Cryptocurrency trading strategy
What is cryptocurrency trading?
Cryptocurrency trading is becoming more and more popular among Internet users. When there is demand, by default, the number of offers grows. Thus, more crypto-exchanges appear on the cryptocurrency market. And brokerage companies are also keeping up with this trend. An increasing number of brokers are actively offering their clients the opportunity to work with digital assets.
When trading crypto with a broker, you do not physically acquire an asset, but trade in derivatives. This gives you a range of benefits. In particular, CFD trading allows you to trade in both directions, ie. buy an asset and sell.
This opens up new trading opportunities for you. No matter what the trend is in the market, you can always make money on it. In the spot market, such manipulations cannot be done.
While the mechanics of trading cryptocurrencies may be the same as others, the strategies behind predicting market movements are completely different. This is because cryptocurrencies are not affected by actions that affect other trading markets. For example, the economic situation of a country can have a significant impact on the US dollar or British pound, but rarely on cryptocurrencies.
On the other hand, if you look at factors such as security flaws or a legal ban on cryptocurrencies, this can potentially affect the investment status of the coin in question.
However, it is very easy to start trading crypto today. Each trader can register a trading account within 5 minutes and use a demo account for practice cryptocurrency trading.
The main currencies are Bitcoin, Litecoin and Ethereum. Also, Monero, Dash, Ripple, Zcash can be attributed to large ones. These are the coins that the vast majority of traders choose to work with. These are liquid instruments that work well with models and patterns of technical analysis. Accordingly, cryptocurrency trading strategies work well on these instruments.
Types of cryptocurrency trading analysis
The technical and fundamental analyzes studied by the trader are the basis of successful trading and the creation of a good cryptocurrency trading strategy. Knowledge of "patterns", indicators, Japanese candlesticks, bars helped to calculate the price direction of the instrument. The accumulated experience made it possible to predict and place orders correctly. The deposit increased, the trader became rich.
Many argue that technical analysis does not work on crypto exchanges. "Heads and shoulders", "cups and handles", "double top" and "double bottom" can work up to a certain point - when a major player wants to change the trend in his favor. The manipulative nature of the cryptocurrency market, the influence of "whales" on it, make technical analysis useless.
But it is not so. A lot of traders quite successfully use technical analysis to trade digital coins. They simply take into account the nuances of the functioning of the market, and also trade in popular and highly liquid tokens, which reduces the likelihood of manipulation and increases the likelihood of working out technical models and patterns. Tokens are quite technical and allow you to successfully apply technical analysis and trading strategies based on it.
Fundamental analysis is the receipt of information from official sources and from insiders, which helps to make the right decision in trading. Crypto traders should look into this way of reading the market when listing or delisting cryptocurrencies on exchanges.
Traders can make a lot of money by trading "on the news". The creators of crypto-currencies are developing their offspring, introducing new uses. This raises the price, makes the currency steadily growing in value. There are many reputable publications that publish true news. Listening to individual traders who consider themselves gurus is not worth it.
Having received any information, you need to act with your mind. Filtering the news is a great way to become a successful trader. But the fundamental analysis of cryptocurrencies is a deeper concept, which includes not only the analysis of the news background.
Be that as it may, these two methods of market analysis remain the main ones for the vast majority of traders and are quite successfully used in almost any market. It is only important to make adjustments to the analysis methodology, taking into account the instrument that you are analyzing.
List of main technical indicators
There are many different methods that investors use to try and predict the future outcome of an asset's market value. The vast majority of them resort to the help of technical indicators.
Since technical indicators are focused on trading data and not on the financial basis of an asset, technical indicators and technical analysis are used by traders who want to predict short-term price outcomes.
Technical indicators are designed to analyze market trends, not the underlying value of an asset; they are mainly used by short-term, active or day traders.
Long-term investors tend to rely more on intrinsic long-term value, so they may only use technical indicators when they need to determine the right time to make a trade.
As a rule, there are 4 groups of indicators:
- Trend indicators;
- Momentum indicators;
- Volatility indicators;
- Volume indicators.
Each subcategory uses different statistical methodologies to analyze an asset and attempts to predict its nearest market price.
- The first type of technical signals is a trend indicator. It is used to measure the direction and speed of a price trend, or how strong trading trends appear compared to a predetermined average. If the indicator shows that the price is above the stated average, this is considered a positive and bullish sign for the asset's market; if the indicator drops below this average, it is seen as a negative and bearish signal.
- Momentum indicators are used to analyze price speed or volume by comparing different prices over time. These indicators are created by comparing differences as well as price acceleration at current closing prices with previous closing prices. Since additional data is required to create these indicators, they appear above or below the price chart instead of above it.
