The cryptocurrency market is highly unstable, so building a trading strategy is a must for any investor. While instability is a reason to “play on the safe side” for some traders, others see it as a boosting factor for making more profit, so they take risks eagerly. Both novice and experienced profiteers benefit from combining various strategies and automation because it helps them save time and avoid emotional decisions. Tons of information on the Internet about how to create a trading bot help profiteers find an efficient solution according to their style.
Still, before migrating to automatic bots, profiteers must have a profound knowledge of these styles for successful crypto trading. This article will tell you about active and passive strategies for trading on crypto exchange platforms to help you make profitable deals.
6 Strategies for Crypto Trading in 2020
There are generally two types of players in the crypto exchange market – active and passive. Active strategies are efficient for short and mid-term currency movements, while passive ones focus on long-term price changes on various trading platforms. In this part of our article, we gathered the five most popular active strategies and the main passive strategy for crypto trading in 2020.
Day trading is one of the leading models of active trading. According to this strategy, investors open and close deals until the end of their trading day. In the crypto market, a trading day lasts until a trader leaves the computer. Investors focus on immediate results rather than future investments because of the market unpredictability. So, using this strategy required great knowledge of the market and trading experience.
Because of the volatile market, investors use such protective orders as “stop loss” and “take profit” during daily trades. The “stop loss” order prevents a trader from potential money losses after automatically closed deals. The “take profit” order helps to keep the profit when it reaches the required point. The traders who don’t use these orders risk losing all their earnings fast. At this point, trading bots set the “stop loss” and “take profit” orders for traders to protect them in the market.
A great number of decentralized cryptocurrency exchange platforms makes arbitrage trading one of the most popular strategies. There are two ways of getting profit within this trading model:
- Platform-based arbitrage. Traders compare prices for the same asset on several exchange platforms. They buy the asset on the platform that offers a lower price and make a profit by selling it on another platform with a higher price for this asset.
- Time-based arbitrage. An investor buys and sells a currency on a single platform but gets profit from changes in its price depending on time.
Decentralization is the key advantage for traders who use the arbitrage strategy. Crypto trading platforms are more independent from each other than usual financial platforms. Thus, there’s a high probability that different markets will show different prices for the same currency.
This is an active trading style, following which a trader searches for potential price change within some circumstances in the market. Such circumstances may include anything starting from fresh news on a particular cryptocurrency to a real change of patterns on trading charts during observation. The swing strategy is efficient within a high market volatility period. An investor must watch the changes in the asset charts until the trading day ends to “catch a swing” before other crypto traders spot it. Swing trading is risky but can bring valuable results to its followers.
Scalping is one of the most difficult strategies for active crypto trading. This approach involves that a trader opens a lot of deals only for a few seconds or minutes. Profiteers don’t focus on middle-term or long-term trends. They earn money out of the quickest cryptocurrency movements. Following quick currency movements is risky because one can never predict if the asset goes up or down the next minute. Scalpers (the traders who follow the scalping strategy) use such tools as indicators (MACD), moving average, and similar.
Position trading is an active model based on trends – positive asset movements on trading charts. Within this strategy, investors watch the charts, spot a trend, wait until it stabilizes, and then open deals. A deal remains open until the trend lasts. After each trend follower gets their asset, the trend goes down. As a rule, profiteers prefer to sell the bought assets right away. Other traders choose to keep up with a passive strategy after position trading.
Buy and Hold Strategy
Buy and hold is the only passive strategy on the list and the safest one for crypto trading. Investors buy a cryptocurrency and do nothing with it for a long time. This trading style is also referred to as “HODL” – a name that came into use after one Reddit user mistyped the word “hold” in their message about crypto trading. There are two ways of following the HODL strategy:
- Classic HODL. Typically, investors buy currency and wait. They don’t watch the charts or enter the market too often.
- Value investing. A trader selects a particular currency among a great variety in the market and invests money in it for a long term like 10 years or so.
There’s no one size fits all strategy; everything depends on the trading style, experience, and even temper of an investor. The market behavior matters as well, so keep an eye on popular exchange platforms. Every strategy is special, but they all require following the same rules:
- Buy low, sell high;
- Don’t trade till the last coin;
- Don’t go against the market trends;
- Don’t trust everything that profiteers share in chats on the trading platforms;
- Remember to track all trading operations via special programs.
Crypto trading is young, yet a profitable phenomenon that will continue growing in popularity. Learning strategies and following these simple rules will help you become a skilled trader. Also, any profiteer should try software for automated trading if there’s any difficulty following the market continuously.
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