What are the best crypto trading strategies that a novice or experienced trader can use to achieve success with crypto trading? There are numerous ways to go about it and in this article, we will explore some of the most popular crypto trading strategies out there.
Before we get into the meat of it, it is worth noting that deciding the best crypto trading strategies for you is essential. It is the difference between earning money in the market or losing it. Remember, the first rule of trading is “don’t lose your money” and the second rule is “don’t forget rule number one.
Now, there are many strategies that you can deploy success as a crypto trader. However, there is no one size fits all. Market dynamics are always changing, hence it is important to identify and adapt to those changes. That being said, here is a list of the best crypto strategies that we can will likely deliver favorable results.
A list of the best crypto trading strategies
Prioritizing Liquidity and Risk Management
The traditional definition of liquidity in trading is an asset’s ease of convertibility into cash. Land is usually considered illiquid because the process of selling it takes time. Bitcoin as an asset is highly liquid because one can quickly sell it when they need cash. Liquidity is an important concept in crypto because an influx of new liquidity (funds flowing into a crypto asset) creates a balance between buyers and sellers.
When buyers are few and sellers are high, the balance tips in favor of the bear and the inverse is also true. A surge in buyers during low sell pressure results in more demand for the asset and thus prices go up. Why is this important? Well, it turns out this is one of the strategies that whales use to influence the market and cash out short-term gains
Understanding how whales manipulate liquidity could help you avoid liquidity traps set to manipulate retail traders. Also, understanding short-term and long-term liquidity cycles can help you stay ahead. There are periods when the market experiences low liquidity and periods of high liquidity. This will help you understand when it is risky or not to trade.
Having a good grasp of the market liquidity concept could help you decide when its best to trade and when it’s too risky. This incorporates an aspect of risk management which is another key concept towards achieving trading success. The lower the risk, the higher your chances of securing profits and avoiding loss. thus liquidity trading is one of the best crypto trading strategies. Here are some key concepts about liquidity that you might need to know:
- Spread: This underscores the differences between the highest price that buyers are willing to pay (bid) and the lowest price sellers are willing to take (Ask).
- Depth: It refers to the number of bids and asks available at any given point in time.
- Order-book stability: Volatile market conditions underscore order book instability. Note that this affects both bullish or bearish conditions.
Diversification
Some crypto assets perform better than others. As a consequence, holding more than one asset in your portfolio may boost your earnings potential if the assets in your portfolio if some of your assets perform exceptionally well. We do not know which cryptocurrencies will perform the best but we can pick ones with the highest potential through fundamental and technical analysis.
Diversification can also be spreading out investments across different market segments. Narratives are vital during every bullish cycle in the crypto market, hence diversification fits the bill as far as the best crypto trading strategies are concerned. Here are some benefits of diversification in crypto trading.
- To boost the potential gains.
- Spreading out risks. In case one coin tanks or collapses as was the case with Terra Luna and TerraUSD in 2022.
- The leverage new narratives such as AI.
Technical Analysis
Assets in the crypto market have historical data. This means you can look at a chart and assess its historic performance. You may even find that there are price levels where buying pressure is more prevalent and price levels where sellers are very active. You can even incorporate charting tools called indicators to identify such zones or market trends. This is called technical analysis.
Technical analysis is one of the best crypto trading strategies because it offers essential price movement data which may be practical to identifying ideal entry and exit points. Here are some of the most popular indicators:
- RSI: This is short for Relative strength index and it shows the magnitude and strength of price fluctuations. Many use it to assess overbought and oversold conditions. Price to RSI divergence is one of the best crypto trading strategies that many use to determine whether to buy or sell.
- Moving averages: These are technical indicators that show an asset’s average price within a specific duration such as 9, 20, 50 or 100 days. They iron out price volatility to give a more smoothed out trend lines. When a faster MA crosses a slower MA, it could indicate a shift in market direction and investor sentiment.
- MACD: It is short for Moving Average Convergence/Divergence. The MACD is often used to assess trends and their momentum and can be used to identify healthy entry or exit points. When the MACD crosses over each other it indicates that a trend might be gaining momentum.
There are many other indicators that can be used for technical analysis. The point is that these indicators can give traders a rough idea of how the market is performing at any given time. The right assessment can help them to make more informed decisions that might tip the scales in their favor, hence why technical analysis is one of the best crypto trading strategies you can adopt.
Fundamental Analysis
Fundamental analysis refers to a style of analysis that attempts to determine a crypto asset’s intrinsic value based on internal and external factors. Internal factors could be key performance metrics such as a project’s revenue or user growth figures. A project with robust user growth means more revenue over time.
We can also assess the external factors that may have an impact on a project’s short-term or long-term performance. Some influential factors that affect crypto prices include regulation, economic conditions, interest rates and major global economic events. Things like tokenomics, distribution and emission schedules, development teams and token utility are all under the fundamental analysis umbrella.
Having a strong grasp on a crypto asset’s fundamental analysis data may offer essential insights regarding an asset. Key data such as whether an asset is good to buy, whether it’s the right time to purchase or sell.
Swing Trading and Scalping Strategies
Swing trading entails establishing price range in which a cryptocurrency or token has been confined within a specific period, usually weeks or months. The idea here is to buy when price approaches the lower range, and sell when it approaches the upper range.
Swing trading requires identify and use support and resistance levels. Note that this strategy warrants patience since it entails waiting for the upper or lower ranges to be retested. Its antithesis is scalping which is a more fast-paced strategy where traders take advantage of opportunities in shorter time frames, usually daily.
| Strategy | Pros | Cons |
|---|---|---|
| Swing Trading |
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| Scalping |
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News-Based Trading
This is the same as event-based trading and it is one of the best crypto trading strategies for a key reason. High impact news tends to trigger a strong market sentiment and reaction. For example, very bad news such as a crypto exchange being hacked or collapsing may trigger a bank-run type of situation. In such scenarios, people may rush to sell their assets to avoid potential downside.
The surge in sell pressure from negative news pay trigger a massive downward spiral for the market. A recent example is when it was announced that Germany is offloading crypto ahead of the Mt. Gox Bitcoin release. You may have also noticed that the market reacts when the U.S releases economic data such as whether or not to lower interest rates.
But how does one take advantage of such news? First, you have to watch out for such news. You can subscribe to some YouTube channels or Twitter handles that cover such news and make sure to turn on notifications. This will allow you to receive the information early. Second, assess whether the news has a negative impact. Finally, confirm with what is happening in the market and execute your trades accordingly.
Long-Term HODLing
HODLing describes the act of holding crypto for long periods of time, usually years. If you think about it, early Bitcoin adopters who held their coins for over 5 years were able to reap huge profits. The same principle applies to many other coins as long as their supply is not severely diluted by vesting schedules, and as long as they can maintain healthy long-term demand.
HODLing is perhaps the simplest method especially if you are investing disposable income that you do not need in the short-run. Also, it does not require a lot of technical know-how. It has been the best crypto trading strategy for most people who get into coins early.
Conclusions on the best crypto trading strategies
As you can see, you are spoilt for choice courtesy of the multiple options in our best crypto trading strategies list. Select the one that best suits your preferences. We recommend integrating all of them if you can due to the fact that the crypto market is constantly presenting opportunities for all strategies. As usual, this is not financial advice or a call to action. Our goal is to provide educative content.
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