Cryptocurrency Trading: What Are the Most Popular Strategies?
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By Mary Ann Callahan
The crypto market is nothing like other financial markets, as its volatility is way higher. Ups and downs happen overnight, and we need to act quickly in order to reap the benefits and consider our trade successful. Therefore, it is necessary that you obtain specific strategies which would help you in your effort to amass material wealth by trading cryptocurrencies.
Let’s take a look at some of the proven strategies that helped many crypto aficionados earn their slice of the crypto pie.
Hodling is an Internet slang term for holding. It involves buying assets once and waiting for a long time for their price to go up and sell them when the price reaches the ceiling. The name itself popped up on Bitcoin Forum, as the user who wanted to express the enthusiasm about this trading strategy wrote: “I AM HODLING!” The misspelled word went viral instantly.
There are many cryptocurrency traders (if they can be considered traders at all) who apply this strategy. This was mainly triggered by the idea that Bitcoin and other altcoins could go up again in the future. Basically, some say that hodlers are similar to position traders who take it slow with buying and selling. However, position traders still trade, although on rare occasions; while hodlers only, well, hodl.
This strategy is essential if you are new to cryptocurrency trading and don’t want to learn more about trading cryptos.
“Scalpers” are traders who basically trade whenever any kind of fluctuation happens on the market. In other words, the sudden asset value changes will immediately attract scalpers who will use this as an opportunity to buy or sell their coins. The main idea is to use volatility as your primary weapon when trading and always be there to watch the things unfold in front of your eyes.
A word of warning! This is a very fast-paced type of trading. It involves regularly following the market on online platforms in order to be there when something happens. Furthermore, this strategy requires a more profound understanding of how trading works, so make sure to do some light reading before you become a “scalper.”
Successful scalpers understand a broader scope. They know that it is not only about cryptocurrencies but about the hype and all the other things that affect crypto prices.
Day Trading is essentially the same as Scalping, except for the fact that trading is conducted less often and in smaller amounts. Day traders use asset fluctuations in order to get the most out of their crypto trading effort, but they do it one small step at a time, unlike scalpers who always aim at the big picture. Every day trader should pay attention to things such as trading volume, market liquidity, and asset volatility as these play a crucial role in the day trading strategy.
What you need to understand is that both scalping and day trading involve a lot more risk than hodling. When you hodl, you take a long-term risk which is not as dangerous as emotion-filled one that scalping and day trading include. In other words, you need to be mentally prepared for an emotional rollercoaster throughout the day if you want to devote your time and money to this type of trading.
Buy When Low – Sell When High
“Buy when low – sell when high” is a type of strategy that is basically included in every other kind of strategy. It is only natural that you want to buy low-priced assets and sell them when they peak. However, if you are a newbie in cryptocurrency trading, you may just want to follow this formula as the number-one rule. Therefore, make sure to watch crypto prices every day and buy coins when you think they have reached their floor price.
The same principle should be applied to the cryptos that you own. Sell them only when you see that their price is going up and is about to hit the ceiling after which they will start going down again.
Sure, it takes a lot of understanding of how to do that properly. We suggest that you closely follow experts’ advice on this and read news about cryptos on a daily basis.
Balanced Portfolio/Unbalanced Portfolio
Balanced portfolio strategy means choosing a couple of tokens and start trading them equally. For example, you can choose to trade with Bitcoin, Ethereum, and Litecoin. A balanced portfolio would mean that you buy an equal amount of coins for all three cryptocurrencies and devote the same amount of time. This is a perfect way to test various currencies and continue with the one that seems to bring you the highest profit.
Utilizing the balanced portfolio strategy is not an easy task, though. Things can get complicated and out of control if your tokens change overnight contrary to your prediction. Therefore, instead of risking it with one type of coin, you are risking it with several cryptos. On the other hand, the reward can be very high if you play it right!
The unbalanced portfolio includes focusing on trading one cryptocurrency, but not excluding others completely. You would create your portfolio based on how each of these cryptocurrencies performs. For example, if Bitcoin performs well, it would be your primary focus, but Litecoin and Ethereum would also take up a portion of your portfolio.
Those who want to adopt an unbalanced portfolio strategy need to conduct thorough research in order to gain a deep insight into which cryptos are performing well and how they should structure their portfolio.
Both beginners and experts should have some type of strategy when they trade cryptocurrency in order to maximize the potential outcome. The strategies presented above are the tip of the iceberg to get you interested in crypto trading approaches. Therefore, if you plan to begin with trading cryptocurrencies, make sure to read more about the best possible strategy for you.
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