypto and actively trade in the market, you need an effective trading strategy to make your venture profitable. To that end, let’s explore 3 effective trading strategies for crypto traders to use in 2024.
What is crypto trading?
When you hear crypto trading, see it as the process of buying and selling digital coins on a crypto exchange to make a profit from your trade. Also, it can involve speculating the price movements of cryptocurrency via a CFD trading account.
Since cryptocurrencies are volatile assets, it is not advised to attempt trading them without an effective trading strategy. As such, most crypto traders use different strategies to actively trade in the market so as to have better chances of making a profit.
Understanding crypto trading strategies
A trading strategy is simply a procedure or method specifically designed to enable a crypto trader to profit from buying and selling digital coins (cryptocurrencies). There are different kinds of trading strategies and the one you decide to use depends on your preference and goals. Also, you can even decide to implement more than one strategy during your trading process. As long as you fully understand what a trading strategy is all about and how it can help you meet your trading goals, you are good to go.
Top 3 effective trading strategies for crypto traders
Now that we’ve discussed what crypto strategy is and its usefulness, check out the top 3 effective trading strategies for crypto traders:
1. DCA (Dollar Cost Averaging)
If you need a crypto trading strategy that doesn’t involve any indicators, then you should try DCA (Dollar Cost Averaging). This popular strategy can both be used by beginners and experts to meet their trading goals.
With DCA, you don’t invest all your capital into a crypto asset at once. Rather, you divide your investment capital into smaller amounts, then spread out these amounts over a predetermined timeline, where you regularly invest it on a specific day and time of the week. Here, you must only invest on that particular day and time of the week that you’ve set out to execute your strategy.
Let’s say you decide to set aside N24,000 to invest in Ethereum and choose to use the DCA strategy for your trading. To do this, you have to divide your initial capital amount by the total number of weeks you want to implement the trading strategy.
Assuming you want to invest N24,000 in Ethereum over four months, you will have to divide the initial capital amount by 16 (the number of weeks in four months), which gives you N1,500 per week. So for the next four months, every Monday (or any other day of the week) at 1 pm, you invest N1,500 in Ethereum until you deplete your capital.
So why is the DCA strategy helpful? Buying a crypto asset in regular intervals basically helps to subdue the harsh impact of volatility. This means that you will likely get more profit from your last investment than if you had invested all your capital at once.
2. Position trading
Position trading, one of the top 3 effective trading strategies for crypto traders, is a long-term crypto trading strategy. Essentially, this strategy requires crypto traders to buy crypto assets and hold them for a long duration( could be a month, 6 months, or even more). The goal of the position trading strategy is to make gains by selling those crypto assets whenever the price moves high in the future.
A typical position trader is usually concerned with current trends and reversal of crypto asset trends. The position trader patiently endures the bear and bullish runs of his crypto asset, until he meets his target. What differentiates position trades from long-term swing trades is just the motive behind executing their crypto trades.
Currently, position trade is the easiest trading strategy, hence, it is ideal for beginners. However, it also takes a great deal of discipline to execute.
3. Scalping
Scalping is a technique that requires the crypto trader to open positions in line with a trend, frequently entering and exiting the crypto market multiple times within a short period as it develops. Here, individual trades are held for only a few seconds, or some minutes at most, so Scalping is a short-term trading strategy.
Scalping concentrates on minute-to-minute price shifts, which are propelled by quantity. So as soon as a trade becomes profitable for you, you’d exit the trade immediately. You don’t need to wait for the crypto market to depict trends since you’ll have to be very fast and close any trade that is losing money immediately. Since the crypto market is volatile, it is an excellent market to implement the scalping strategy.
Note that because of the short time frames involved in the scalping style of crypto trading, scalpers usually receive only a small percentage of profits. However, since scalping is just all about numbers, the repeated profit that may appear small serves as a considerable turnover at the final part of the trade. The scalping crypto trading strategy is perfect for active day traders.
Ultimately, if you are a new crypto trader, note that you must outline your goals, risk tolerance, and preferred trading style and use a strategy that aligns with them. Research, experiment, and find a trading strategy that will help you easily navigate through the volatile waters of the crypto market. Most importantly, ensure that you fully understand what a strategy entails and how it can help you meet your goals before implementing it.
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