Investing in crypto has exploded in popularity during the last few years. Many newcomers entered the crypto space during the pandemic and were greeted with green numbers and high earnings. This led many people to earn good money trading cryptocurrencies and other crypto assets.
During 2022 and up until now, the market has taken a turn and put crypto investors and traders in a tough spot. From being used to positive earnings all the time, it’s time to look more conservatively on the market and be smart when trading.
Trading crypto can be done in many ways and with many strategies. Some tend to be very technical about their analysis when trading, while others look at the momentum of an asset or strictly the technology or people being it.
In this article, we will walk through a few different strategies to consider before trading in crypto.
Trend trading is a common strategy when investing; it doesn’t matter if it’s in stocks or cryptocurrencies – it can be used.
Trend trading crypto means that you trade based on the analysis of an asset’s momentum also called a trend. A trend can be both positive and negative, but most will find themselves trend-trading on long positions, meaning they are trading to score profit when a cryptocurrency is trending up in value.
When you trade based on trends, it’s a matter of technical analysis and spotting patterns in which a particular crypto asset is moving. You want to catch the asset during an uptrend, which means it’s moving in a pattern where it makes new highs instead of new lows.
Trend trading might sound simple, but it requires research and a lot of focus on the market. Trend traders tend to utilise tools such as trendlines, moving averages, and other technical indicators to help determine trends and spot trade signals.
If you aren’t too keen on following the trends on specific assets, range trading might be a thing for you. Range trading is a common strategy that identifies a range in which investors buy and sell an asset over time.
In crypto, it could be a cryptocurrency that has a top and a bottom that it’s selling at, creating a range. The top of the range usually shows price resistance, while the bottom typically offers price support. A trading range is thus made through a resistance and support price, which an asset’s sales price stays within over time.
Just like trend trading, traders use different technical indicators when range trading. The indicators in focus are volumes and price action, as range trading requires you to enter and exit the trading range at the right time to gain profits.
Range trading is another trading strategy that requires some training and research. It’s based on technical analysis, which can be highly efficient if done correctly. On the other hand, it can also be challenging for newcomers to get into.
If you have been surfing the crypto spaces for a bit, you might have already bumped into the term “arbitrage.”
Arbitrage is when you buy and sell assets by utilising two or more markets to take advantage of price differences. In a volatile space like crypto, arbitrage is a legit trading strategy and can be very effective if you know how to use it. By using arbitrage, you can buy a specific asset on one marketplace or exchange and quickly sell it off elsewhere for a higher price.
It might sound too good to be true, but it actually isn’t. You shouldn’t expect to earn a big bag of money in one arbitrage trade. But sometimes, you can take advantage of price differences because of the inefficiencies in the market.
Before you jump into arbitrage trading, keep in mind that any sort of trading comes at a risk – even this. If done right, arbitrage trading can be efficient, but do remember that trading bots exist to take advantage of these arbitrage opportunities before you can do so.
The last strategy to consider might be the most common of them all, at least generally speaking. Fundamental analysis determines the most “correct” price on an asset such as a cryptocurrency or NFT. It essentially aims to determine whether an asset is over or undervalued, also known as the fair market value.
Fundamental analysis can help measure the “intrinsic value” of an asset, which is essentially the value based on the issuing company’s financial situation and the market and conditions surrounding it.
While some of the other strategies in this article use technical analysis to spot trading signals, the fundamental crypto analysis will look at the underlying technology, current market conditions, or other factors.
When you find the fair market value of a crypto asset, you want to look at how it compares to the current market price. If the market price is above the fair value, it could signal that it’s not time to purchase. On the other hand, if the fair market value is higher than the market price, it could be a signal to buy.
This list just barely scratches the surface of trading strategies in crypto. There’s always more to learn and new strategies to discover, which makes trading incredibly fascinating. It’s a field where you can always learn something new, making crypto trading an exciting place for the ones interested.
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