Cryptocurrency is one of the most popular forms of investment at the moment. Bitcoin alone accounts for $6 billion of daily online transactions, and there is a lot more when you take other coins into account.
However, before you get into cryptocurrency trading and investing, you need to realize that this is a very high-risk venture, especially if you go into it without a solid plan. If you’re not careful and don’t have the right strategies in place, you will just lose all of your investment capital.
Let’s go over some of the strategies that can help you on this journey.
As a digital asset investor, you should be familiar with various resources and strategies. Basically, there are two types of trading strategies you can choose from. Active, which requires more time and attention and involves constant monitoring, and passive, which allows for a more hands-off approach.
Active strategies are more popular, and one of the best-known active trading strategies is day trading. If you settle on this strategy, you will need to enter and exit positions on the same day.
Day traders aim to capitalize on proven movements that occur within one trading day, also known as intraday price movements. They create their trade ideas through technical analysis and price action and this is why day trading is often best for advanced traders.
One of the active strategies, trend trading, also sometimes known as position trading, is a tactic in which an investor will hold their position for a longer span of time, usually a few months. If you choose to be a trend trader, you need to keep up with directional trends and know how to take advantage of them.
Trend traders decide their investment strategy based on fundamental analysis, which takes into account events that will probably need a lot of time to play out. For this strategy to be successful, the underlying assets will have to keep moving in the direction of the trend they are expecting to see in the future.
However, trends can change and every trader needs to be aware of that. You should be prepared for the fact that a trend reversal is always possible. That is why traders usually incorporate multiple technical indicators in their strategy, such as trend lines and moving averages to try to increase their chances of success.
The last active strategy on our list is scalping, which focuses on small moves repeated over and over again and taking advantage of inefficiencies in the market such as gaps in liquidity. Scalpers open and close their positions in a short period of time, sometimes even in a matter of seconds.
This can be a very lucrative strategy if the trader knows where to find these market inefficiencies and how to exploit them. Every time that happens, they are able to make a small profit, which will become sizable if they find many inefficiencies over time.
Scalping isn’t a good tactic for beginners as it’s incredibly complex, requires detailed knowledge and understanding of how markets work, and very high liquidity.
Buy And Hold
If none of the active strategies seem like something you would be interested in, you might explore passive ones such as the buy and hold strategy. In this strategy, investors purchase a large sum of assets and hold it for a long time without paying attention to market fluctuations.
It’s usually used in long-term investment portfolios, and traders who get into it don’t have any regard for timing or entry price, they just want to enter the market. People who use this strategy do so with the idea that if they are patient enough, the entry price won’t matter, nor will the timing.
Buy and hold isn’t concerned with technical indicators and is almost always based on fundamental analysis. If you opt for it, you won’t have to monitor the performance of your portfolio often, just from time to time.
However, since cryptocurrencies are a very risky type of asset, this strategy should only be applied to a trustworthy currency such as Bitcoin, of which there are an estimated 18.67 million in circulation.
Finishing off with another passive investment strategy, index investing focuses on buying ETFs, which you can purchase on centralized cryptocurrency exchanges. You can create a crypto index by creating a basket of all of your assets and then making a special token that will track their combined performance.
The only requirement for this basket is to have assets with a reliable price feed. This method isn’t very popular at the moment, but it probably will be in the following years as it allows for a more hands-off approach.
Investing in and trading cryptocurrencies can be a risky game, which is a fact that puts off many potential investors. But if you know the right strategies and are able to make appropriate judgments when following the market, there’s nothing stopping you from finding success.