Top
Trading strategies
Trading strategies
Cryptocurrency
07.09.2021
Updated 18.02.2022
13:47

Cryptocurrencies are a highly capricious yet high-yield tool. While some have bought bitcoin and have been waiting till it reaches 100 thousand dollars, and others lament they didn’t do it back in 2011, traders can make pretty good profit from the crypto market volatility. To do it consistently and with minimal risks, there are various trading strategies intended for work with cryptocurrency that we will talk about today.

But before we start, we should clarify two things. The first one is that we cannot cover the full range of trading strategies in a single material; that is why we will review the most popular and efficient ones with all their pros and cons. And don’t forget that before choosing and formulating a strategy, thorough technical and fundamental analyses of the market should be made. And the second one – even though the strategies will relate to cryptocurrency trading mostly, they can be applied to Forex, stock markets, and other platforms where traders work. For example, you can use them when trading precious metals.

Ideally, after reading this article, you will be able to understand not only how to use other people’s trading strategies (TS) but also how to develop your own strategy that would minimize the risks and would be effective specifically for your needs.

What is a trading strategy, and how does it work?

To say briefly, TS is a detailed plan of how, why, and what you sell/purchase in the process of your work. It reduces risks and eliminates the emotional factor from trading. Because in any critical situation, you may give way to your feelings and, for instance, lose a chance to close the position with minimal losses. You must make decisions quickly, and the price of a mistake is very high: that is why it’s better to follow your trading strategy and act according to a strict, well-thought algorithm.

A trading strategy may be both a collection of unclear rules and strict, defined instructions for any change in the market. As a rule, TS includes a set of assets that you work with, settings, and tools used in trading as well as a system of portfolio efficiency evaluation, as a minimum. A similar strategy will help you, for example, to set stop-losses correctly or understand what positions interest you the most now.

But your individual trading strategy may include other points as well – including the most extravagant ones. Let’s say, a prohibition of working on hot days, just because you don’t feel well when it’s 30 degrees above zero outside. And that isn’t a joke since your psychological condition at a specific moment affects the trading success.

To check the efficiency of your strategy, you may start trading with a small number of assets, or you may appeal to the help of forward testing. Globally trading strategies are divided into two subtypes: active and passive. Their essence is clear to you just from the name but let us review each point in more detail.

Active strategies

They imply your active and permanent participation in trading. You must monitor and analyze the market almost daily, making informed decisions. You are the one who fully implements monitoring and portfolio management and, in case of any change, may respond to the situation flexibly. The disadvantages are evident: it requires a lot of energy from you and is dependent on the trader’s personal qualities. If that doesn’t scare you and you’re ready to risk for good growth of assets, you may choose one of the following strategies:

Passive strategies

Here you also purchase assets and get profits from trends but in a much more relaxed mode. Although you will receive less income from this strategy, there will also be less headache. You can make profits from assets easily and within the shortest time. Such behavior comes down to two options:

So what’s better?  

If you read the material attentively, most likely you already know the answer to the question. There is no perfect trading strategy: you come up with it yourself. The listed here TS are simply templates, and you cannot blindly follow them. After all, each good trader develops his own rules and algorithms and follows them whatever the situation is.

And remember that in this article we’ve covered not all the existing trading strategies. In addition to that, you don’t need to limit yourself with only one of them as you can easily diversify your portfolio and work with several groups of assets, using different rules of the game. That is how experienced investors do.