With many cryptocurrencies still entering the market today, interest in trading the asset is as high as ever. Finding the best cryptocurrency trading strategy is like looking at competitive pre-match odds in sports betting. It can impact your success. Discover the approach that fits you best by browsing our list of strategies below.
Moving Average Crossovers
To trade moving average (MA) crossovers, you should grasp what MAs are and how to use crossover strategies. A moving average is a lagging indicator. It combines price points of a financial instrument over a set time. Then, it is divided by the number of data points. This gives you one trendline.
How can you actually apply this indicator when building a crypto strategy? One of the main methods of utilizing the moving average is called ‘crossovers.’ A crossover occurs whenever the price of a coin moves above or below its moving average. This can signal a possible change in trend.
To trade a moving average crossover in crypto, wait for the price to cross. Then, you can go long or short on the cryptocurrency using CFDs.
Traders often use two moving averages: a short-term one and a long-term one. When the short-term average crosses above the long-term average, it suggests an upward trend. This is called a golden cross and is a buy signal. When the shorter MA crosses below the longer MA, it signals a downward trend. We call this a death cross.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum indicator used to gauge market conditions. It helps spot momentum and shows when a market is overbought or oversold.
The RSI measures how profitable the price closes compared to unprofitable ones. It shows this as a percentage. It is calculated using the formula:
RSI = 100 – (100 / [1 + RS])
The ideal way to trade with RSI varies depending on your personal risk tolerance and trading approach. The RSI can be used for trading both short and long signals when the price is range-bound in nature as well.
Markets often follow trends. Using an RSI indicator can help you spot entry and exit points. This way, you’ll know when to engage.
Event-driven Trading
When a particular cryptocurrency or exchange gets heavy media attention, traders often capitalize on the resulting price swings — a strategy especially popular among beginners.
This influence is not speculation; many experienced traders will take advantage of this.
You usually wait for the market to show a consolidation pattern before a news release, like an earnings report. Then, act right away when a market breakout happens. Cryptocurrencies are often volatile and unpredictable. So, you might want to wait until after a news release before making a trade.
Positive news often creates buying chances. Traders jump in when good announcements come out. Then, you short it when bad news comes out.
Scalping
Scalping is when traders open positions that follow a trend. They enter and exit the market many times in a short period as the trend changes. Individual trades are held for a few seconds to minutes at most, so it is one of the most short-term strategies.
Scalping is great for active day traders. It focuses on quick price changes that happen every minute, based on trading volume. As soon as the trade becomes profitable, you should exit the trade.
You can’t wait for the market to show trends. You need to act fast and close losing trades right away. The more volatile the market, the better it is to use scalping.
You may want to use tear-off tickets when you’re scalping. Another option is to prepare a counter-position, allowing you to quickly switch direction if the market turns. This way, you’re ready to exit by taking profits or limiting losses.
Bear in mind that scalping can be risky if you’re placing many trades on a very short-term basis. It’s essential to manage your risk carefully.
DCA (Dollar Cost Averaging)
Interested in a crypto trading strategy that skips indicators? Dollar-cost averaging (DCA) could be the answer. Dollar-Cost Averaging (DCA) remains a go-to method that appeals to both newcomers and seasoned traders.
Rather than investing all your money in one asset at once, break it up into smaller amounts. These amounts are spread out over a set timeline. They invest regularly on a specific day and time each week, and only then.
What does this look like in execution? Let’s say you decide you’d like to invest in Bitcoin. You’ve set aside CHF 15,000 for this purpose and have chosen a DCA strategy will be the best way forward. So, you’d then divide your initial amount by the number of weeks you’d like the strategy to run.
For this example, let’s say you’d like to invest your CHF 15,000 over six months. In practice, this would mean splitting your CHF 15,000 into 24 weekly investments of CHF 625 over six months. Every Tuesday at 2 p.m., you will invest CHF 625 into Bitcoin for six months. You’ll keep doing this until your initial amount runs out.
Why invest like this? Investing in an asset regularly helps manage market swings. This way, you often receive more currency from your total investment than if you had put in all your money in at once.
To use this strategy, you must trade the specific coin on an exchange, not through a broker like us.
