Cryptocurrency trading is one of the most popular profit-making approaches for investors in this niche. Thanks to the fluctuating values of cryptocurrencies and their high volatility, crypto traders are able to make incredible profits in short amounts of time.
Moreover, crypto trading is much more accessible than stock trading, as there are no complicated administrative mechanisms involved. Today, you can buy cryptocurrency on hundreds of exchanges online. Just sign up on an exchange, open an account and start trading.
That said, beginners might find it challenging to successfully debut their trading journey and start to invest in cryptocurrency. This article will explain the basics of crypto markets and give you a rundown of the best trading strategies available for any skill level. Moreover, we will explore the risks of trading cryptocurrencies and give you some tips on trading crypto. This should allow you to remain successful in this high-risk, high-reward venture.
What to Do Before Cryptocurrency Trading?
Before you can start trading with crypto, you must fulfill several essential prerequisites. As we mentioned earlier, cryptocurrencies are digital, and to store them effectively; it’s best to create a cryptocurrency wallet where you will have full custodianship of your funds.
While crypto exchanges will usually offer a wallet linked to your account, note that the exchange controls these wallets. This means that anytime you wish to withdraw funds, you will need to request them from the exchange. If you wish to be entirely in control of your crypto, it’s better to create a separate wallet or purchase a hardware one to be safe.
After you have created a wallet, your next step would be to open an account on one of the many trading platforms available online. And finally, you will need to top up your trading balance with some funds. Depending on the exchange you have chosen, you will either have the option to deposit fiat or various cryptocurrencies. Once your trading account is set up and funded, it’s time to choose your trading strategy.
What Trading Strategies You Can Use
The main goal when trading cryptocurrencies is to buy a cryptocurrency at a lower price and sell it later at a higher price. While this might sound obvious, being successful at it requires quite a bit of knowledge and skill. There are various ways you can approach the cryptocurrency market, with the most popular methods depicted below.
Day Trading
Day trading involves trading cryptocurrencies within the opening and closing times of the market. That said, unlike traditional markets, the crypto markets are open 24/7. So how do you determine when to stop trading? Well, you can simply choose a workday timeframe for yourself and keep within these limits, e.g., from 9 AM to 6 PM.
This trading technique involves opening trading positions and closing them by the end of the day. The goal is to make medium profits and never leave open positions overnight, resulting in losses due to the market’s high volatility.
Dollar-Cost Averaging Strategy
The dollar-cost average (DCA) investment strategy is one of the simplest and most effective trading strategies for beginners. It involves investing a fixed sum of fiat money in the cryptocurrencies of your choice at regular intervals, regardless of whether the price goes up or down.
This allows investors to flatten the price curve over a long investment period. In this instance, the investment doesn’t depend heavily on the price fluctuations, as it follows the general trend, which is usually to the upside in crypto.
Scalping
Scalping is an advanced trading technique that involves trading dozens, even hundreds of positions in a day. The goal is to profit from more minor price fluctuations and accumulate small profits on multiple occasions.
To be effective, scalpers use trading bots that place orders automatically following a predetermined strategy by the trader.
Holding
Finally, the easiest thing you can do is to buy, hold and wait for the price to move up before selling. While this might sound simple at first glance, it requires some heavy research on the fundamentals of the projects and their long-term viability
Is There the Right Strategy to Choose?
Choosing the right investment strategy will mainly depend on how much risk you are willing to take with your trades. If you have a low-risk trading profile, you should stick to holding and DCA with crypto. On the other hand, if you want to make quick profits and can take the stress, you can try day trading or scalping.
It would be useful to follow the tips provided below with any strategy.
Always Follow Crypto News
Keep updated on the latest happenings in the crypto sphere. To better understand how different news affects prices, learn everything there is to know about different blockchain technologies. Read up about the main actors in the ecosystem and keep track of various regulations news that might sway the market in one direction or the other.
Anticipate Risks
Cryptocurrency prices can crash in a matter of hours. Never trade more capital than you can afford to lose to reduce this risk. Also, learn how to set stop-loss orders on your trading positions. This will allow you to close your position automatically after a certain loss threshold is met, limiting your overall loss.
Go for the Long Run
Investing for the long term has proven to be the best strategy in the cryptocurrency market. While price fluctuations can hurt portfolios in short time frames, having long-term goals can allow you to make considerable profits. Crypto markets work in cycles, and being patient is key to remaining in profit.
To Sum Up
You can use a single strategy or combine multiple ones to maximize returns and keep risks low. For example, you could keep 80% of your portfolio in DCA and scalp with 20% of your capital. In either case, there’s no wrong choice here. Every trading strategy has its pros and cons and is a matter of personal preference.
