4 Strategies Used by Seasoned Crypto Traders
As cryptocurrency further establishes itself in global finance, engaging in the crypto market becomes a more lucrative pursuit. Compared to other markets, crypto is still young and therefore volatile. Its behavior is unstable, but it also has the most potential to profit from it. While there are quite a few ways to profit from, one of the more proactive ways is to engage in crypto trading.
Just like any other asset, it involves watching for the highs and lows of the market. For example, traders can buy Monero after setting up an XMR wallet when the altcoin drops in value. Once it rises again, they can turn a profit by selling their coins. Though it sounds simple, there are several strategies used by more experienced traders to make the most out of the venture.
To find out more, read on for some of the top strategies used by seasoned crypto traders.
Scalping is an aggressive and rapid approach to trading crypto. It aims to make many small gains and build up a large net positive by the end. Scalping tends to be a popular method due to its relatively low risk with almost guaranteed profit.
A trader has to watch the market behavior intently for every change. They basically buy crypto at the start of an upward slope. Then they sell after the value has gone up without waiting for it to peak. This avoids risking the dip from waiting out a short-term investment for too long. Traders can repeat this for one or multiple cryptocurrencies depending on how many they want to monitor.
This method is especially good with volatile markets like crypto. This is because scalping capitalizes on the little jumps in value that often last for minutes to an hour. It is important however to stick to an exit point. Not knowing when to stop can eventually lead to a net loss once the dips become consistent downward slopes.
Range traders work slightly opposed to scalping traders in how they take advantage of market behavior. Instead of the short bursts, they do wait for the peaks and plunges of the market value, otherwise called resistance and support levels respectively. The risk here is the dependence on speculation of these levels for a coin.
Because of this, traders keep up to date on crypto market analysts. Based on the information, range traders aim to buy at the dips when everyone is selling, which can be gauged by the support level. Then, they sell when values are peaking or approaching resistance, and demand for the coin is high.
This is arguably the most straightforward strategy since the concept is simple. The only issue is that market analysts may be wrong every now and then. This is why range traders must stick to an entry and exit plan without taking too many chances.
Dollar-Cost Average Trading
Dollar-cost average (DCA) trading fits more as a longer-term trading strategy. This involves spending a fixed amount on crypto at regular intervals. Rather than buying based on current prices, a trader could spend $100 monthly on a cryptocurrency of their choice, no matter what the price per coin is. The hope is for the investment to eventually turn out even a small profit on average by the end.
This profit comes up if the average price spent per coin after each interval turns out more than what it cost for the first expense. This strategy relies heavily on the assumption that a specific coin will eventually rise in value. It requires the least research since there is little need to track the rising and falling of market value.
However, DCA traders do need to plan carefully. While the entry point is easy, the exit point can be very tricky. They must monitor trading volumes and regularly compute their average costs so far. Otherwise, they may begin losing if they do not sell once the value steadily falls.
Arbitrage is a strategy that takes advantage of differing prices between varying exchange platforms. Basically, they monitor markets with the most disparate values or spreads from each other. Then, they buy it on the cheaper platform, and they sell it where it costs more. This requires the trader to create accounts on multiple platforms and to monitor all their pricing trends.
Another way to perform this strategy is to buy and sell in different cryptocurrencies. They can buy a specific altcoin in a certain market. And then they search for a platform that has the most favorable exchange rate for their coins and sell there.
There is no definitive way to determine which of these different strategies is truly the best. Short-term traders may focus on day trading in which their entry and exit points are bound to a day’s time. Others may want to automate their trades through algorithm trading using a bot for passive income. In either situation, these strategies may be applied for optimal profit.
Whatever the case, it all goes back to the research and resources available to a trader and their financial goals most of all.