Just like trading in commodities and equities, the crypto trading market is riddled with high risks and pitfalls. Hence, if you want to trade crypto and get long-term benefits from it, you have to develop unique strategies that can make the market relatively safe for you. Let’s get you started by going through the safe crypto trading strategies for every crypto investor. Essentially, these strategies will help you potentially get favourable crypto market returns over the long term.
What is crypto trading?
Cryptocurrency trading generally involves the buying and selling of digital assets to make a gain. Unlike traditional currencies that we all know, cryptocurrencies are decentralized. This means that they are not regulated by any financial institution or government
There are some trading strategies that allow you to speculate on the price movements of cryptocurrencies. These strategies primarily help to increase your chances of getting returns.
Top 11 Safe crypto trading strategies for every crypto investor
Cryptocurrencies are extremely volatile and unpredictable, therefore, it’s important that you have a strategy before entering the market. Here is a list of some safe crypto trading strategies:
1. Moving average crossovers
Trading using this strategy requires you to have an understanding of Moving averages (MAs) and crossover trading. So let’s dive into what you need to know.
A moving average is simply a lagging technical indicator that combines the price points of a financial tool over a specified timeline, divided by the total number of data points to provide you with a single trend line.
Essentially, this single trend line enables you to define the direction of the current market trend, while reducing the influence of random price spikes. Also, it enables you to analyze the levels of resistance and support by analysing past price movements.
So, to incorporate this indicator as a cryptocurrency strategy, you can use the ‘crossovers’ method. Essentially, a price crossover, also called a crossover, is when the total price of the asset crosses below or above a MA to signal investors of a potential change in the current trend.
To trade a MA crossover in crypto markets, you’ll have to hold off until the price crossover before you can go long or short on the token – by making use of a proper financial instrument like CFDs.
Another strategy you can apply to the MA is to simply apply two moving averages to one chart: one short-term and the other, long-term. Basically, when the shorter MA you use crosses above the longer MA, it shows that the current trend is rising upwards. This occurrence is called a golden cross, which can be regarded as a buy signal. On the other hand, when the shorter MA crosses directly below the longer MA, it indicates that the trend is slowly shifting down. This occurrence is known as a death cross.
Something to catch your fancy – How to make money with crypto on Bitmama
2. Event-driven trading
A powerful media presence of a precise digital coin or any crypto exchange can greatly influence cryptocurrency markets. Essentially, this kind of cryptocurrency trading strategy concentrates solely on taking the edge of these kinds of ‘events’. It’s a very popular trading strategy for people new to crypto trading.
News coverage of different current events can affect the prices of numerous things in the market and not only cryptocurrencies. Since this influence is not just speculation, many experienced traders are likely to take advantage of it.
The bottom line of this strategy is to purchase your chosen cryptocurrency whenever positive news is announced in the media. On the flip side, you will shorten it when the media announces something negative.
3. Relative strength index (RSI)
The relative strength index (RSI) trading is simply a technical indicator, which can be used to recognize momentum, overbought and even oversold market conditions. Also, the RSI can be used to emphasize signals of divergence and even hidden divergence observed in the financial markets. This kind of trading is also called trend trading.
The RSI is basically an estimation of the profitable price closes proximate to unprofitable price closes. It is usually reflected as a percentage. Here is the formula for finding the RSI:
RSI = 100 – (100 / [1+RS])
The indicator is characterized as a percentage out of 100. A lower percentage generally indicates an oversold position while a higher percentage reflects an overbought position.
So, what is considered the best crypto technique for trading RSI? Well, this primarily depends on your level of risk appetite and general trading style. Nevertheless, you can use RSI to trade both short and long signals since the market price is range bound in nature.
As crypto markets regularly shift in trends, using an RSI indicator to highlight different trends for entry and trends for exit will let you know when to engage.
4. DCA (Dollar Cost Averaging)
If you prefer to use a crypto trading strategy that doesn’t need indicators, then you should try the dollar cost averaging (DCA) strategy. DCA is a very popular strategy for both beginner and expert crypto traders.
Rather than investing all your funds into a specific token at once, you simply divide your investments into lesser amounts. These smaller amounts will then be spread out over an already predetermined timeline and are periodically invested on a specific time and day of the week. Note that you must only invest on that particular day and time you choose.
In practical terms, let’s assume you decide to invest in Bitcoin using the DCA strategy and aside $30,000 for this purpose. You have to divide your funds by the total number of weeks you want to run your strategy.
For instance, if you want to invest your $30,000 over five months. You have to divide this amount by 20 (the total number of weeks in five months) and this gives you $1,500 per week. Thereafter, for the next five months, every Monday at 1 pm you invest your $1,500 into Bitcoin until you deplete your initial amount ($30,000).
