To continuously generate money in the crypto market, you’ll need a working strategy. It would be a mistake to regard the events in the crypto markets as random and trade just on intuition. Trades made on the basis of your intuition can yield a sizable return. However, such a success is purely coincidental—you can’t be certain of repeating such outcomes regularly, no matter how hard you try. Expert traders rely on well-thought-out strategies for their success. They understand that while cryptocurrency prices fluctuate, they generally follow predictable patterns.
What is a crypto trading strategy?
It is a comprehensive plan that covers all aspects of your trade. It’s a structure that you build to guide you through all of your trading attempts. A strategy can help to reduce financial risk by removing many unneeded decisions. While it is not required for trading, it might come in handy at times. If something unexpected happens in the market, your trading plan, not your emotions, should determine how you react.
In other words, having a trading strategy in place prepares you for the worst-case scenario. It keeps you from making rash, impulsive judgments that can cost you a lot of money. This strategy makes use of a variety of analytical methods to focus on predetermined market conditions and price levels. The following are steps for choosing a strategy.
Step 1: Choose a platform
When it comes to choosing the best platform to buy and sell crypto, exchange liquidity, asset liquidity, and fees are at the top of a trader’s list. Because of the volatile nature of the cryptocurrency market, the value of digital assets can fluctuate dramatically. Traders who want to maximize their profits in this market must act quickly. When it comes to deciding where to conduct crypto trading, the options and distinctions between the different crypto exchanges can be overwhelming for new crypto day traders.
Metrics to look at when choosing a platform
- Authenticity and security
The safety and efficiency of the platform are dependent on the security of your data and payments. Pump-and-dump scams are one of the most serious problems in the crypto industry today. Ensure you look at reviews on the internet to check authenticity and avoid new platforms.
- Supported tokens
Most exchanges support Bitcoin and Ethereum, but cryptocurrency investors are well aware that this is only the tip of the iceberg. The accepted cryptocurrencies vary significantly between exchanges; some platforms trade a large number of altcoins, while others focus on major cryptos.
- Trading fees
This is an important consideration because the platform/bank/currency exchange deducts a portion of your investment or transaction every time you buy/sell/trade. Trading costs should be low and competitive in order to maintain your assets even if you trade in large quantities.
An exchange’s liquidity refers to the speed and simplicity with which it may convert one asset into another without altering its price. The top cryptocurrency exchanges are highly liquid, which means they can purchase or sell assets instantly and with a small spread between the bid and ask prices.
Step 2: Choose your investments
After you’ve set up your account on a platform, it’s time to decide what you want to invest in. Market volatility is unavoidable for crypto day traders. The same market instability that drives away buy-and-hold investors also creates possibilities for traders to benefit. Consider asset liquidity, volatility, and trading volume when deciding what to invest in.
- Asset liquidity
As aforementioned, the ease with which an asset can be turned into cash without influencing its price is referred to as asset liquidity. When a trader performs a trade, and the exchange fulfills the order, the price of a crypto asset can vary. The difference between those prices is slippage, and in the crypto markets, a few minutes can mean the difference between a big profit and a big loss. A lack of liquidity in the crypto market can be terrible, creating price slippage and raising the danger of a flash crash.
The volatility of a market refers to the unpredictability of crypto price movements. The news cycle, economic statistics, and research reports are all factors that influence market volatility. The same causes have a significant (or no) impact on various crypto assets in the crypto markets.
- Trading volume
The trading volume of a cryptocurrency is a measure of overall market interest. A cryptocurrency with a large volume has more liquidity. In a similar line, a cryptocurrency with great liquidity frequently has a higher price. Crypto traders should examine an asset’s trading volume closely to see if it can be sold swiftly and for a higher price than when it was obtained.
Step 3: Choose a strategy
After choosing a platform and your investment, it is time to come up with a working strategy. A crypto day trader should have a profitable strategy based on research and have well-defined plans for entering and exiting positions.
A comprehensive trading strategy can include the following; what setups do you use, what tools and indicators do you use, what triggers your entries and exits (stop loss placement) and how do you document and assess your portfolio performance.
- Active trading strategies
They necessitate more time and effort. They’re called active since they require continual monitoring and portfolio management on a regular basis. Examples include day trading, swing trading, trend trading, and scalping.
- Passive investment strategies
These provide for a more hands-off approach to portfolio management, requiring less time and attention. They include buy and hold, index investing, and using bots for range trading and arbitrage trading, etc.
Before choosing a crypto trading strategy, you will have to choose a platform that is ideal and the asset you want to trade. There is no best strategy that can be generalized to work for everyone because this is something that relies heavily on the individual trader. Take your time and plan out your crypto trading strategy. Ensure you keep tabs on the results of your trades so you can readily see which ones were successful and which ones were not.