Trading cryptocurrency remains popular as more enter the market. Browse our strategies below to find the ideal bitcoin trading strategy for you.
What you need to know about trading in cryptocurrencies
Cryptocurrencies are traded on decentralized markets, which means that they are not issued or supported by a central authority such as a government – rather, they are run across a network of computers. This is in contrast to traditional currencies, which are issued and supported by centralized authorities (called a blockchain). As a result of the decentralized structure of cryptocurrencies, they are not subject to the majority of the political and economic concerns that are associated with traditional currencies.
However, this does not imply that cryptocurrencies are immune to the influence of other forces. On the other hand, the value of cryptocurrencies is very unpredictable and is influenced by a variety of factors, including supply and demand, the presence of the media, the incorporation of online payment systems, and significant events.
Due to the aforementioned reasons, it is essential that your techniques for trading cryptocurrencies not only concentrate on finding a way to handle volatility, but also concentrate on diversifying your investment portfolio. You can diversify your portfolio by trading a broad number of asset classes, including cryptocurrencies, such as stocks, bonds, and commodities.
You may protect yourself against the possibility that the market will move against you by engaging in a variety of different deals. This strategy also allows you to capitalize on favorable shifts in the market.
Crypto trading methods can be a confusing for traders.
Before attempting to trade on the market for cryptocurrencies, it is critical to have a cryptocurrency trading plan in place. This is because cryptocurrencies are notoriously volatile and difficult to anticipate.
When we talk about trading cryptocurrencies, we are talking to the practice of speculating on the price movements of cryptocurrencies using a contract for difference (CFD) trading account. These are known as leveraged derivatives, and they give investors the opportunity to speculate on price swings without requiring them to hold the underlying asset.
You also have the option of purchasing cryptocurrency through an exchange, in which case you will be responsible for purchasing the coins yourself. You will be required to open an account with the exchange, deposit funds equal to the full amount of the position, and keep the cryptocurrency tokens in your personal wallet until you are ready to sell them. Directly purchasing cryptocurrencies can be a challenging endeavor, and it is not recommended for novice investors to pursue this strategy.
Crossovers of Moving Averages
Understanding moving averages (MAs) and trading strategies that involve crossovers is necessary for trading moving average (MA) crossovers. Let’s proceed: a moving average is a lagging technical indicator that combines the price points of a financial instrument over a particular timeframe to offer you a single trend line. This is done by dividing the total number of data points by the total number of price points.
You will be able to determine the direction of the current trend using just one trend line, which will also decrease the impact of any random price spikes that may occur. In addition to this, it helps you to study the levels of support and resistance by analyzing the price movements that have occurred in the past.
The question now is how you should include this indication into the technique you use for cryptocurrency. The term “crossovers” refers to one of the most important ways that the moving average can be utilized. A price crossover, also known as a crossover, occurs when the price of an asset crosses either above or below an MA to indicate a possible shift in the prevailing trend.
In order to profit from trading a moving average crossover in cryptocurrency markets, you will first need to wait for the price crossing before deciding whether to go long or short on the cryptocurrency in question through the use of a financial instrument such as CFDs.
Applying two moving averages to a chart, one for the short term and one for the long term, is another approach that can be utilized. When a shorter moving average (MA) crosses over a longer moving average (MA), it indicates that the trend is changing upward. This phenomenon is known as a golden cross, and it is sometimes interpreted as a buy signal. This is known as a death cross, and it occurs when the shorter MA falls below the longer MA. This shows that the trend is moving in a downward direction.
The Relative Strength Index (RSI)
A relative strength index, also known as RSI, is a type of technical indicator that can be utilized to determine market momentum, as well as overbought and oversold levels. Additionally, it can be utilized to bring to light signals of divergence in the financial markets as well as concealed divergences. Trading based on trends is another name for this particular method of investing.
The Relative Strength Index (RSI) is a computation that compares profitable price closures versus unprofitable price closes and displays the results as a percentage.
