Trading cryptos indeed has its pitfalls and risks, as all types of trading have. But you can minimize possible losses or risks if you apply the strategies most suitable to your trading needs. For instance, if you are in for a long-term in cryptos, then go for a tactic that helps you earn in the long run. It may not be a quick-rich scheme, but it can keep your assets safe and profitable. As such, here are some trading crypto strategies you may want to learn and apply:
1. Crypto arbitrage
This strategy uses more than one crypto exchange. You will use the other one to buy coins, then use the others to sell them at a higher price. Crypto arbitrage allows you to earn more profits as one exchange can have higher prices on such coins. It’s similar to the arbitrage of Wall Street, wherein you take advantage of the asset being sold at a higher price in another platform or market.
Since your profit relies on liquidity and volatility involved in the market, you must consistently stay updated with the daily crypto price swings. Unlike long-term investors that buy and hold cryptos to gain profit in the long run, traders involved in crypto day trading strategies such as scalping and arbitrage capitalize on crypto’s market daily price moves.
2. Dollar-cost average
If you want to buy the most stable crypto, you may need a higher fund. For instance, purchasing crypto can be expensive if you do it instantly. However, not having enough money shouldn’t hinder you because you can still buy Bitcoin or other pricey cryptos using the dollar cost averaging strategy.
In this strategy, you will be buying small amounts of crypto at regular intervals, no matter the price. It means you can buy some pricey crypto for USD$100 every month without the need to buy it in one go. As a result, you increase your profits over time.
However, this strategy is only profitable for long-term investments. Moreover, you don’t need to watch or time the market before buying with this strategy. As long as you do it constantly, your small fund can become bigger as time goes by.
Ultimately, you may not need to have thousands of dollars and wait for the price to drop as the dollar cost average lets you enter the market with minimal capital.
3. High-Frequency Trading (HFT)
Quantitative traders use this kind of algorithmic trading strategy. This strategy can help you quickly enter and exit a crypto investment by developing trading bots and algorithms. However, you may need to have an in-depth understanding of computer science, mathematics, and the complex market concepts of crypto.
You can also use HFT if you have large numbers of orders that you need to execute within seconds. Thus, most users of such strategies are companies aiming for liquidity in the crypto market. Moreover, some investors who apply HFT need special computers to attain the highest trade execution speed.
4. Value investing
When you buy cryptos that you believe are undervalued, you are identified as a ‘bargain shopper.’ In this strategy, you are looking for coins that have intrinsic value. However, the current prices may not reflect such a value. Thus, the concept of value investing is to use the irrationality in the market, where you buy coins at a discounted price and later on make profits from them.
However, value investing requires in-depth research and patience. You need to understand the coins to see if they can become valuable in the future. You will also need to be patient because these coins may not have higher prices in the long run. It means such assets may not make much money over such a period, but you could earn more when their prices become high. So, if you run and get your money back immediately, you can be at a loss. However, playing the long game can potentially double or triple your capital, as long as you have faith in your decision to invest in such crypto.
5. Prioritize liquidity
If you plan to day trade wherein you will be monitoring prices each day, it would be best to understand liquidity in the crypto market first. You will need to be quick in moving in and out of positions because the market moves fast. Doing so will help you secure a profit since you have bought it at the best price and sold it at a higher price.
That is why you need to invest in cryptos that are being traded instead of patiently waiting for them to become tradable. You can do this by checking the crypto’s trading volume. You can tell the overall interest of the crypto when it has more bought and sold activities in the market. The more market participants the crypto has, the more liquidity it has, such as Bitcoin’s liquidity.
6. Understand the crypto
It would be best for you to learn about crypto’s importance in its ecosystem—this is where fundamental analysis comes in. The crypto’s team, use, and other critical information are all factors to gauge if they could be worth your money.
The results of the fundamental analysis should answer the question: ‘What is this coin’s impact on society, people, future, or tech?’ If it has, then they can be good crypto because you can see yourself using such coins in the future. But if it doesn’t answer such, it may be best to stay away from it.
Here, you must also know their functions and understand their project well. Some circumstances might affect the coins. Therefore, you must gauge where the prices will go, bullish or bearish.
For instance, providing fraud protection to its users through smart contracts is the primary function of Ethereum. Meanwhile, Bitcoin is comparable to silver and gold because of its purpose to store value. The other coins may offer significant rewards, but they may not provide utility, only hype.
So before buying one on the market, it is vital to learn more about crypto to make informed decisions.
Conclusion
Trading cryptos can be short-term or long-term, depending on how much time and money you invest. If you can’t commit to day trading, using other strategies that can yield long-term profits may be for you. But if you want to be more aggressive in trading, you may need to apply techniques that aim for short-term rewards. Whatever strategy you choose, you should also weigh the risks. In this way, you can invest what you’re willing to lose if the market crashes.