- Volatility indicators are used to measure the range and speed of price movement from its average directional value. In other words, how fast and in what direction is the price moving compared to the moving averages chart. Volatility indicators can be used when prices are moving in either direction and represent a range of price points based on the risk of breaking those points to determine the volatility of an asset.
- Also known as resistance indicators, volume indicators measure the strength or weakness of a market trend based on resistance levels and trend speed.
All of these types of indicators can form the basis of your cryptocurrency trading strategy. Mostly traders use the following indicators: Moving average (MA), Exponential moving average (EMA), Stochastic oscillator, Moving average convergence divergence (MACD), Bollinger bands, Relative strength index (RSI), Fibonacci retracement Ichimoku cloud, Standard deviation, Average directional index.
Basic cryptocurrency trading strategies
There are three main principles of cryptocurrency trading. Based on this, traders have developed several strategies.
- Buy and hold (Buy&Hold). This strategy is more about investing than trading. People buy assets and leave them for long-term storage. Fans of this strategy try to predict prices for several months in advance and monitor the charts during all this time. This strategy is based on fundamental analysis.
- Swing trading. This strategy involves the use of correction when a trend is formed. That is, the trader needs to open a trade within the trend at the time of its correction. Swing trading implies the need to adjust to the trend.
- Intraday trading (Day trading). The name of this strategy speaks for itself. In this case, we are talking about trading on the stock exchange within one trading session during the day. Positions opened on a certain day are not carried over to the next day or another session.
- Scalping. This is high speed trading with a lot of trades. A trader opens positions and closes them after 1-15 minutes. Each trade ideally brings a small profit, but in the end, these small amounts form a large income.
We repeat that these are only the main directions and approaches to trading. There are a huge number of other strategies on the market that can also be successfully applied to trading in the market.
Creating cryptocurrency trading strategy
Any trader must remember that success in the market, to a certain extent, depends on what tactics and trading strategy he uses.
If his actions are repeated day after day, this means that he applies a trading strategy without knowing it. Indeed, in order to survive in this highly volatile market, it is necessary to use and strictly observe certain trading rules. If today you use one, and tomorrow other tricks and methods, then sooner or later throwing from side to side will lead you to "drain" the deposit. It is for these purposes that a trading strategy serves - the basis of successful trading.
Everyone who trades in the financial markets, either creates their own cryptocurrency trading strategy or borrows someone else's, makes adjustments and starts using, someone is trading from a "portfolio" of systems. By the way, it is preferable to use the latter option, since systems that are different from each other behave differently in different parts of the market. Some are good in a trend, and some, on the contrary, are in a flat state - “sideways”.
Before creating your trading system, the first step is to learn the basics of the market, understand the principles of pricing, general methods for calculating position sizes, setting stops, etc.
To better understand how to do certain operations, open a forum on the Company's website, find the "for beginners" section, read articles, questions for experienced traders, do not hesitate to ask your own. Remember that no one will refuse to share their experience with you. The main thing is your friendly attitude and positive attitude towards others, and you will definitely get an answer to your question.
After studying the basics, you need to find some kind of market pattern, the repeatability of the behavior of financial instruments, which can be used and traded based on it. As soon as you master and find the so-called "pattern", you can start modeling the framework (structure) of the trading algorithm.
The structure of the cryptocurrency trading strategy will consist of 3 blocks:
- entering the market - opening a position;
- holding a position;
- exit from the market - closing.
The "entry to the market" block should contain the rules for opening a position, its size in lots, setting the initial stop.
Holding a position - this block should contain a method for controlling an open transaction, what to do in a given situation - to hold or close.
Exit the trade - whether it will be exit by stop, by profit, or you will use trailing. Here you need to proceed from what kind of trading strategy you have - trending, flat or combined.
After creating the system, it is necessary to test it on historical data and on a demo account. Remember that it is the testing of your trading strategy during mock trading that will help you not incur losses. Use built-in strategy testers, various technical analysis programs, trading simulators.
Since the market is constantly changing, in the course of work, the trader needs to check how the strategy behaves with various factors, during the release of important news, on holidays, during various trading sessions. Use and apply filters to improve entry and exit points, let profits "grow", do not close the position when receiving a minimum profit.
How to create a cryptocurrency trading strategy?
Follow the instructions in this article.
What is the best strategy for crypto trading?
There is no universal strategy that will bring profit to everyone. It is up to you to determine which strategy works best for you.
What percentage of the deposit can I risk?
As a rule, the risk should not exceed 1-3%.
What lot size should I trade?
The lot size depends on the size of the deposit and the percentage of risk included in the strategy.
How to determine measurement objective target (potential profit)?
Determined by the rules of your trading strategy.