Today, there are many asset classes for investors to choose from, and crypto assets are the latest addition. Many institutional investors are entering the digital asset space. Investors take a buy or sell position for a short period in hopes of price appreciation in crypto trading. When trading crypto assets, asset-class fundamentals take a back seat. There are many methods for investors to invest and trade in crypto assets. This article will explore some of the popular strategies of crypto trading.
Crypto trading vs. investing
We often use trading and investing interchangeably, but they are different strategies to gain wealth. Using a reliable indicator, trading anticipates short-term movements in price, and traders usually buy and sell within a year. Trades could also be as short as a day or even a few minutes.
Crypto investing involves buying a crypto asset and holding it for a while, usually more than a year. Valuation is not a high priority in investment decisions, but the price at which an investor buys a crypto asset is vital. The logic behind buying at the right price is that a high-performing asset appreciates over a long period, giving handsome returns. And buying at a low price will be advantageous to investors when the power of compounding is at play. For example, Ethereum and Bitcoin have been high-performing crypto assets over a long period and have rewarded their investors with high returns.
Crypto trading methods
While there are many trading strategies, this article has listed some popular trading techniques used by crypto traders. These crypto trading techniques can help you to understand the dynamics of risk and reward in crypto trading.
Crypto day trading
Buying and selling a crypto asset on the same day is known as intra-day trading. Day trading depends on the forces that impact the prices of the buy-sell market on that particular day. Typically, institutional traders have a big impact on the prices of crypto assets, so retail investors benefit by shadowing them during intra-day trading. For example, the price of a crypto asset shoots up when large institutional traders take a position on crypto coins such as Ether or Bitcoin. If retail traders are quick enough to act in such situations, they can benefit from these market movements.
What is swing trading?
Depending on the price movements, crypto assets being bought and sold after a week or a month is known as swing trading. Swing trading involves price monitoring over a long period, unlike intra-day trading.
Swing trading also involves technical and fundamental analysis of a crypto asset. For example, crypto traders used swing trade strategies to enter and exit the market during the recent Ethereum merge event.
Crypto arbitrage
The process when crypto traders buy and sell assets on multiple exchanges is known as arbitrage. For example, if Ether is at $10,000 on one exchange and $10,500 on another, traders will buy crypto assets on one and transfer the newly acquired crypto asset to another. The trader will then sell the newly acquired asset for a decent profit. Crypto traders have to pay commissions on all exchanges they trade on.
Crypto futures trading
Future trading is an agreement to buy a crypto asset at a future date for a specific price, and a contract binds this agreement. Traders have a knack for making good predictions about future price movements and can make tidy profits using this strategy.
High-frequency trading
High-frequency trading involves using algorithmic methods to scan markets based on predefined conditions. When certain conditions are met in high-frequency trading, bots are allowed to place orders on behalf of investors. Traders should be well-versed in financial modeling and programming to execute high-frequency trades. Experienced crypto traders often use this trading strategy.
Range trading
Crypto prices are monitored within a range in this type of trading. Crypto traders should know the resistance and support lines to earn a profit through range trading. Technical indicators like resistance and support points predict trend reversals.
Another component in making accurate inferences from technical charts is historical backdating. For example, if Bitcoin is between $19,000 to $23,000, traders can buy low and sell high within this range to make decent profits.
Scalping in Crypto
Making profits over several trades over a short period is known as crypto scalping. The profit from each transaction might be less. Traders can make a sizable profit when all the transactions are consolidated.
Crypto scalping involves placing orders quickly, usually for highly liquid assets. A market should be ready to buy crypto orders at any given time to ensure successful scalping. Crypto traders should have a good grasp of concepts such as price points, volumes, news, and other technical indicators to take advantage of scalping opportunities.
Trend-based trading
Trend-based trading anticipates price appreciation through market signals and developments on a macroeconomic level. For example, a new Metaverse token based on a game is launched. Then, this game witnessed a surge in downloads and an increase in its user base. All this will result in a big rise in the price of the crypto token. Crypto traders must always be aware of the everyday happenings in the market to successfully execute trend-based trades.
Advantages and disadvantages of crypto trading
Conclusion
Investors are presented with multiple options to amass wealth through crypto trading. Crypto trading comes with risk like any other market. Crypto traders should perform their due diligence and have contingency plans and strategies before investing in cryptos using the above strategies. A well-researched strategy is vital to performing better than the market.
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