It is determined by applying the following formula:
RSI = 100 – [ 100 / ( 1 + RS )]
The value of the indicator is expressed as a percentage out of 100, with a smaller percentage often suggesting an oversold condition and a higher percentage showing an overbought situation.
So, what is the most effective trading technique for RSI when it comes to cryptocurrencies? That relies on your comfort level with risk as well as the way you trade. When price action is rangebound, the RSI can be utilized for trading short as well as long signals, depending on the trader’s preference.
You can get a better sense of when to engage in trading by making use of a relative strength index (RSI) indicator that highlights trends for entry and trends for departure. Markets tend to move in trends.
Trading based on the occurrence of events
The cryptocurrency markets might be affected when there is a significant media presence of a certain coin or crypto exchange. Taking advantage of ‘events’ like this is the only objective of this particular trading strategy for cryptocurrencies. It is a common trading method for people who are just starting out in the market.
Not only the values of cryptocurrencies can be influenced by news coverage of current events; it can also have an effect on the pricing of items like currency pairs, stock indices, and commodities. This influence is not merely based on conjecture; rather, a large number of expert traders will capitalize on this.
In a typical scenario, you would wait till the market exhibited a pattern of consolidation just prior to an anticipated news release (such as an earnings report), and then you would react as fast as a market breakout took place. However, because of the high degree of volatility and unpredictability associated with cryptocurrencies, it is possible that you will be required to wait until after the publication of such a news release before wanting to engage in the trade.
To put it another way, you would buy your preferred cryptocurrency whenever positive news is released, and you would sell it whenever negative news was released.
Scalping is the activity of initiating positions in the direction of an existing trend, frequently entering and departing the market numerous times in a short period of time as the trend develops. Scalping is a form of day trading. Because individual trades are only held for a few seconds, or at most a few minutes, this is one of the most short-term trading methods available.
This trading approach is particularly effective for day traders that trade frequently throughout the day. Trading based on minute-to-minute price fluctuations, which are determined by quantity, is known as scalping. You would get out of the deal as soon as it started to generate a profit for you.
Because of this, there is no such thing as “waiting for the market to display patterns.” Instead, you will need to be swift and close transactions that are immediately losing money. Scalping is a strategy that is advantageous to use when the market is highly volatile.
It is important to keep in mind that placing many transactions in a very short period of time might make scalping a risky activity. It is absolutely necessary to exercise cautious risk management.
Dollar Cost Averaging
The dollar cost averaging (DCA) trading technique may be of interest to you if you are seeking for an approach to trading cryptocurrencies that does not entail the use of indicators. The dynamic component analysis (DCA) is a well-liked method among both newcomers and seasoned market participants alike.
You will not put all of your money into a single investment at once; rather, you will invest in a variety of different things using a variety of different sums. After that, the sums are dispersed across the span of time specified in advance, and they are consistently invested on a particular day of the week at a specific time – and only on that day and at that time.
How does this actually work when put into practice? Let’s say you decide you’d like to invest in bitcoin. You have decided that a DCA plan will be the most effective method to move forward with this endeavor, and you have put aside $15,000 specifically for this purpose. The next step is to take your original investment and divide it by the total number of weeks that you want the strategy to remain active.
For the sake of this illustration, let’s assume that you intend to make an investment of your $15,000 over a period of six months. After that, you would divide the starting sum by 24, which is the number of weeks in the six-month period, giving you a weekly rate of $625. You will invest your $625 into bitcoin on every Tuesday at 2:00 p.m. for the next six months, up until the point where your initial balance is depleted.
Why make an investment of this kind? If you buy an asset over a period of time, rather than all at once, you can reduce the influence that market volatility has on your overall investment and, as a result, you will typically obtain a greater return on your money than you would have if you had invested it all at once.
It is essential to keep in mind that in order to get the most out of this technique, you will need to trade the particular coin in question on an exchange. However, the only way to trade derivatives with us is through contracts for difference (CFDs).