Choosing the right cryptocurrency trading strategy for you

Trading cryptocurrencies can be hugely rewarding — and profitable — but it can also be a risky hobby. It’s essential to have a solid strategy in place before getting started, not only to increase your chances of success, but also to minimize your losses. There are a variety of different trading strategies that are popular within the cryptocurrency industry today.

So, how do you choose the right strategy for you? In this AAG Academy guide, we’ll explain what exactly a trading strategy or technique is, and look at some of the most common options and what they entail. This should help you decide which one best fits your needs, depending on your goals, your risk tolerance, and how much time you have to spare.

Why is it important to have a crypto trading strategy?

A cryptocurrency trading strategy is essentially a plan or a set of rules that you can follow when buying and selling cryptocurrency assets. It can help you make better, more sensible decisions about what you do with your money — and when you do it. Perhaps most importantly, a good trading strategy will allow you to determine what you can afford to invest before it’s too late.

If you have some spare cash sitting in your bank account and you put it all into a random cryptocurrency without doing any research or preparation beforehand, you might make a profit if you’re very lucky. But there’s a good chance that you will make a loss instead. A good strategy will help you avoid mistakes like this so that you’re hopefully not enduring losses very often.

What is a crypto trading strategy or technique?

A good trading strategy takes into account your potential portfolio as a whole, rather than focusing on individual cryptocurrencies or individual positions. This can maximize your chances of making money from certain investments while others aren’t doing so well. Furthermore, your strategy should take into account your personal situation.

We all have different needs or objectives when it comes to trading, so just because your friend’s trading strategy works for them, it doesn’t necessarily mean it will work for you. You’ll need to think not only about how much money you can put into trading, but also how much free time you have to invest, since some strategies require a lot more input and dedication than others. 

Almost all crypto trading strategies typically involve analyzing the market and tracking things like trends, price charts, and other important data to some extent. They also involve keeping an eye on recent cryptocurrency developments by following relevant news sources and market events, and staying up to date with the projects you’re interested in trading.

The AAG Academy has a growing catalog of helpful guides that you may find useful while putting together your trading strategy. Here are a few that could be particularly helpful:

• Getting to know investment strategies in crypto
• How to start trading cryptocurrency
• How to diversify your cryptocurrency portfolio
• Active trading vs. passive investing: What’s the difference?
• Financial planning and personal budgeting

The last guide on financial planning and personal budget is a great place to start; it will help you work out how much money you can spare for cryptocurrency trading without leaving yourself short or missing important commitments. You may also want to take a look at the guide on how to start cryptocurrency trading if you’re completely new to this.

Popular crypto trading strategies

Fortunately, when it comes to deciding on a crypto trading strategy, you don’t have to build your own plan from scratch. There are various strategies that are commonly used by traders today that you can pick from, or at least use as a starting point when putting together your own plan. Here are some of the most popular options:

Day trading
Day trading is a strategy that’s best suited for experienced traders. Traders who engage in day trading hold positions for a very short period of time, often less than one hour. In many cases, day traders may only hold a position for a few minutes. Positions are held in the hopes that the asset’s value will rise shortly after entering the trade.

Once the value of the asset has risen enough to make a profit, the position is closed. While day trading can be very lucrative, it’s a risky strategy that’s not suitable for all traders, especially those who are new and inexperienced. It also requires a significant amount of time, since profits tend to be small, so it’s necessary to make a lot of them for it to be worthwhile.

Arbitrage trading
Arbitrage trading, which we have an in-depth guide on for those who want to know more, involves simultaneously buying and selling the same asset or security in multiple markets to take advantage of differences in price. It is a somewhat complex strategy for newcomers because it relies on making quick trades, but you can use software to assist you.

This strategy is predicated on the fact that most cryptocurrencies, particularly those that are popular and valuable, are available on many exchanges — sometimes hundreds of them — and it is impossible for every exchange to maintain exactly the same price at the same time. Therefore, there are almost always differences in value between them.

Buying an asset on one exchange, where its price is slightly lower, and then selling it on another exchange where its price is higher can yield an instant, albeit usually small, profit. And if you do this many times per day, you can quickly build up sizable earnings.

Scalping
Scalping is another type of short-term trading strategy, much like day trading, except it calls for even quicker trades. Those who use it hold their positions for a very short amount of time, often for as little as a few minutes. It consists of buying assets at their bid price and then quickly selling them at their asking price for a small profit.

That makes this another high-risk strategy that’s better suited to veteran traders with plenty of experience.

Swing trading
Swing trading refers to medium- to long-term trading that usually lasts a few days to several weeks. Unlike day traders, swing traders generally hold their positions for longer periods of time, but the general idea is the same: You buy into a cryptocurrency at a good time, then sell it as soon as you have reached a desired level of profit.

Swing trading is a little less risky than day trading since you are allowing yourself more time for each trade, but it’s still considered a high-risk strategy. Swing trading is better suited to those who have a high level of trading experience and ample time to devote to it.

Range trading
Range trading is a strategy that consists of buying and selling cryptocurrencies within specific price ranges. It aims to take advantage of the frequent price fluctuations that all cryptos experience on a regular basis. Traders will often use limit orders to acquire certain assets at the right price, and use stop-loss orders to ensure any potential losses are minimized.

Range trading can be a good option for new and inexperienced traders because it does not call for complex analysis or forecasting like some of the other strategies we’ve looked at here. Although some market knowledge is always helpful, you don’t need to dedicate vast amounts of time to knowing everything there is to know about the market.

Position trading
Position trading is another excellent option for newcomers because it involves holding your positions for long periods of time, which gives you plenty of opportunity to plan your moves. However, it is necessary to spend time analyzing the market, the cryptocurrencies you’re interested in, and industry trends to identify potentially promising opportunities.

The primary goal with position trading is not to make smaller, more regular profits from small price changes, but to wait until you can claim a more significant return on your investment. This could take weeks or even months, which makes it ideal for those who don’t have a great deal of time to dedicate to trading; you can buy the assets you’re interested in and then leave them be.

Do your research

It is important to note these aren’t the only trading strategies available to you. We have simply listed some of the most popular to give you an idea of possible techniques — and to demonstrate that no matter what your goals may be, the position you’re in, or how much time you have to spare, you should be able to find a strategy that works for you.

If you decide that none of the above strategies are ideal for you, do some research into other common options before putting together your own trading plan.

References

• What is scalping in crypto and how does scalp trading work
• What is arbitrage in crypto trading
• Crypto trading strategies you need to know
• The 5 crypto trading strategies that every trader needs to know
• Best crypto day trading strategies