Best crypto trading strategies

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cryptocurrency trading

Every day, more and more investors are seeking new and effective ways of adding cryptocurrencies such as Bitcoin and altcoins to their investment portfolio. Some crypto assets have grown dramatically in the last few years even though the market overall registered a dip. It is no secret that Bitcoin has left the stock market behind in its growth. That said, one has to still exercise caution when it comes to trading Bitcoin and other cryptocurrencies. Treat it the way you would treat any other financial instrument. Have a strategy in place to ensure you’re managing your crypto assets well. Read more

Read on to learn about some strategies that you can explore:

The right storage mix

There is nothing more important than making sure that your cryptocurrency is stored in a safe space. There are a few ways to do this. You can hold them in hot or cold storage. Hot storage or wallet saves your crypto tokens online while cold storage stores them offline on a device like a USB or a hard drive. It is wise to save them on the latter to make sure hackers cannot access your crypto tokens. However, for the sake of convenience, you could keep a portion of your crypto assets in a hot wallet. This would speed up transactions. Typically, almost 80% of the long-term digital assets are best stored in a cold wallet while a hot wallet can be helpful for short-term positions.

Liquidity is the priority

Take liquidity into account when making investment decisions in the crypto market. Liquidity is an indicator of the ease by which crypto can be encashed without altering its value. At present, Bitcoin has the best liquidity in the market. Liquidity plays an important role in a trader’s ability to open and close trading positions swiftly.

This is a key aspect in the crypto market as it requires investors to make quick moves to cut losses. It further implies that it is necessary to have both supply and demand for a cryptocurrency to ensure that investors get the ideal price to buy or sell. In general, you wouldn’t want to invest in an asset that has been stagnant but may hold solid potential because then that leaves you counting on the market mood. Trading volume is an important metric that helps in the accurate measurement of liquidity.

Take advantage of volatility

Cryptocurrency prices are famous for reaching extreme highs but they’re also prone to falling down dramatically. The volatile nature is good for traders who can make the most of the price swings in the short term but if you are a long-term investor, things may get tricky. Cryptocurrency is relatively new and thus, there is a lot of speculation around it which adds to the volatility. However, everyday volatility is not something you should worry about. It is only the large price movements that could lead to major swings. Stay updated with the latest news, information, and blockchain-related information to make volatility your friend. It is risky but it also holds a lot of profit potential.

Invest over and above your security backup

This advice is the same as the one you’d get in traditional investing. Put in only the amount of money in the crypto market that you can afford to lose. If at any point you think that you cannot stand a loss, it is best to stay away from investing in crypto.

Understanding your risk appetite in the crypto market is about the money you earn and your present risk profile. If you’re new, you could go on with 5% of your income in the crypto market. For a crypto enthusiast, staking about 10% of your income could seem doable while if you’re a trader with expertise in the DeFi space, you can consider risking 20% or more.

Withdraw profit, often

Any market expert in the crypto space would tell you that you should take your gains from time to time. Crypto investors are often confused about whether it is the right time to sell crypto or buy crypto because it is hard to predict whether the price will rise or fall. That said, it is a good idea to have a strategy in place that enables you to take a profit. Don’t fall for the buy and hold strategy if you’re relying only on memes and tweets, you could end up losing more. Instead, spend time determining your trading goals and having clear entry-exit points in the market.

Diversify

Don’t put all your eggs in one basket. This typical advice for traditional assets applies to crypto as well. You can easily mitigate risks by dividing your investments into multiple crypto assets. Since crypto is a new market, splitting your funds across assets like the internet of things, non-fungible tokens, DeFi projects along with coins and tokens can help in increasing the chances of profit. There is also the option of putting your money across different exchanges. Such diversification helps in allocating funds to stable and speculative assets.

Dollar-cost averaging

Dollar-cost averaging or DCA refers to the strategy of investing a particular amount in regular intervals. Instead of paying up a sum upfront, you split the amount and pay in batches. It lets you make a profit during the market swings as it is hard to predict the market’s movements. In DCA, you essentially spend the same amount of money irrespective of whether the market is on a bear run or a bull run. Letting you buy assets when the market is slow and thus, helping in accumulating funds over time is an important part of the DCA strategy. It allows you to keep your emotions in check especially when the market is at a low and you’re in it for the long term.

Bottom line

Let’s face it, a crypto trading strategy is not easy to create and master. This is something that is in line with your financial goals as well as your trading style. Now that you know about the different trading strategies that you can use, we hope that you will find it easier to start trading. To assess which strategy suits you best, maintain a journal to see how it has performed. Track each technique to compare the results and go with the one that helped you earn the most.

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