In this guide, we look at some of the cryptocurrency trading strategies you can use within the market. Before we begin, it cannot be understated how much spending time familiarising yourself with markets will benefit you. The more time you are exposed to terms, graphs, prices and so on, the more confident you will feel.
1) Risk management
Risk management will be a big factor in your cryptocurrency trading abilities and successes. It’s an important strategy for beginners and veterans alike. Typically, you shouldn’t enter a trade where you stand to lose more than 1% to 2% of your total portfolio. Allowing for a bigger margin could mean running the risk of making an equally large loss.
Hedging is another cryptocurrency trading strategy that you can use. Hedging involves taking an offsetting position on your primary asset. This, in turn, provides you with insurance and can help minimise potential losses.
2) Price tickers
Installing a price ticker is a good strategy for beginners and can also provide benefits to more seasoned cryptocurrency traders. Price tickers will alert you whenever a token price begins to fluctuate, so you can respond in a proactive manner. Dependent on the price movement, you can either buy, sell, or hold your cryptocurrency according to how the market is changing.
3) Use a stop loss
When entering a cryptocurrency trade, it is safe to bet long for support and short for resistance. When doing so, you could assign a stop loss just below or above the support and resistance. Stop losses can theoretically keep your risk small and the potential gain higher.
When looking at a chart or graph for a given cryptocurrency, there will be trend lines which are the typical direction that a token is moving towards. Along the trend lines are horizontal lines that depict levels of support and resistance. A support level tends to indicate that there is a considerable amount of traders willing to purchase a token. Once the token reaches that level, a floor of buyers is created. This is when demand would typically begin to dwindle as the price of the cryptocurrency increases.
A level of resistance is the opposite. It refers to an area where many sellers are waiting patiently with their orders that formulate a supply zone. Typically, when a token approaches that ceiling, it encounters the supply stacks and reverts.
4) Technical analysis
Learning how to analyse technical information is a fantastic strategy because it will help you deepen your understanding of the cryptocurrency market and its current state of play. An example of technical information that you should familiarise yourself with is ‘bull market’ and ‘bear market’.
A bullish market is when prices are starting to soar, encouraging traders to buy. So, when you see someone note the market has took a ‘bullish’ turn, it means an assets price is currently on the up. A bear market is the opposite. It refers to when an asset’s price is dropping. This will typically encourage traders to sell their crypto.
Ensure you are confident reading markets before trading as this will put you in a strong position moving forward.
5) Control your emotions
Emotions can often play a big role in the trading decisions you make. Euphoria may give you a boost of confidence that results in ambitious trades. Frustrations with a bear market may prompt you to sell your cryptocurrency ahead of an upwards spike. And the biggest emotion for most cryptocurrency traders? The fear of missing out.
If you become too engrossed and can feel your emotions becoming problematic, take a break. Keep an eye on the cryptocurrency markets, what’s happening on the exchanges, and take time to make rational – rather than emotional – decisions.
There are other trading strategies available, such as diversifying your portfolio, but these are some of the most useful ones. Price tickers and stop losses will be of great benefit to newcomers, whereas controlling your emotions and learning trading patterns are vital to traders of any level.
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.