Top 6 Crypto Trading Strategies You Should Know

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Top 6 Crypto Trading Strategies You Should Know

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Crypto trading or cryptocurrency trading is among the hot topics in the world today. Though highly risky, cryptocurrency trading offers great potential for profits.

Crypto trading is similar to conventional trading in many ways, however, there is one main difference: Crypto markets are open 24/7 and never close.

The crypto market is quite volatile and can experience very sharp price swings compared to other financial markets.

As a newcomer to this nascent industry, it is quite important to learn and understand the underlying technology to some extent before entering the markets and beginning to invest.

In this article, you will learn about the basics of cryptocurrency trading and the 6 trading strategies that can be used in this market.

What is crypto trading?

Before getting to crypto trading and trading strategies, let’s see what a cryptocurrency really is.

A cryptocurrency is simply a digital form of money. It is a digital asset or token that uses blockchain technology to process and validate transactions.

Unlike traditional or fiat currencies, cryptocurrencies are not controlled by a central authority. They are decentralized in nature, maintained and run by a group of computers, AKA nodes, that are scattered all around the world.

Crypto trading is therefore the practice of buying and selling cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), and DIFX Token amongst others, for profit-making purposes. 

It is similar to conventional trading as it involves buying coins or tokens at a low price and selling them at a higher value to derive profit. 

Cryptocurrency trading can be carried out on any of the top crypto exchanges. A crypto trading platform can be centralized or decentralized.

A centralized crypto exchange offers a trading platform to its users and manages the orders through order books.

While a decentralized exchange facilitates trades between traders using smart contracts and prices are usually determined by an Automated Market Maker (AMM).

Given the nature of these exchanges, cryptocurrencies can be traded 24/7, from anywhere in the world.

Digital Financial Exchange (DIFX) is among the top crypto exchanges where users can buy and sell various cryptocurrencies 24/7.

DIFX provides real-time market data, charting tools, and other resources that traders use to make informed decisions.

Top 6 cryptocurrency trading strategies

Now, let’s examine the basic types of crypto trading we have. 

1. Day Trading

This is a popular strategy that involves buying a crypto asset on a particular day and selling them on the same day to take advantage of short-term price fluctuations. 

Let’s consider an example:

A trader buys 5 BTC at $23,355 each at a certain time of the day and then sells them later on the same day for profits if the price of BTC rises to let’s say $24,355.

On the other hand, if BTC falls below the entry price ($23,355), showing signs of further decline to maybe $20,000 on the same day, the trader could sell off at a certain stop-loss price to cut a bigger loss.

Day traders require a great deal of experience and expertise, as they must make quick decisions and react to market changes.

Traders adopting this strategy usually use different technical analysis tools to identify short-term entry and exit opportunities.

2. Swing Trading

When you hold onto your purchased crypto assets for a couple of days or weeks to take advantage of price movements, that practice is dubbed swing trading.

This strategy requires a trader to be more patient compared to day trading. 

Swing traders aim to capture short to medium-term gains by buying low and selling high.

They also use several technical analysis indicators including Moving Average (MA), and Relative Strength Index (RSI) to identify profit-making opportunities.

3. Position Trading

Position traders hold their acquired crypto assets for months, or even years before they consider selling at a profitable price. 

Position traders focus on long-term trends rather than short-term price fluctuations. They majorly use fundamental analysis to evaluate the long-term prospects of a particular crypto asset before clicking the buy button.

4. Scalping

Scalping is another popular and widely adopted trading strategy by crypto traders. With Scalping, you make multiple trades in a short interval to profit from small price changes.

This type of trading is more suited for experienced traders who have a deep understanding of the market and its dynamics. 

Scalpers aim to make quick profits by buying and selling at a high frequency.

They use both fundamental analysis, technical analysis tools, and market-depth data to identify short-term trading opportunities.

The exit strategy is quite important in this type of trading as traders aim for small profits. A big loss can easily erase hours of traders’ efforts.

5. Algorithmic Trading

Ever heard of trading bots? It falls under this category. 

As the name suggests, this crypto trading strategy involves the use of computer programs or coding to make trading decisions.

These computer programs use sophisticated algorithms to analyze market data and make trading decisions based on predetermined criteria. These programs are developed using several programming languages including Python.

Notably, algorithm-based trading is popular among institutional investors and high-frequency traders, but it’s also available to individual investors who have the necessary technical know-how. 

However, it’s always a good idea to use algo trading alongside your own market analysis.

6. Copy Trading

This strategy is relatively new and it involves duplicating the trades of experienced traders. This type of trading allows beginners who don’t know market analysis or simply don’t have the time or desire to learn it, to get exposure to financial markets.

For copy trading, you select a trader or investor with an outstanding performance which simply means their successful bets outweigh the losing ones.

After this, you link a portion of your funds to the account of the copied investor.

After this, the trading actions made by the copied investor are also executed in your account. Actions such as opening a position, assigning Stop Loss and Take Profit orders, or closing a position.

You can allocate a portion of your funds to copy trading which will limit the effects of your selected trader’s actions to only that amount of funds.

But it is important to note that copy trading comes with its associated risks because you are practically entrusting your money to someone else’s hands.

Crypto trading risk warning

Cryptocurrency trading involves significant risks due to the volatile nature of cryptocurrencies and the lack of clear regulation in the industry.

Therefore, you must always Do Your Own Research and practice proper risk management. In this way, you can mitigate your potential losses while increasing your profitability. 

Although we have outlined several crypto trading strategies, you need to adopt a style that suits your personality and future goals. Combining different crypto trading strategies isn’t a bad idea either.

Register on DIFX Exchange today to begin your crypto trading journey.