10 relevant trading strategies for beginners in the cryptocurrency market
For many users beginning to familiarize themselves with the cryptocurrency market and trading, the illusion of easy and quick profits with minimal effort quickly turns into an understanding of the importance of strategy. Having a clear plan, as well as the skills and sufficient discipline to execute it, is the basis for successful trading of digital assets.
What is trading and how does it work in practice
Trading is the organized execution of market operations with various assets, particularly cryptocurrencies, with the aim of making a profit. The main principle of trading is simple and clear - buy cheap, sell dear. However, in practice, things are a bit more complicated.
Everything starts with choosing a trading asset. Before making a trade, the trader analyzes the market, whether that be technical analysis based on studying price movement charts and historical data, or fundamental analysis considering financial reports of companies, team data, user reviews, and other factors that directly or indirectly affect the asset's value.
When a user finds an opportunity to make a profit, they open a position (buy), then wait for the price to rise to a certain target level and lock in the profit (sell).
However, the main difficulty of trading is that at the moment of the transaction, both parties believe they are making the right moves: one is convinced they need to sell, while the other is ready to buy. Both traders can use the same data but have completely different decision-making strategies and responses to market events.
Top 10 trading strategies for beginners
To minimize losses and increase profits, a beginner trader should rely on certain patterns of action that help take advantage of certain circumstances for profit.
Below are ten common trading strategies that traders of various levels use to earn money, minimize losses, and achieve other goals.
Trend trading
One of the most popular and simple strategies for beginners. Its essence is to buy assets when the price starts to rise and sell when it turns around. The trend can be determined using technical analysis, and adhering to it helps avoid trades that contradict market sentiment and reduce the risks of losses.
Scalping
This strategy is for those who want to earn quick profits from small price fluctuations. Scalpers usually make dozens, sometimes hundreds, of trades a day, trying to earn a small profit on each trade. Additionally, scalping is characterized by high frequency: trades remain open from a few milliseconds to several minutes.
Swing trading
Allows using the volatility of the crypto market to profit from positions that are held open for several days or weeks. This strategy is particularly effective in a bullish market, where the overall trend is upward, but short-term fluctuations still offer opportunities for profit.
News trading
Involves making trades based on economic news or corporate documents that can significantly impact the market. Beginners can use this strategy by focusing on key events such as changes in interest rates by central banks or company earnings reports.
Arbitrage trading
This strategy involves acquiring a digital asset with the aim of immediately selling it at a higher price on another market or exchange. Profit can be made by exploiting the inefficiency of certain markets that fail to adjust the asset's price during price fluctuations.
For these quick, low-risk operations, trading algorithms and other automation solutions are often used. Additionally, the low risk implies a relatively small profit.
Dollar-cost averaging (DCA)
This strategy assumes that the investor invests a certain amount of money into an asset at regular intervals, usually regardless of market conditions or current price.
Thus, during a rise, the trader will be able to purchase a smaller amount of the asset for a fixed amount, and during a decline - a larger amount. This helps to smooth out volatility and over time accumulate a significant amount of cryptocurrency at an 'averaged' cost that lies between price peaks and troughs.
Momentum trading
This strategy is based on the theory that after a strong breakout of a certain level, the trend is likely to continue in the same direction. To take advantage of the situation, traders identify the breakout of the current price range and make corresponding operations.
The main risk lies in the incorrect assessment of the strength of the breakout and the subsequent pullback of quotes to the previous level, so it is recommended to use tools to minimize losses, such as stop orders.
Reverse trading strategy
Unlike momentum trading, this strategy is based on waiting for a trend reversal. That is, market participants make a trade when they believe the price has reached its peak or bottom and will soon change direction, but has not done so yet.
Reverse trades carry higher risks, as they are made against the trend, but the profits from them are often higher than from other methods.
Position trading
Using this method involves opening long-term positions in various assets with subsequent profit from price fluctuations over a long period.
Position trading is often chosen by traders looking for a calmer way to earn on financial markets. This strategy is also suitable for beginners who cannot constantly monitor quotes, although it requires patience and skills to identify long-term trends that ignore local volatility.
Using moving averages
Moving averages are one of the most common tools for determining trends and signals for buying or selling an asset. Their use implies opening a position when a short-term moving average crosses a long-term one from below, and closing in case of a reverse movement.
Moving averages help smooth out price fluctuations and determine the overall market direction. However, they can give delayed signals, so it is recommended to use them in conjunction with other indicators.
As we can see, traders have a wide range of strategies at their disposal for making trades, some of which can be used simultaneously to maximize income. However, each has its advantages, risks, and complexities that must be considered before implementation.
Classic trading strategies
Basic trading strategies that have moved into cryptocurrency trading from traditional financial markets include:
trend trading. We mentioned this strategy above, and it is one of the most common in financial markets due to its simplicity and accessibility. The main advantage of trend trading is that it allows avoiding trades against the main price movement, which reduces the likelihood of losses.
To identify and confirm a trend, technical indicators such as moving averages or the relative strength index (RSI) are often used, which help traders identify the direction and strength of the current price movement;
trading at support and resistance levels. Using this strategy, traders identify key levels on the price chart where the asset historically finds support or encounters resistance from market participants. Thus, the former forms the lower boundary of the price range, while the latter forms the upper. Both are potentially difficult to break.
Traders use these levels to open and close positions: they buy at the support level, expecting a bounce up, and sell at the resistance level, predicting a pullback;
momentum trading. Used if the price breaks the aforementioned resistance and support levels. A breakout of a level means that the price has overcome a significant obstacle and is likely to continue moving in the direction of the breakout.
Breakout trades are especially effective in volatile markets, where strong price movements occur relatively frequently. However, an important element of this strategy is the skill of using stop orders, which minimize potential losses in the event of false breakouts.
Classic trading strategies are basic templates that any beginner trader should familiarize themselves with to understand the fundamentals of trading digital assets and further deepen their knowledge and skills.
Are there foolproof trading strategies for cryptocurrencies?
Trading is a high-risk activity that can lead to the loss of part or even all of the invested funds. Strategies can help reduce these losses or increase the profitability of trades, but, as noted, each has its pros and cons. Additionally, the crypto market is volatile and unpredictable, making it difficult to develop a 'universal' method that works equally well in all situations.
However, combining different strategies and tools can help reduce risks and increase the likelihood of success. For example, technical indicators combined with fundamental analysis can facilitate a better understanding of market trends and more informed decision-making regarding a particular asset.
Additionally, successful traders set boundaries for themselves regarding the risks they are willing to take and adhere to these rules regardless of their emotional state or impulsive desires.
Conclusion
Cryptocurrency trading is a complex and risky activity that requires not only deep knowledge and understanding of market mechanisms but also the ability to be patient and adhere to the chosen strategy.
Traders use various approaches, such as trend trading, swing trading, or arbitrage, each of which has its own characteristics that can work differently in various market conditions. There is simply no 'foolproof' or 'universal' strategy, so market participants must always remain flexible and be able to adapt their action plans to new circumstances.
Beginners in trading should not only familiarize themselves with basic trading approaches but also learn to manage risks properly and develop emotional control. Only constant accumulation of knowledge, as well as market analysis and self-reflection on mistakes, will gradually improve effectiveness.
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