Besides saving money and conducting transactions, cryptocurrencies also allow you to make money – through cryptocurrency trading. Today, there are thousands of cryptocurrency traders worldwide. Each of these traders uses one of several crypto trading strategies when they’re in the market. In this piece, we’ll look at some of the most popular crypto trading strategies and how you can also benefit from them:
What is Crypto Trading?
Simply put, cryptocurrency trading is the act of buying and selling cryptocurrencies. So, you could buy Bitcoin today if you think the price will increase by next week. You could also sell all your coins if you think the value will drop very soon
Types of Crypto Trading
If you’re engage in cryptocurrency trading, you’re doing either of the following:
Short-Term Crypto Trading
A short-term trader buys and sells cryptocurrencies within a short time frame. This time frame usually ranges between a few minutes and a few months. Short term-trading focuses on making money from quick price changes.
- In short-term trading, you barely focus on a coin’s technical factors
- Short-term traders also capitalize on the latest news and developments concerning an asset 📰
Long-Term Crypto Trading
As you can probably guess, long-term cryptocurrency trading is buying crypto and holding it for a long time. Long-term crypto traders are not moved by short-term price movements.
- Long-term crypto trading focuses more on research and analysis of a coin’s fundamentals than short-term trading
- Fundamentals include things like the latest news about the coin, developments with the team, and more.
- There are also technical indicators, which are more popular with analysts and stockbrokers. You will need to do a lot of research to understand technical indicators
- This type of trading is more convenient too. You don’t have to bother about checking price movements daily 🙂
In general, the success of your trading depends on how well prepared you are. Someone who invested in Bitcoin five years ago would have made profits today. In the same way, short-term traders can capitalize on quick price gains and still make their money.
How to Start Trading Cryptocurrencies
Now that you understand what cryptocurrency trading is, you probably want to try it out and make money off it.
Trading involves a lot of work and testing. However, you’ll find that the process involves these steps:
- Research: Crypto trading takes a lot of time and effort. You have to research and know whether it is right for you or not. You can also learn about which cryptocurrencies move together, so you can make even more money.
- Know Yourself: Are you a short-term investor or would you prefer to trade long-term? 🤷♂️ Consider the pros and cons of each and decide on the type of trader you would like to be.
- Learn the Rules of Trading: This is really where the work comes in. Trading is quite complex, and you’ve got to know how to navigate the market. Charts, analysis, graphs, etc. 📊 Even the pros need to continue learning, and you have to as well.
- Choose the Right Asset: Most traders work with multiple coins. When choosing, consider the coin and its developers, its uses, and the community.
- Select a Trading Strategy: You also need to learn the right trading strategy. This part is a bit of work as well, but we’ll help you make sense of it all.
Crypto Trading Strategies that Work
Hodling is the simplest of the cryptocurrency trading strategies. In crypto lingo, it simply means buying and holding a cryptocurrency for a very long time.
FUN FACT: “HODL” became a thing after someone misspelled “hold” in a crypto forum post. The post was full of errors, but that one eventually caught on. Talk about a happy accident 😂
- When you’re a hodler, you buy and hold an asset for a long time – could be months, could be years. The goal is to benefit as the asset’s price increases over time.
- Hodlers don’t care about short-term price swings
- As a strategy, hodling protects you from negative short-term price changes.
2. Day Trading
Day trading is a short-term cryptocurrency trading strategy. It can be very profitable as long as you’re sure of what you’re doing and you’re following the rules.
For the most part, day trading requires a lot of effort. You’re only in a trade for a short period, and you have to watch prices closely so you don’t lose money 👀
- The goal of day trading is to earn a profit from small price gains
- At the most, day trading lasts a day or two – hence, the name ⏰
- Day trading isn’t so profitable – after all, it’s rare for you to see coins go up by so much within a day. But, if you can make profits consistently, they can pile up 💰
- Day trading has become easier thanks to exchanges and trading platforms everywhere
3. Swing Trading
Swing trading is quite similar to day trading. Here, you place bets on the price movement of a coin for a few days to a few weeks.
