With cryptocurrency hiked popularity, you have seen many more advancements that we have never thought. Apart from crypto trading, there is much use of blockchain technology that can lead us to shape the whole new world. But today, we are here to discuss the trading strategies that can be a sign for you to have better returns on your investments.
How is Trading Different from Investing?
The overall objective of both the practice is the same, i.e., buying and selling of assets to make a profit, but the approach used is slightly different.
Trading
A trader makes profits in shorter time frames with a small profit on each trade placed simultaneously. Hence, the strategy is active. Due to the increased orders placed, the graph peaks their profit even in the short-term volatility.
Investing
In contrast, the investor desires to profit on longer terms, i.e., 5 or 10 years. Hence, the approach is passive. Since the common grounds suggests that the market is hiked in the long run, it increases the chance of making more gains on each trade. Therefore, volatility leaves no impact on investors.
Depending on your preference, your crypto trading strategy may differ.
Difference Between Fundamental Analysis and Technical Analysis
The pillars of basic crypto trading strategies are Fundamental Analysis and Technical Analysis. Let's get a brief about what they are.
What is Fundamental Analysis?
When discussing fundamentals, we consider qualitative and quantitative factors to assess cryptocurrency. The quantitative factors include the number of wallets addresses that cryptocurrency holds and the speed at which the coin gets mined, whereas the qualitative factors include leadership, technology and competence.
There are many times when we see crypto trading professionals rely on Fundamental Analysis. It said cryptocurrency with determined fundamentals is always investor-friendly. However, the traders also seemed to use Fundamental Analysis.
What is Technical Analysis?
The Technical Analysis primarily works on the concept "History will repeat itself". The basics of Technical Analysis is to study the historical price movements and patterns to predict the future. The traders look for the same opportunity that has occurred in the past in the crypto market.
The crypto trading strategy, i.e., the Technical Analysis, is categorized into three. These are price action, volume and chart patterns drawn forth using technical indicators. It helps you spot trading opportunities in the market to make profitable trades. The traders mainly use technical analysis as one of the tools for crypto trading on short-term volatility.
Key Technical Indicators
We already discussed the two fundamentals to which technical analysis is widely used by traders. The technical indicators are the metrics used in technical analysis that help traders identify their entry and exit opportunities. They also empower the traders to forecast the future or the currently ongoing event in the market.
Some of the popular indicators are:
Relative Strength Index (RSI)
In crypto trading, the traders use RSI to determine whether the cryptocurrency is overbought or oversold. When a cryptocurrency is overbought, it sooner experiences a downtrend, whereas the oversold may bounce back to even higher prices.
In general, RSI is to measure the rates at which the price changes happen in an asset. It has a score between 0 to 100, and most interesting to know is that under 30, it is considered oversold, and above 70 is deemed overbought.
The only use of the RSI indicator is to forecast the upcoming trends.
Moving Averages (MA)
Moving averages are designed with a precise nature. While giving a thought to the crypto trading strategy, many professional crypto trading in India use moving averages to calculate the average price of a cryptocurrency over a while for easier tracking of trends. It uses the past data for forecasting the ongoing trend.
There are two main moving averages:
Simple Moving Average (SMA)
SMAs use the price data for the "X" period and calculating an average. For instance, the 20 days SMA will add the closing price for the last 20 days and divide it by 20 (number of days).
Exponential Moving Average (EMA)
EMA is slightly similar to SMA, but the distinction interprets when it assigns more weight to the recent price inputs and reacts quickly to price fluctuations and price trends. Masses trading for short-term volatility finds EMA a better option as compared to SMA.
4 Popular Trading Strategies
By moving on to the next, we are close to ending the blog. But before we do so, we'd admire you going through, through the four popular crypto trading strategies.
Day Trading
The crypto trading done while the sun is up to make profits is called day trading. Traders in day trading buy and hold cryptocurrencies for the whole day before the sun is ready to set. And when the moment strikes, they sell off all their holdings at the end of the day. Day trading is the trading strategy widely preferred by professionals familiar with cryptocurrency because of its small profit window.
There are approaches that traders can follow. Two of them are listed here:
- Scalping: Traders profit from the intraday movement of cryptocurrency.
- Range Trading: Identify trading ranges with the highest and lowest price points to trade within.
Swing Trading
In crypto trading, swing traders try to gain profit from the market trends. They hold positions ranging from weeks to even months. These crypto trading professionals largely targets undervalued cryptocurrencies and target them. The most profitable thing is that you can use both, i.e., the technical and fundamental crypto trading strategies for determining undervalued cryptocurrencies.
Position Trading
It is a long-term strategy. A position trader ducks the short term and midterm movements and plans to trade on the long term trend. Professionals claim position trading to be the most profitable crypto trading strategy, as trader aims for higher profits.
Bot Trading
Thinking out of the box brings bot trading, as an eminent option for designing and training trading bots to make profitable trades. It is seen that mainly big fund houses use such crypto trading strategies as it requires time, money, and effort.
Popular cryptocurrency exchanges in India are trying their best to let everyday traders learn about the core fundamentals of crypto trading strategies. Although trading is a vast subject covering different indicators and strategies for generating higher returns on your investment, it may seem a little tricky in the beginning̣. However, when you can get an opportunity to combine reading and learning with actual implementation using Flitpay's practice account, it can let you walk on the streets paved with the yellow brick road.
