Trading Strategy: How to Choose One
A trading strategy is essential for making money from the crypto space. A fixed plan and following clear rules allows you to achieve a profitable return, while chaotic entrance to the market leads to losses. What trading strategy will work best for you? Well, it is impossible to give a correct and very illuminating answer. They can be lumped into different categories, so let’s analyze the most popular of them first. Tighten your seat belt and brace yourself for an exciting journey ahead, let’s go!
Day trading (a.k.a. intraday) is broadly defined as buying and selling cryptocurrency throughout the day. Day traders seek to profit from market volatility. Thus, volume and liquidity are crucial here. For fast and efficient trades, players need good liquidity. This is especially true for closing a position. Large slippage on just one trade can have devastating consequences for your account. This is why users deal with the most liquid crypto pairs.
An awful lot of newbies who aren’t exactly up to speed on trading, tend to trade during the day. There are a number of popular strategies that are used by day traders. Nevertheless, crypto fans hardly benefit from the advantages of these strategies in the long run. A cold hard truth is that there are serious drawbacks that make day trading difficult for the majority. For example, some people can’t handle the stress during the process, or they don’t allow sufficient time for making their short-time transactions successful. As a result, novice players’ hopes and plans don’t turn out like they want them to.
Swing trading is when users hold a virtual coin for one or more days in an effort to profit from price changes or ‘swings’. As with every strategy, this one has its merits and shortcomings.
- more time to hold a position means less time for emotions and stress from trading;
- this is one of the few models that is suitable for the average person who is crazy busy at work;
- it does not require too much screen time: it takes 20–30 minutes to analyze charts;
- it provides enough opportunities to make a stable profit from the market;
- medium-term time-frames cause stronger price fluctuations than those that are possible within the day.
- swing trading success requires a combination of both technical and fundamental analysis;
- less active trading can be less exciting;
- you will not be able to take profit from the entire trend, because you will close your positions before the first significant correction;
- now and then, unforeseen circumstances can change even the most carefully planned strategy. They can make the price move sharply against your position;
- swing trading can be difficult during strong trends. When the price moves only in one direction, and there are no fluctuations in the market.
When it comes to the crypto market, there is a golden rule that has now become more imperative than ever: “the trend is your friend”. Speculating on prices against the main trend entails lots of difficulties and additional risks.
Trend trading attempts to capture gains through the analysis of the crypto momentum in a particular direction. In fact, it is simple, really. As soon as the market starts to rise or fall, traders and investors immediately join this movement. The more powerful the movement, the more participants join the process. Mob mentality takes over, you know.
The market has three states:
3. Flat (the stage when a price is neither rising nor declining).
How to trade on the trend?
1. Find the entry point.
2. Identify the risks (do not forget about the stop loss).
3. Make a profit (partially fixing the profits of profit positions).
This strategy allows you to profit from trades and reduce the risk of losses. And most importantly, saves your nerves.
Every trader has at least once heard about aggressive intraday trading when a lot of trades are made during the session. This style is commonly called scalping. This strategy is based on opening a lot of short-term trades in order to get a small profit on them, summing up which, the expected percentage of return is achieved.
The high volatility of the crypto market offers many opportunities for professional scalpers, opening the door to better living conditions. Traders using this strategy choose only those cryptocurrencies that have sudden fluctuations in price.
If the asset goes up and down 1–2% a day, then the scalper will fail to earn a lot of money. If the price of a cryptocurrency fluctuates during the day in the range of more than 15% (and it can increase and decrease by 2–3% in a few minutes), then the trader could do good business here.
This strategy is characterized by a high percentage of unsuccessful trades. Due to the high speed of closing and opening orders, the person does not have time to analyze the market in order to minimize losses and make each trade profitable. The focus is on speed and quantity, not quality.
So, keeping all this in mind, let’s aim to answer this simple question: how to choose a strategy? Here are our two cents, all right? Spend them wisely. When choosing a trading method, focus on a well-tested one that really works. You will experiment (if you want) later when you become a real professional having extra money for this.
Remember that any strategy is the bedrock on which every trader builds something on his own: a chicken coop with a hole in the roof or a factory farm that supplies golden eggs. Copying techniques of successful traders is not always a good idea. You should create your own unique approach, taking into account the personality features.
A key message here: there is no secret formula for crypto success. There are a lot of little decisions adding up to a big decision, rules, and laws adding up to working strategies. Everything depends entirely on you and lessons learned.