Crypto trading has become quite popular in recent times as the mainstream audience is gravitating towards it. In this crypto trading guide, you will learn about the different types and styles of trading and how to approach them.
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What is Crypto Trading?
Crypto trading refers to buying and selling of cryptocurrencies to make profits. The idea is simple as you buy a crypto asset like Bitcoin or Ethereum at a low price and sell it later at a better price.
Traders usually rely on fundamental and technical analysis to find the price buying and selling point for any cryptocurrency.
Crypto trading is seen as a broader term because there are more than one ways to trade cryptocurrency. While some of them are safer but less rewarding, others are riskier but promise higher returns.
Similarly, some ways of crypto trading require patience, and some give you instant results.
If you are interested in crypto trading, it is important for you to learn about all the different methods so you can choose the right one.
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Types of Crypto Trading
When it comes to crypto trading, generally it can be divided into two different categories:
- Long-term trading
- Short-term trading
When it comes to long-term trading, investors usually go for crypto assets that are cheap and have great potential in the long run. These types of traders do not worry much about market conditions as they plan to hold the cryptocurrency for months or even years.
It is one of the most effective strategies in the crypto space, and if you are able to hold your coin through tough times, you will never have to sell it at a loss.
These traders also rely more on fundamental analysis and go for projects with solid real-life applications.
Short-term trading refers to the trading methods in which the investors look for quick gains. Such traders do not wait for the crypto project to rise and mature but instead rely on its price fluctuations.
The cryptocurrency space is extremely volatile, and can benefit you in some cases within the daily, hourly, and minutes based time frames.
Short-term trading can also prove more productive sometimes because whenever the market dips, it is always a great time to invest for the short-term.
Short-term trading itself has different styles and is approached differently by traders with different mindsets. Also, where short-term trading promises quick gains, it is also riskier than long-term trading.
Most Common Crypto Trading Strategies
HODL (Hold on for dear life) is one of the most common and appreciated strategies when it comes to crypto trading. Some traders do not even consider it as a trading strategy because it does not require much work once you have purchased the assets.
The rule here is simple! Once you have purchased an asset, you should hold on to it tightly and not sell it even when tempted.
Traders who use this strategy are referred to as HODLERS, and they can keep the crypto in their wallets for several months or years. A HODLER also needs to have great patience because they will feel tempted to sell when the market takes a nosedive.
However, if you are planning to become a HODLER, it is advised that you do not get too greedy and take your initial investment out once the price of the asset has reached a certain level and you are in good profit.
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Day trading is a short-term cryptocurrency trading strategy. It is also done mostly during the daytime when the market is active, but one can argue that the market is active 24×7.
This is a type of strategy that requires considerable knowledge and experience. Day traders make trades that are backed by technical analysis and monitor markets closely.
If you are just looking to invest in crypto, then day trading is not the right option for you. However, if you want to make a career out of crypto trading, then day trading will help you get there.
You will have to spend a lot of hours learning how to day trade effectively, and it will be your full-time job.
Day trading is also riskier than HOLDING because you are dealing with short time frames and crypto space is highly volatile. A day trader can hold the asset for 30 minutes or several hours.
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Scalping is a strategy that deals with the shortest time frames and requires a lot of work. In this strategy, traders enter into a trade for mere minutes and may benefit from it immediately.
The goal here is to make short and consistent profits with trades that last for few minutes.
In scalping, traders can also repeat the trade on the same asset again and again. For example, if a cryptocurrency is fluctuating between $500 and $510, a trader can buy it at $500 and sell it at $510.
He can repeat the same step multiple times as long as the currency stays in that price range.
Scalping requires a lot of work, and it does not offer great returns. However, because you are dealing with small time frames, the risk here is much lower than day trading.
This strategy is only recommended for experienced traders.
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Swing trading is what you would refer to as the mid-term trading strategy. The idea behind this style is that you can purchase a cryptocurrency for which you are anticipating a price surge.
The change is usually expected in coming weeks or months and you can sell it as soon as the asset hits your price target.
Nowadays, Swing trading is the most popular cryptocurrency trading strategy as new investors do not shy away from it.
Swing traders are more patient and aware of markets in the long term. They do not only rely on technical analysis but consider the fundamentals of the asset as well.
For example, you can purchase Ethereum ETH at $1,000 and can sell it in a few weeks or a couple of months when it has gone to $1,400-$1,600.
You can then sell it for another undervalued cryptocurrency and do the same when it sees a price surge.
It is considered a very suitable form of trading and requires some practice and good knowledge of the markets.
Swing traders can also sign-up on Kraken or Swissborg and trade crypto hassle-free on weekly or monthly basis.
Position traders are somewhat like HODLERS and Swing traders as they deal with longer time frames. However, they are not interested in technical analysis and always invest in projects they are confident about.
These kinds of traders do in-depth research on the project in which they are investing and go through their whitepaper thoroughly.
They only invest in a project when they are certain of its success and forget about it for some time once they have opened a position in it.
Position traders do not usually keep up with the market trends, but they do scale their positions once certain price targets are met.
Trading cryptocurrency can be both easy and difficult, depending on the type of strategy you are following. Everyone can trade cryptocurrency, but not all the methods are suitable for everyone.
While new traders can benefit more from long-term trades, experienced traders can opt for advanced strategies and benefit from them.
Anyone who is new to the crypto space must have a decent knowledge of the industry if they are looking to trade on a regular basis. One can always start from long-term strategies and switch to other styles down the line as they learn more about the industry.
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