10 Best Crypto Trading Strategies

An emerging asset class with a total market value of more than $1 trillion is sure to make the heads turn of every investor. Cryptocurrencies were one of the best performing asset classes in 2021.

An increasing number of investors, both individual and institutional, allocated a part of their portfolio to digital assets, hoping to make a profit in the long run.

However, digital assets are prone to wild price swings, making them risky assets. Trading in this new space requires due diligence and a thorough assessment.

Let’s take a glimpse at the 10 best crypto trading strategies of 2022.

1. How Much Crypto Should You Own?

Many people argue that the performance of the stock market thrives and there is no need to invest in a volatile emerging asset class, such as crypto. There’s a certain truth to that statement considering that the performance of stocks, bonds, and bills averaged around 20% a year in the last three years.

However, a look at the performance of Bitcoin whose price went from a few dollars in 2009 to $68,000 in November 2021 is all the incentive an investor needs. An opportunity like this should make you wonder ‘why not add crypto trading strategies to my portfolio and maximize my gains.’

A 2019 Yale study recommends allocating 4-6% of your portfolio in digital assets. Most financial advisors and money experts recommend anywhere between 1% and 5% of a portfolio to be invested in crypto.

On the other hand, crypto veterans and pundits might suggest you allocate up to 20% of your portfolio in this industry.

2. The Right Mix of Storage

After assigning a part of your portfolio to crypto, the next essential decision in the list of crypto trading strategies is regarding the storage of purchased crypto assets.

You may think how storage can be a part of strategy, but after reading further ahead you will realize how proper storage of crypto can help you to trade them more efficiently.

Crypto assets can be held in either hot or cold storage. Hot storage refers to an online digital wallet whereas cold storage refers to an offline wallet like Trezor.

Experts usually suggest storing a majority of your crypto in cold storage to prevent it from getting hacked and protect it from third-party liabilities.

Crypto traders can hold a small amount of crypto in their hot wallets to facilitate easy moving in and out of positions. It can also be used for short-term movements.

3. Prioritize Liquidity

An important measure of the crypto market is liquidity. There are hundreds of coins and tokens available for crypto trading. Prioritizing Liquidity thus becomes an essential part of the crypto trading strategies.

Since crypto traders move in and out of positions quickly, they need to choose an asset with high demand so that it can be traded and a profit can be made.

An asset with great potential but less demand results in less trades. A trader’s money is then caught up in that trade, sitting at the market’s mercy.

An important marker to measure liquidity is the recent trading volume of a crypto asset. The trading volume indicates how much cryptocurrency has been bought and sold, indicating the overall interest in the asset.

4. Harness Volatility

The main distinction between the traditional and crypto market is the factor of volatility. Since crypto is an emerging asset, hype and speculation surrounding the asset class can result in periods of heightened volatility.

However, a certain range of daily volatility is considered healthy in the crypto market and is a great opportunity to make profits. This could be deemed as one of the most profitable crypto trading strategies.

However, to use this volatility to advantage and manage the risks associated with it, a trader must have adequate experience and knowledge of the market to manage its price swings.

Another way to profit from this volatility is to pay close attention to what is happening in the market and with the traded asset itself. This means following the news and all related blockchain updates as well as historical charts so that you can identify emerging patterns.

5. Invest What You Can Afford

To remember while dabbling in the cryptocurrency market is to invest only what you can afford to lose. This is a very important rule that should be followed when venturing into crypto trading.

If you cannot withstand the potential full loss of your crypto trade, that means you cannot afford the risk of investing the amount you are considering.

Crypto novices should take a cautious approach and allocate less of their investable income to the asset class. Whereas experienced crypto traders and DeFi experts tend to have a higher risk tolerance, resulting in larger trades.

6. Take Your Gains Often

According to experts, crypto traders should book their profits often. Instead of speculating if the crypto asset’s price could go higher while exiting a position, a trader should regularly take profits to deal with the volatility of the market.

Having a predetermined goal while determining crypto trading strategies will further help the trader to define their entry and exit points.

7. Diversify

One of the golden rules of trading in the crypto market is to diversify. By trading a variety of coins and investing in various crypto projects, an investor can reduce their risk considerably.

The crypto industry offers a huge bouquet of investments, including the “internet of things”, non-fungible tokens, DeFi projects and a wide variety of coin types.

For further diversification, investors can use different crypto exchanges, since different platforms offer different assets.

By spreading their investments across different digital assets and exchange platforms, crypto investors can reduce their overall risk profile.

Diversifying one’s portfolio is the best crypto strategy for beginners. Going all in on one crypto asset could result in heavy losses.

8.ETF

A notable trading option offered by the crypto market are ETFs (exchange-traded funds). A crypto ETF tracks the price of one or more digital tokens. Several Bitcoin ETFs and blockchain ETFs are available on the market.

ETFs provide exposure to crypto without the additional expenses of ownership, and without any hidden charges, such as transaction and network fees.

Crypto ETFs also enable investors to diversify their portfolios without incurring the costs for each token.

9. Dollar Cost Average (DCA)

The strategy of dollar cost averaging involves investing a certain amount of money on a consistent basis. Investors make regular purchases and decrease their average cost.

This strategy allows money to be invested during both bear and bull markets. DCA also reduces the risks associated with the violent volatility of the crypto market.

Using the DCA strategy helps remove emotion from new positions in the market and also helps to ignore the short term for longer positions by purchasing crypto over an extended period of time.

Keep in mind that DCA is a long-term crypto trading strategy and cannot be used to make quick profits.

10. Trading Bot

Crypto trading bots are automated software that helps you buy and sell cryptocurrencies. This software helps an investor increase their revenue and reduce their losses.

Bots can take advantage of the fact that crypto markets trade 24/7. They also react much faster than investors.

The most popular type of bot is the arbitrage bot, which takes advantage of the discrepancy in price across various crypto exchanges. Since the price of Bitcoin varies slightly from exchange to exchange, the bots that can move fast enough can beat exchanges that are delayed in updating their prices.

This is one of the more popular crypto trading strategies of 2022, especially amid this crashing market.

CONCLUSION

While all of these crypto trading strategies may seem easy on paper, it is quite difficult to navigate the volatile terrain of the crypto market.
Each investor should carefully research their investments and trading strategies before investing any money.
A novice crypto trader can join telegram groups or find mentors who have been in this industry for quite some time to help them formulate their crypto trading strategy.
Each investor should carefully evaluate the amount of money they are ready to trade and lose while formulating their trading strategy.