Top 5 Cryptocurrency Trading Styles
Learn about 5 major trading styles in the cryptocurrency market. Select the one you think suits you the most or experiment with all to find the right one based on risk and time management.
Thanks to extreme volatility, cryptocurrency trading is somewhat feared. However, the truth is crypto trading is neither difficult nor it is too risky in comparison with a traditional stock market. With proper trading strategies in place and better know-how of the market, you can generate stable returns trading cryptocurrencies.
Talking about trading styles, some traders prefer adding small profits over a period of time while others lock their assets for a long period anticipating huge profits. No matter which trading style you choose, understanding the cryptocurrency market and learning to read crypto charts is a must. This article will discuss different cryptocurrency trading styles in detail. Let’s get started:
Types Of Cryptocurrency Trading
Based on when you close your trading position, cryptocurrency trading strategies are broadly classified into:
1.Long-term cryptocurrency trading
In this trading strategy, you hold your asset for months. Long-term crypto traders are barely affected by the noise around crypto prices and maintain their position for long periods as they anticipate huge returns in the future.
2.Short-term cryptocurrency trading
Short-term crypto trading refers to buying and selling cryptocurrencies within shorter timeframes. In this strategy, traders do not lose much in case of a downward trend. At the same time, they fail to benefit from the long-term growth of the crypto asset as long-term traders.
These two trading strategies are further divided into several trading styles. In the next section, we will discuss some prominent cryptocurrency trading styles:
5 Different Cryptocurrency Trading Styles:
‘Hold On For Dear Life (HODL)’ is a passive trading style where traders buy an asset and maintain their position for months, regardless of market fluctuations. In this strategy, traders anticipate a huge price gain in the long-term, and thus, they secure their initial investment and bank profits once the asset’s price hits a significant high. In simple words, HODL investors believe in ‘cashing out big.’
HODLing doesn’t involve daily monitoring of crypto charts; only once in a while is enough. Also, HODL investors largely rely on fundamental analysis. This involves assessing the intrinsic value of an asset and analyzing the factors that can affect the asset’s price in the future, such as market trends, the team behind the crypto project, reputation, and market capitalization, to name a few.
The timeline of this strategy is rather unpredictable as it depends on how much profit you anticipate. Nevertheless, you should not get too greedy and take out profits at the right time. At the same time, you should not panic over bearish trends.
Scalping is amongst the most active day trading styles. Here, you sell a crypto asset for small profits in a matter of minutes before the price takes a nosedive. The idea behind scalping is to add small profits rather than taking a big bet.
As a result, this trading strategy does not exploit big movements or downtrends. Instead, it requires you to bet on small movements over and over again. For this, you can leverage market inefficiencies such as bid-ask spreads (the difference between the lowest asking price and the highest bid price), gaps in liquidity, etc. However, you should take note of the exchange trading fees while scalping. If the trading fee is significantly high, you would barely make any profits.
Also, scalping is most profitable in higher liquid markets as they are relatively predictable, and thus, you can close your positions smoothly. Moreover, scalping is not recommended for beginners as it requires a deep understanding of the market and price action. Plus, it requires you to spend more time online reading the market to leverage even the slightest movements.
So, if you are good at making decisions within seconds under pressure and can devote significant time to crypto trading, scalping is for you.
Unlike traditional stock markets, the cryptocurrency market doesn’t have an opening or closing time in a day. Cryptocurrency markets are active 24 hours a day.
So, what’s day trading in crypto?
Day trading in cryptocurrency is done during the most active hours of the day. This is a short-term trading strategy where you close trading positions in a span of 30 minutes to a few hours (no overnight positions). In contrast to scalping, day trading allows you to take more time to close your position.
Nevertheless, the cryptocurrency universe is extremely volatile. Prices can go in favor or against you at any time of the day. As a result, you need to dedicate more time in day trading. To minimize risks in day trading, you can place stop loss and take profit limits on your orders.
If you are always updated about crypto trends and have a knack for observing the crypto price charts, you can even make a living while day-trading crypto assets.
Many in the crypto space agree that cryptocurrency prices go up and down in a curve. Swing trading is all about identifying that pattern and leveraging it for banking profits. It is a short-term strategy where the position is maintained over a period of days to weeks.
For long positions, swing trading refers to opening your position at the bottom, riding the wave to the top, and closing the position while making profits. In short positions, this logic is reversed.
Swing trading is a short-term strategy. In this trading style, the position is maintained over a period of days to weeks. While swing trading, you should not panic over sudden fluctuations, given you’ve identified a pattern by analyzing the support and resistance levels. For this, you need to use both technical indicators and fundamental analysis to better predict your moves.
If you are a beginner in crypto trading, you should start with swing trading as it gives you more time to determine your trading positions as opposed to day trading or scalping, where you need to make decisions in the blink of an eye.
Position trading is the longest trading cycle lasting over a year to several years. If you are not swayed by the noise around crypto trends and are willing to take your eyes off crypto price charts, position trading is for you.
In position trading, you need to trust your cryptocurrency holdings. Nevertheless, you should not turn blind-eyed. Indulge yourself in an in-depth study of the concerned crypto-asset; analyze the fundamentals, read expert opinions, know the team backing the project, etc. Once you have trust in the crypto project, open your position, and that’s it, sit back and relax until it’s time to take out profits.
As a position trader, you should be unaffected by the so-called public opinion, given you have done your research properly. Position traders who believed in bitcoin amongst the noise of a recession have made a fortune as they had faith in bitcoin’s future.
You can take advantage of a fully automated GRID trading strategy, which implies buying low and selling high each time the market makes even micro swings. At Bitsgap the system distributes your investment proportionately by each grid level (limit sell and limit buy orders) so that if the market falls you benefit from the dollar-cost averaging effect. Conversely, if the market moves in a sideways direction or makes new higher-highs, then the bot will sell as the price rises to lock in micro returns. You can set your desirable profit per grid (grid %) to ensure a stable profit inflow each day.
Backtest any strategy before risking real money. By stress-testing your automated configuration you can make future return estimations based on past results in a simulation.
Ready-made strategies for beginners and professionals: Here
The Bottom Line - How To Pick The Right Trading Style?
There is no fit-for-all trading style. You should pick a trading strategy after analyzing your personal finance goals and, most importantly, the amount of time you can devote to crypto trading. Once you have a trading strategy in place, start with Bitsgap's demo trading. After you gain some confidence, it’s time to bet real money. Start with a small amount and gradually increase your positions upon successful trades.
Well, the most common mistake of a beginner trader is to keep switching trading styles. Initially, you should stick to a trading strategy if it is working for you or even if it is performing slightly below your expectations (don’t take losses, though).
For being a successful crypto trader, you should know how to differentiate between noise and trends. Plus, you should learn how to use different order types to maximize profits and cut losses, such as stop loss and take profits.
It is worth noting that you should not stick to a trading strategy forever. Once you have enough trading experience, you can level-up your game by diversifying with different trading strategies (for example, automation + manual swing trading)
To sum up, there is no rule of thumb in crypto trading; you should stick to what is working for you.
Written by Dmitry Perepelkin