Cryptocurrency trading: How to choose a good strategy

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Cryptocurrency trading: How to choose a good strategy
2019-01-21 in CRYPTOPEDIA

Cryptocurrency trading attracts many people who consider it as a tool for additional income. However, newcomers often act on the exchanges intuitively. The main advantage of all the strategies described below is high profitability and minimal risks. It is important to understand that it is impossible to trade in a cryptocurrency environment without any risk – there is always the likelihood of a sudden collapse of digital assets.

Basic features of cryptocurrency trading

Scalping

This strategy is a classic one. It was first used by the Forex traders, and is still one of the most advantageous for amateurs and professionals.

Scalping works as follows: the trader makes a big number of transactions in a short time, and then closes them after a few minutes (in some cases, seconds).

At its core, the strategy is simple, but it is not recommended to invest a significant amount in scalping, since cryptocurrencies can collapse in price and bankrupt the trader.

This strategy can be used on any cryptocurrency pair. For example, you buy 10 Litecoin for 30 dollars. When the price reaches $ 35, you immediately sell all Litecoins, making a profit of $ 50 (excluding trade commissions). However, constant monitoring is required, plus confidence that this particular coin will grow in the short term.

There are several types of scalping:

Glass scalping. It depends on the trader’s ability to determine the imbalance between supply and demand and, thus, predict which cryptocurrency will go up.
Impulse. A trader evaluates news and information that he receives in the mass media and makes a final decision.
Hybrid scalping is the ability to evaluate all trends affecting the price of a cryptocurrency pair.

Creation of a crypto portfolio

This complex cryptocurrency trading strategy is based on an assessment of the state of the cryptocurrency market. To use it effectively, it is necessary not only to monitor the situation on the cryptocurrency market, but also to take into account many fundamental factors. Moreover, the investor should monitor the macroeconomic situation in the world.

How does it work? The trader forms a portfolio of several promising and undervalued coins, in his opinion. The ideal situation would be to create a balanced cryptocurrency portfolio, the value of which will not fall excessively and soar. Proper rebalancing of such a portfolio will generate income regardless of the general trend in the market. However, it should be remembered that assets may be correlated differently with Bitcoin in different periods of time.

Hodl

Despite the fact that in the short term, other strategies can be applied, HODL, that is, “buy and hold”, is the most effective in the long term.

Its essence is extremely simple: a trader buys only selected crypto assets and keeps them in his wallet until they significantly increase in price.

Many examples can be cited in defense of this strategy: when the cryptocurrency market peaked at the end of 2017, the prices of many assets rose sharply. This trend continued for some time, which enabled smart players to make substantial profits. Those who once bought Bitcoin for $ 10 could reach $ 20,000 for 1 BTC.

However, to comply with this strategy, it is necessary not only to carefully study the market, but also to be patient. As a part of this strategy, it is necessary to choose a frontier – the price below which you are not ready to hold an asset, and after the exchange rate reaches this value, the asset must be sold.

Arbitration

This trading scheme for cryptocurrency exchanges is extremely simple. You buy a cryptocurrency on one exchange at a low price and sell it on another exchange as high as possible.

This is a simple and profitable cryptocurrency trading strategy on the exchange, which requires only regular monitoring of exchange rates. However, counting on possible earnings, you need to take into account the commission that some exchanges charge. If the difference in exchange rates of a single currency on exchanges is 2-3% or more, the sale can be profitable. If the exchange rate difference is less than 2%, the profit will be minimal or not at all.

Suppose you bought 10 ETH for $ 210 ($ 2100) on one exchange, transferred them to your wallet and immediately sold them on another exchange for $ 225 ($ 2250). Simple math again – your profit will be $ 150.

It is worth noting that arbitrage on classical stock exchanges is a less profitable strategy, which is available mainly to professionals. To make money through arbitrage on traditional trading markets, a very fast robot is required. The delayed response of the robot must be within 1 microsecond (one millionth of a second).

CRYPTOCURRENCIES
  • bitcoinBitcoin$5,193.89
  • ethereumEthereum$170.65
  • rippleXRP$0.337199
  • tetherTether$1.00
  • eosEOS$5.62
  • stellarStellar$0.118657
  • litecoinLitecoin$84.42
  • cardanoCardano$0.085505
  • tronTRON$0.027532
  • moneroMonero$67.59
  • iotaIOTA$0.329302
  • nemNEM$0.068709
  • dashDash$126.20
  • neoNEO$11.57
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