If there's one thing that the cryptocurrency market has gained a reputation for, it's being exceptionally volatile, even when performing under the best of circumstances. But while it does pose a daunting prospect for new people interested in buying into the market, but in reality, it's made up of one of the most accessible and promising areas for investment.
One of the realities is that cryptocurrency investment and the conventional stock market have more in common than many would care to admit. And that truth is that, at the core of their premises, investors pay into either to get a strong return on investment.
With the cryptocurrency market becoming increasingly mainstream, both for the public and the investment market, it's reasonable to be curious about the ways in which a budding investor can get started, finding out what methods work for them and how to secure a strong return on investment.
Top 6 Crypto Trading Strategies For Skilled Investors
So here are a number of strategies that investors use depending on their style and goals pertaining to their investments.
Much unlike the formerly cruel practice, scalping is a method that investors can use in order to capitalize on fluctuations in the market. This is a method often used by traders in Foreign Exchange (Forex) as investors follow currency changes on very rapid basis.
Whenever someone makes trades based on the sudden changes in asset values, then they're commonly referred to as a ‘scalper'.
Unlike other strategies, Scalping is a very meticulous, yet fast-paced method of managing investments, they buy low, sell high and capitalize on any sudden changes. They essentially use the volatility of their asset against the market itself for profit.
To be a good scalper, you need to have a good enough understanding of the market, while maintaining a level head. This includes understanding the associated trends in the wider scope of international developments and how they'll affect your assets. Any slip in acting on a fluctuation, or if you're too slow to buy/sell, it can result in serious losses.
Compared to other types of trader, a Scalper completes up to 100 trades a day, making it truly fast-paced and high-risk. Given that market volatility of cryptocurrencies is significantly higher than commodities or conventional stocks, this makes scalping high risk, but high reward.
Day Trading is similar in style to Scalping, the only difference is that while Scalping involves a large volume of trade activity in a day, Day Trading is considerably less. Essentially, Day Trading involves buying and selling various assets through the day, taking advantage of market fluctuations wherever possible.
In conducting this strategy, investors and traders make the most out of the small changes, cashing out and generating a profit on each. It's actually through effectively applying this method that some individuals have been able to quit their full time jobs and become a full time Day Trader.
In order to be a good one, a Day Trader needs to keep three things in mind with regards to the market. The first being the volatility of the asset they bought, the underlying liquidity of the market, and the trading volume. Once all of these factors have been considered, then the trader will consider the actions they should take.
The objective of the day trader is to turn a profit above and even double that they put into the asset initially. While this is a good method to use in certain stock markets, the cryptocurrency market only proves effective for this when it's undergoing good performance.
Effectively, the fact that day traders tend to sell instead of holding, a bearish market would mean that a day trader stands to lose a lot of money, all because they don't want to HODL.
This is a strategy that's commonly used by traders in otherwise volatile markets such as Forex and conventional dealers. Before someone is able to commit to range trading, they first need to pin-point key overbought and oversold thresholds in the market. From there, the trader can then buy from the overbought, and sell off in the oversold threshold.
In laments terms, this involves purchasing coins/digital assets at their least valued (overbought) and sell where they're at their most expensive (Oversold). This method proves effective when there's no commonly held value point for the asset being bought and sold.
In order to prove effective at this form of trading, the trader needs to consider these major factors: Firstly, the trader needs to find out what the overbought and oversold positions are, second, time your entry into the market to maximize returns, and third, time your exit well to capitalize on increased value.
This is a method that you can't just dive into, unfortunately, it requires a great deal of research to make sure that you don't end up losing a lot of money with a bad call.
Unlike Day Trading, Swing Trading involves the investment in coins and assets over a longer stretch of time, with the latter, the time span with which a swing trader would hold onto assets can be anything from a couple of days to a number of weeks.
Unlike the others, swing trading does involve some meticulous analysis of the market, as investors need to take into consideration the fact that, while over a long stretch of time, this means that other, extrinsic factors can come into play, for the better, or detriment of your assets.
As the name suggests, Swing Trading is all about keeping an eye on the market, predicting any trends which may set the asset up or down, swooping in and selling out wherever possible.
For the cryptocurrency market, this is a strategy that works well, as it makes the investor take into consideration what factors may precipitate a buy or sell scenario.
A Position Trader is a long term investor, they don't concern themselves so much with the short-term market fluctuations, and instead, have their eyes on a longer-term goal while staying clear of any day-to-day deviation.
Compared to other trading styles, Position Trading involves some of the least transactions over the space of months or years. The only time there is immediate action from a position trader is when they identify a form of activity which proves catastrophic for their asset value overall.
The cryptocurrency market, interestingly, has its own name for these position traders, they're known as the ‘HODLers'. This is Where the investor holds on to their coin or token through its highs and lows without selling it.
This is the more unusual of the collection, Arbitrage, technically, is a style of trading and investment that wouldn't otherwise exist if the stock markets functioned in a perfect way, but they don't, so Arbitrage is a method.
Arbitrage works by taking advantage of the inequality in value between respective assets and the financial instruments which measure them, an Arbitrage user can then take advantage of this wherever this difference was more minuscule, then sell them on a different market where the margin is wider,
It's basically the act of buying any volume of digital assets from one coin exchange which has a narrow margin of difference between pure value and the value it buys/sells for. The Arbitrage would then take these assets and sell them on a market that has a wider margin, making a profit either immediately, or waiting until the market increases in value.
This kind of trading, to a large extent, can be automated and performed by a bot, and in some cases is.
As a system of trading, this is the one that takes the least amount of research, other than noticing any exchanges and what sort of price rates they have for their listed digital assets. The only knowledge needed to succeed at this kind of trading is the exercise of common sense.
This is a very popular method of trading in the world of cryptocurrencies, as a large margin of crypto traders quickly identify that there is an imbalance between the average price versus how much exchange buy and sell them for.