Most cryptocurrency pairs are traded against Bitcoin, so the market is known to be quite volatile. Also, it helped many beginners to get started with bitcoin trading. Since speculation and price swings tend to result in significant market movements, many traders look for an opportunity to capitalize on those movements. If you are planning to invest in Bitcoin, trade Bitcoin using Bitcoin Era app now.
Subsequently, selecting the right trading strategy is a trendy topic amongst traders. However, with so many people trading crypto today and new strategies emerging daily, choosing a strategy that works best for you and your chosen time horizon can take time. This guide will walk you through the basics of each strategy, the benefits, and drawbacks of each, and help you decide which best fits your trading style.
Market Predictions:
Market predictions may be the most popular trading strategy for cryptocurrency. However, with Bitcoin’s high volatility and market impact, it can be challenging for traders to stay ahead regarding price movements. The fact is that most people need direct access to information about what exactly is causing a market move.
However, if we look at traditional markets such as commodities or stocks, how a few influential investors or companies can move the market so dramatically becomes clear. With cryptocurrencies, however, there is no apparent source of influence that could affect their future price movement. As such, many traders assume that news and price movements are random. However, there is a mathematical rationale behind why and how the market changes.
Brute Force Cryptocurrency Trading:
The most straightforward strategy is to buy the asset and hold it. For Bitcoin, this translates to simply buying more Bitcoins at every opportunity when they become available. The problem with this strategy is that most traders need help knowing when they should enter and exit the market. It is also essential to buy back into the market quickly, as you lose purchasing power if you do.
Range trading:
While this may seem a viable strategy initially, some drawbacks make it less effective than many traders think. The benefit of this strategy is that you can catch an asset as its value moves up or down and profit from either side of the trend as it reverses direction. However, with this strategy, you must avoid falling into the trap of chasing prices further upward in anticipation of more gains.
Build a balanced portfolio:
A third option is to build a balanced portfolio. It can involve holding a position in several different cryptocurrencies to diversify your risk. The problem is that this doesn’t give you access to any predictive strategies, so you’re reliant on guessing which coins will do well in the future.
While this can be just as effective as any other method available, it’s not the most reliable investment strategy. Any asset does well when there’s more demand for it, and when that happens, all you need to know is where the buyers are coming from and what they intend to do with the asset.
Arbitrage:
Another popular strategy is a combination of both trend and range trading. Arbitrage is a very effective strategy, but it can take time to implement correctly. A small mistake could mean losing the opportunity to buy at a better price. On the other hand, failing to act when there’s an opportunity can mean missing out on some decent gains. So it is often worthwhile to take your time to assess each trade before you make it, especially if your trade comes at a significant potential loss or gain.
Avoid making trading calls based on hype:
Many traders base their trading strategy on market sentiment. One of the big mistakes that people make about investing is deciding on an investment based on hype rather than fact. Significant price movements can occur in a coin without any major news from the company or project, but there are some excellent reasons to be skeptical about such claims.
Technical Analysis:
Technical analysis involves looking at charts and graphs depicting historical price movements and identifying trends. Technical analysts often look for trends to predict a coin’s movement. For example, if a downward one follows a significant upward trend, technical analysts may predict that there will be another upward trend in short order. Technical analysis is a handy tool, but just like all other forms of market research, statistics are only as good as those interpreting them.
Credibility is a major factor in technical analysis, so many people prefer to trade according to fundamental analysis. Technical trading strategies can also be challenging to implement because most exchanges need to provide users with the data they need to make them effective. In any given market, there will be more price movement in popular coins than in obscure ones.
