Interest in trading cryptocurrencies remains high due to numerous new entrants in the market. Explore our list of strategies to find the best fit for your needs.
Cryptocurrency trading: important information
Cryptocurrencies are decentralized markets that operate on a blockchain network of computers, without a central authority. This decentralization allows them to avoid political and economic concerns associated with traditional currencies. Cryptocurrencies are subject to unpredictable and influenced factors such as supply and demand, media presence, e-commerce payment system integration, and key events.
Cryptocurrency trading strategies should not only address volatility but also diversify your portfolio. Trading a variety of asset classes, including cryptocurrencies, allows you to hedge against market risks and benefit from positive movements. By trading multiple asset classes, you avoid confining yourself to one market’s conditions, allowing you to benefit from the broader market.
1.Trader’s maze
Cryptocurrency trading strategies should focus on navigating volatility and diversifying your portfolio. Trading a variety of asset classes, including cryptocurrencies, allows you to hedge against market movements while also benefiting from positive movements. Crypto trading involves speculating on crypto price movements through leveraged derivatives (CFDs), which allow you to speculate without owning the underlying asset. Alternatively, you can buy cryptocurrencies via an exchange, which requires creating an account, funding the position, and storing the tokens in your wallet.
Direct buying of cryptocurrencies can be complex and not recommended for beginner traders, as it requires creating an exchange account, funding the position, and storing the tokens in your wallet. Therefore, having a cryptocurrency trading strategy is crucial for successful trading in the volatile and unpredictable cryptocurrency market.
2. Crossovers in Moving Averages
Moving average (MA) crossovers are a crucial aspect of cryptocurrency trading. MAs are lagging technical indicators that combine the price points of a financial instrument over a specific timeline, creating a single trend line. This helps determine the current trend direction and lessens the impact of random price spikes. By analyzing previous price movements, one can examine levels of support and resistance. One of the main methods of using MAs is through ‘crossovers’, where the asset’s price crosses above or below a MA to signal a potential change in trend.
To trade a moving average crossover in cryptocurrency markets, wait for the price crossover before going long or short on the cryptocurrency using financial instruments like CFDs. Another strategy is to apply two moving averages to a chart: one short-term and one long-term. A golden cross occurs when the shorter MA crosses above the longer MA, indicating an uptrend, and a death cross occurs when the shorter MA crosses below the longer MA, indicating a downtrend.
3. Index of Relative Strength (RSI)
The relative strength index (RSI) is a technical indicator used to identify market conditions such as momentum, overbought, and oversold. It can also indicate divergence and hidden divergence in financial markets. The RSI is calculated by comparing profitable price closes to unprofitable ones, with a lower percentage indicating an oversold position and a higher percentage indicating an overbought position. The best crypto strategy for trading RSI depends on your risk appetite and trading style. It can be used for both short and long signals when prices are rangebound. Using an RSI indicator to highlight entry and exit trends can help traders decide when to engage in the market.
4. Trading based on events
Cryptocurrency trading strategies often focus on taking advantage of the strong media presence of a specific coin or exchange to influence market prices. News coverage of current events can influence the prices of forex pairs, stocks, indices, and commodities, not just cryptocurrencies. This influence is often exploited by experienced traders. To trade cryptocurrencies, traders should wait until after a news release is published, buying when positive news is announced and shorting when negative news comes out. This strategy is popular for those new to trading and can be applied to other cryptocurrencies as well.
5.Scalping
Scalping is a short-term trading strategy that involves opening positions in line with a trend, often entering and exiting the market multiple times. It is particularly effective for active day traders, as it focuses on minute-to-minute price changes driven by quantity. Once a trade becomes profitable, it is exited. Scalping is more effective in volatile markets, as it requires the quick closing of losing trades. Tear-off tickets can be used to set up a position in the opposite direction for exiting, either taking profits or limiting losses. However, scalping can be risky, especially when placing multiple trades on a short-term basis, so careful risk management is essential.
6. Dollar Cost Averaging, or DCA
Dollar cost averaging (DCA) is a popular crypto trading strategy that involves dividing investments into smaller amounts over a predetermined timeline and investing them on a specific day and time. This strategy is suitable for both beginners and experts, as it helps alleviate the impact of market volatility. For example, if you want to invest CHF 15,000 in bitcoin, you would divide the initial amount by 24 weeks, giving you CHF 625 per week. For the next six months, every Tuesday at 2 p.m., you would invest CHF 625 in bitcoin until your initial amount was depleted. This strategy helps alleviate the impact of market volatility, resulting in typically receiving more currency from your final investment. However, to fully utilize DCA, you would need to trade the specific coin through an exchange, not through a broker like us.
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