Why is this effective? Purchasing an asset at regular intervals helps to ease the impact of the crypto market volatility. Essentially, this means that you’ll naturally receive more of the token from your final investment than if you had just invested all your capital at once.
5. Scalping
Scalping is the technique of opening different positions in line with a particular trend, often entering and exiting the crypto market numerous times in a short span as it develops. Essentially, in this strategy, crypto traders strive to profit from short-term market trends. This technique involves entering and exiting different trades within minutes, or even seconds, seeking to capitalise on slight fluctuations in price.
Note that scalping can be very risky if you’re putting multiple trades on an extremely short-term basis. So it is crucial to manage your risk very carefully.
6. Day trading
Similar to scalping, this crypto trading strategy involves taking your positions and exiting from them on the same day. The aim of the trader who adopts this kind of trade is to book profits amid intraday price shifts in a digital token of his choice. For a very successful trade, investors generally depend on technical indicators to determine entry and exit points for specific crypto.
Although day trading and scalping are done short term the major difference between them is the duration. While a scalping trader holds crypto for less than 5 minutes and can generally maintain a deal for just 2 minutes, day traders can hold trades for several hours.
7. High-frequency trading (HFT)
HFT is a type of algorithmic trading technique that is used by quant traders. Essentially, it involves formulating algorithms and trading bots that can help you quickly enter and exit a specific crypto asset. Developing these kinds of bots needs knowledge of complex market ideas and a robust understanding of mathematics and even computer science. Hence, the HFT trading strategy is more appropriate for advanced traders than novices.
8. Range trading
Market players also depend on experienced analysts, who provide support and resistance levels every day. ‘Resistance’ is the point up to which the crypto price may rise (bear market) and accordingly, a resistance level is regarded as a price above the existing price. In disparity, the ‘Support’ is a level below, in which a crypto price is not supposed to drop, therefore, a support level is constantly below the existing price.
9. Build a balanced portfolio
Crypto trading is still unstable and evolving. Although several countries accept trading in cryptos, some countries are still uncertain about it. Most central banks across the world are working on reasonable ways to control digital currencies and hence, trading in cryptos is often a very risky affair. Nevertheless, building a balanced portfolio is one strategy that can help you steer clear of drastic volatility when you buy and hold crypto.
Essentially, your portfolio should include a variety of solid cryptocurrencies, such as Dogecoin, Bitcoin, and Ethereum, as could go a long way in winning against volatility. Also, you can maintain a static amount of regular investments in the different cryptos you own. This will help to increase the risk appetite in a very systematic way and will allow your crypto portfolio to generate favorable returns over the long term.
10. Betting on Bitcoin Volatility
In the last few years, Bitcoin prices had fluctuated by almost 30% in just a single session. You can simply bet on volatility by trading in different Bitcoin futures. The way to do this is by purchasing a call and putting an option at the same time. The strike price must also be similar to the expiration date. To exit, when general crypto prices fall or increase vigorously, you have to sell the call and put an option at once too.
11. Arbitrage
Arbitrage involves buying crypto in one market and selling it in another market. Essentially, the difference between the buy and sell price is called the ‘spread’. Owing to the disparity in liquidity and general trading volume, crypto traders can encounter a chance to book profit. To use this opportunity, you must open accounts on crypto exchanges that indicate a large difference between the different prices for the crypto tokens that you are trading.
How to apply strategies in your crypto trading
Now that you know the safe crypto trading strategies for every crypto investor, how can you apply them? Well, we’ve created a guide to teach you how to place your first crypto trade. Check it out below:
- Open a crypto account with any reputable platform or log into your already existing account. When you do this, you’ll be able to access the crypto market via the platform
- Understand how the cryptocurrency market operates and select a digital coin to focus on. Since there are so many options, it is important to diversify your crypto portfolio
- Build a solid trading plan from the list of strategies provided above. Choose the strategy that aligns with your risk appetite and personality.
- Practice your cryptocurrency trading strategies using virtual funds.
In this article, we’ve provided safe crypto trading strategies for every crypto investor. However, one of the most important things you must not forget is to do your primary research before starting any trade. You don’t have to be an expert before you research the value of the token you want to purchase and possible predictions about it.
It is best to stay updated about the latest news pertaining to the crypto industry, to help you trade better. Lastly, you must assess your own finances and put an investment goal before you start investing in an extremely volatile asset class like crypto.
As the best crypto exchange app in Africa, Bitmama offers a secure marketplace for crypto enthusiasts. Perform activities like crypto exchange, crypto staking, and creating virtual dollar or crypto cards for online payment. Get started today by downloading the Bitmama app.
