Cryptocurrency Trading Strategies

The Different Types of Urgency Campaigns You Can Create
By Robert McDougall
About Cryptocurrency Trading Strategies

In this lesson we explore the various strategies that you can use when trading cryptocurrencies.

Key Takeaways

  • Swing trading is a short to medium term trading strategy, where the aim is to profit from price swings in the market, over a few days to weeks.
  • Breakout trading is a short term trading strategy where you identify breakout patterns to profit from trades, over a few hours to days.
  • Scalping is a time-consuming ultra short term strategy, where the aim is to identify and profit from small price movements over a few minutes.
  • Dollar cost averaging is an investment strategy where you regularly purchase a set amount of cryptocurrency to increase your holdings over time.

What are Cryptocurrency Trading Strategies?

Now that you understand the basics of crypto trading, it is time to learn about different strategies that crypto traders use, and you can decide which you would like to try. Cryptocurrency trading strategies refer to the various approaches and techniques that traders use to make decisions about buying and selling cryptocurrencies. In this beginner trading course, we will cover some common strategies: swing trading, breakout trading, scalping, and dollar cost averaging.

There are many other strategies that you can use, and the best approach will depend on your individual goals, risk tolerance, and experience. It's important to carefully consider and research any trading strategy before attempting to use it.

Swing Trading

The first crypto trading strategy we will discuss is swing trading. This is a short to medium term trading strategy, which involves holding positions for a period of a few days to a few weeks. The aim of swing trading is to profit from price 'swings' in the market (hence the name). 

Swing traders rely heavily on technical analysis to identify potential trades, but they may use some fundamental analysis to understand the underlying drivers of the market. Since swing trading takes a few days to weeks, it is less time consuming than day trading. It is a good strategy for those who want to take an active approach to trading, but don't want to be tied to their screens all day. 

Swing trading is well suited to traders with a moderate risk tolerance - there is the potential for short-term profits, but you can lose your money quickly if the market is unfavourable. It is a good idea to use stop loss orders (which we covered in the previous lesson) to minimize potential losses if the price swings the other way. However, if the triggers are set too close to the current market price, a short-term swing could close you out of your position before the market moves in the predicted direction.

Pros
  • Doesn't require too much time, as it is a short to medium term strategy
  • Potential for short-term profits
  • Use technical analysis to open and close trades, without much fundamental analysis research required
Cons
  • Potentially large losses if you don't set a stop loss
  • May miss out on longer term trends and profits
  • Short-term swings may trigger stop loss, exiting you from your position before the price can increase

Breakout Trading

Breakout trading is a strategy that involves looking for specific patterns in the market to identify opportunities for short-term trades. These trades may last for a few hours to a few days, and traders will often use technical analysis to identify potential opportunities. However, it's also important to understand the underlying drivers of the market and to be aware of news and events that could potentially impact the price.

Breakout traders may use specific chart setups, such as wedge patterns (which we will cover in the next lesson), to identify areas of consolidation that could potentially lead to a breakout. The goal is to capture the volatility and price movement that occurs when the price breaks out of a consolidation pattern. Breakout traders will conduct their technical analysis using shorter-term charts, such as the one-day, eight-hour, or four-hour chart, depending on their approach.

While breakout trading definitely has potential for short-term profits, it is important to note that it can be risky, as it involves taking short-term positions that may be stopped out by short-term swings in the market.

Pros
  • Doesn't require much time
  • Potential for short-term profits
  • Use technical analysis to open and close trades, without fundamental analysis needed
Cons
  • You could incur substantial losses if you don't set a stop loss
  • Possibility of missing longer term trends and profits
  • When you use a stop loss, you may be stopped out by short-term swings in the market

Scalping

Scalping is a trading strategy that involves making very short-term trades lasting just a few minutes, on an intraday basis. It involves looking for tiny movements in the price to take advantage of. Scalping relies solely on technical analysis, as traders look for specific patterns and indicators to identify potential trades. There is no fundamental analysis required at all.

Scalping is a very demanding and time-consuming strategy, as traders need to be constantly monitoring the market and looking for opportunities to trade. The strategy involves trying to trade off the orders of other traders by anticipating their moves and getting in and out of positions quickly. There are hundreds of opportunities for scalping every day, and you need to be watching the 1, 5, or 15 minute charts continually to find these.

Scalping can be a good strategy for traders who are comfortable with a high level of risk and are willing to put in the time and effort required to monitor the market constantly. However, it's important to note that scalping can be very risky as the market can move quickly against the trader. You will also require a larger amount of funds to implement this strategy; trades are very short-term and may be stopped out quickly, so you need more funds to be able to continue trading other scalping opportunities.

Pros
  • Hundreds of trading opportunities to be found each day
  • Only technical analysis, no fundamental analysis needed
  • Very short-term trades lasting only a few minutes
  • You can make many trades per day, with small short-term profits
Cons
  • Requires a lot of time constantly monitoring charts
  • Requires a larger amount of funds
  • Can be difficult to implement

Dollar Cost Averaging (DCA)

Dollar Cost Averaging (DCA) is not a trading strategy, but rather a long-term investment strategy. Most of you who are doing this course would be more interested in short-term trading, but DCA is still a useful tool to add to your overall strategy. You can make money using short term trading strategies, while also dollar cost averaging into the main coins, like BTC and ETH, which will be here for the long term.

Dollar cost averaging is simply buying a certain dollar amount of cryptocurrency on a regular basis, for example buying $500 of Bitcoin each month. This strategy is completely ignorant of the price of the coin, since you are more interested in the long-term growth rather than any short to medium term swings. What is more important is your fundamental analysis of the cryptocurrency. What this means is that you need to research the project, the tokenomics, the aims, and whether there is a potential future of the coin. If you believe that it will be more valuable in the long term, then you can DCA into it, and watch as the price appreciates in the long term.

The great thing about dollar cost averaging is that after your initial research, it requires minimal time and effort. You simply need to buy a set amount at a regular interval that you choose (or even set up automatically on some crypto exchanges), and you don't need to worry about price volatility. It is also an excellent strategy for investors during a bear market, as the price is low compared to when the next bull run occurs. If you DCA and stock up over a couple of years, you will have a decent amount if the coin is pushed up in price by buyers in a bull market.

The downside of DCA is if you choose a coin that turns out to be worthless. You will have invested regularly over several months to years, only for it to be worth nothing. This is why it's so important to do your fundamental analysis carefully and choose strong projects.

Pros
  • Requires very little time and effort
  • Long-term investment strategy that relies on the premise that markets go up over time
  • Low cost and low risk
  • No stress over price volatility means you don't have to constantly watch the charts
Cons
  • If you DCA into a bad coin, you could face large losses over time
  • No short-term gains to be made

Now you should have a better idea of different crypto trading strategies, and in which situations they are most useful. You may have decided which one you would like to use, or you can use a combination of them. Remember that crypto trading is risky, and you should never invest more than you are willing to lose. In our next lesson, we will look at how to conduct technical analysis on crypto charts, and how to find good opportunities to trade.

Ready to learn more?

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