So, the major difference between swing trading and day trading is in the time frame. While day trading happens between 24 hours, swing trading is more of a medium-term thing.
- Swing trading allows a better opportunity to gain more since your trades are open for longer.
- Swing trading is also more convenient since you don’t have to check on charts that much 😀
- With swing trading, you will also need to use charts and technical analysis to set your positions 🙂
- Note that there’s some risk to swing trading. Prices could change overnight. So, you have to be vigilant.
4. Futures (With Leverage and Without Leverage)
Futures trading is quite interesting. It’s not as popular as crypto trading strategies like day and swing trading, but it provides one of the best profit-making opportunities.
A futures contract is an agreement for you to buy or sell an asset at a specific price and a date. Futures trading occurs on exchanges. Here’s how it works:
- A trader agrees to buy an amount of crypto at a specific price and a specific date
- The contract is set up, and everyone waits for the day
- When you buy a futures contract, you don’t buy the asset itself. Instead, you own a contract that says you will buy or sell it at a specific price and time.
- So, if the asset’s price rises above the agreed-upon contract price when the contract expires, you gain.
Most exchanges don’t allow their beginner traders to trade futures because it’s really risky. That’s why it isn’t so popular.
Leverage or No Leverage
If you’re so confident about a trade and you want to make as much as possible, you can borrow money from a trading platform to increase your capital. That borrowed money is your leverage.
- Leverage is usually in the form of a proportion. If an exchange offers 100:1 leverage, it means you can borrow up to 100 times your capital 🤯
- So, if you have $1,000 and an exchange offers up to 100:1 leverage, it means you can borrow up to $100,000 to make your trade.
- Leverage allows you to maximize your profits. But, your losses also increase when you lose. The exchange will collect its due, right? 😰
- Because of its risk, leverage trading is better left to professional traders.
Scalping is actually a form of day trading. In this case, traders – known as “scalpers” – enter into multiple trades and profit off small price gains. They do so continuously throughout the day.
With scalping, the goal is to make as much profit from small trades as you can make in a single day of trading. Scalpers have targets for profits and losses, so they immediately exit the market once their target has been hit.
A token swap is a service that allows you to directly trade one cryptocurrency for another. Most exchanges provide the service, making trades easier for their customers.
- Swapping is especially popular because it allows traders to work more conveniently
- It is also cheaper. When you move from Bitcoin to cash to Ethereum, you pay double trading fees. With a swap, you only pay fees once 😎
- Swapping also helps lesser-known cryptocurrencies that don’t have much supply since traders have easier access to them
7. Position Trading
Position trading is a long-term trading strategy. It is similar to hodling, with one difference: when you hodl, you buy the asset and hope that the price rises. On the other hand, position trading allows you to bet on an asset’s price dropping too.
Like hodling, position trading takes place in the long term. So, we’re talking months or years here. The profit is greater, but so is the risk. Position traders aren’t bothered by short-term price swings, so it requires a lot of discipline.
Arbitrage is an easy strategy that beginners can use to make money. You might not make so much money at first, but the risk is really low.
To understand arbitrage trading, know this – coin prices vary on different exchanges. So, you could see Bitcoin trading at $45,000 on Quidax and $45,100 on another exchange.
When you trade arbitrage, you buy a coin on one exchange and sell it on another. Take the example below:
- You buy 10 BTC on Quidax at $45,000 per coin. That’s $450,000.
- You go to the other exchange where BTC sells at $45,100 and you sell all your BTC.
- This means you sold for $451,000 and made a $1,000 gain 🤑.
- Repeat, repeat, repeat 🔁
So, imagine you spot 10 of these variations in a day. That’s a lot of money coming your way
Arbitrage trading is pretty simple. But, there’s also a catch. You need to be really fast when trading because these price differences won’t stay for so long. If your trade doesn’t go through for some reason or the other, you might end up with a loss.