10 Crypto Trading Strategies You Need To Know for 2023.
Hello and welcome back to this new article. As you saw from the list above today we have quite a lot on our plate! So sit, relax and give to me all your attention.
It’s time to learn and get started!
- 1 Day Trading
- 2 Swing Trading
- 3 Conclusion
1. Moving Averages
2. RSI Trading
3. Event-driven trading
4. Momentum Trading
5. Range and Trend Trading
6. Scalping Strategies
7. Arbitrage Opportunities
- Position Trading Long
- Position Trading Short
- The Moving Average Crossover Strategy
I decided to split the list of crypto trading strategies because I thought was more useful for you to understand better how the strategies work and make clearer the time frame used and the possibilities you have. Remember this is my personal experience and preferred strategies, I’m not a financial advisor and this list is for you only for informational purposes. Make your own decision and studies before adopting any kind of trading strategy.
The first section of 10 Crypto trading strategies you need to know will be about day trading.
For those who don’t know what day trading is here you have a short definition:
“Day trading is the practice of buying and selling a cryptocurrency to make short-term profits within one single day. ” Day trading is a great way for those who want to make fast and frequent profits. The idea behind it is that you’re looking to take advantage of short-term price movements in the market.
Now let’s dive deeper into the list from above.
Moving Averages is one of the 10 Crypto Trading Strategies You Need To Know. It is a way to take advantage of short-term price movements in the market. A moving average is a powerful technique used to understand the behavior of time-series data. By taking an average across a fixed number of time periods. Financial analysts often look at the moving average charts to identify emerging trends or define salutary buy and sell points. Moving average methods are quite versatile and can be tailored to serve different objectives like single-step or multi-step forecasting.
The are three different setups types of MAs:
Simple moving averages (SMA)
Exponential moving averages (EMA)
Weighted moving averages (WMA)
Simple Moving Average (SMA): It is calculated by summing up the closing prices of a security over a specified number of periods and then dividing that sum by the number of periods. An SMA attempts to smooth out fluctuations in the data, providing valuable insight into trends and momentum, though it does have the downside of lagging behind current prices since it relies on past price data. As such, SMAs shouldn’t be relied upon as the only indicator when making trading decisions since they don’t react quickly to short-term changes. Instead, other types of moving averages should be used alongside an SMA to get a better overall picture of market conditions.
Exponential Moving Average (EMA): It is a widely used indicator in technical analysis. It takes a slightly different approach from Simple Moving Average as it assigns more weight to the recent data points. This helps EMA be more responsive to recent price changes than SMA, making it better for identifying trading opportunities or understanding the directional momentum of prices. EMA is calculated by applying a multiplier to the current period’s price, according to a mathematical formula. This multiplier ensures that the recent data points get more weight than older ones, giving EMA its edge over SMA.
Weighted Moving Average (WMA): it has become increasingly popular for investors who want to track their investments more closely. Compared to the traditional Simple Moving Average (SMA), the WMA applies weights to each data point which reflect how much importance should be given to that particular instance of data. For example, a WMA assigns higher weights to recent price data since it is thought of as being more relevant than past prices. Cognitively, this seems intuitive – it makes sense that we care about today’s stock prices more than those from two months ago! In general, WMAs tend to be faster and more responsive indicators than SMAs due to their weighted nature.
Understanding how to effectively use moving averages when making investment decisions is an invaluable skill. To maximize the potential of this useful tool, it’s important to select an appropriate number of periods for your calculation. A popular choice among analysts and investors is to utilize a 20-period moving average; yet, depending on the security being studied, this may not be the best option and could require further adjustment. By understanding how to appropriately set up a moving average calculation based on the analyzed asset, one can increase their chances of making a well-informed decision.
As you can see from the example the red line is the Moving Average for the Bitcoin 1-minute chart. You can customize the tool directly from the setups on your chart.
The Relative Strength Index (RSI) is an invaluable tool for traders who are looking to capitalize on potential buying and selling opportunities. Developed by J. Welles Wilder Jr. in 1978, the RSI measures the magnitude of recent gains and losses to identify when a security has become overbought or oversold. It’s used to predict market trends and volatilities.
The RSI is calculated by dividing the average gain made on security over a certain amount of time by the average losses incurred over that same period of time. This creates a numeric figure between 0-100 which can help investors identify when prices may be reaching extremes, with values above 70 indicating that the asset may be “overbought” or trading at a significantly higher price than its value would normally allow, and values below 30 indicating that it may be “oversold”.
To calculate the RSI this is the formula:
RSI = 100 – (100 / (1 + (average gain / average loss)
Now it’s time to understand how it works:
When the RSI value is over 70, it is considered to indicate an overbought condition and is a sell signal, indicating that the price may be ready to fall. On the other hand, when the RSI value is below 30, it is considered to indicate an oversold condition and is a buy signal, indicating that the price may be ready to rise.
The last tip for you, it is also important to understand that RSI is a momentum indicator, which means that it will not always accurately reflect the strength of an underlying trend. It can also be affected by volatility and is prone to generating false signals.
The RSI indicator is always at the bottom of your charting software and is a useful tool for 10 Crypto Trading Strategies You Need To Know. It can be used to make informed decisions about when to enter or exit trades, as well as identify potential buying and selling opportunities before they arise. However, it is important to remember that the RSI should not be used in isolation and should always be combined with other technical indicators for more reliable and actionable results.
Event-driven trading can be an effective strategy to capture potential market movements due to certain events. By studying and anticipating how the market may react before, during, and after reports such as earnings, mergers and acquisitions, regulatory changes, or natural disasters occur, traders can anticipate potential volatility and adjust their positions accordingly. Event-driven trading involves the analysis of both fundamental and technical data to put themselves in the best position for success when these events occur. It is a challenging strategy that requires knowledge of economics, as well as an understanding of current market conditions and trends. With proper research and preparation, however, event-driven trading can have great rewards. The most recent and best example of Event-driven trading occur a few months ago with the bankruptcy of FTX. If you recall FXT token started to collapse after the public release of the FTX Ponzi scheme. ( check the link for reading the article ). As you can see, this can be a great way to capitalize on short-term opportunities and make profits in ever-changing markets, positioning long or short as the situation warrants.
Momentum trading is an appealing option for traders due to its potential for high returns. It requires the trader to anticipate, then enter the trend at the right moment and effectively ride it out until the trend reverses. While profitable, momentum trading can be risky when done without proper caution, as it inevitably means entering a position after a big price move has already occurred and there is no way to know if this movement will continue. As with any strategy, understanding market trends beforehand can help traders make informed decisions and develop strategies on how to select securities with momentum in their favor.
Momentum trading taps into the human tendency to be influenced by what has happened in the market and what is expected. It contrasts with ‘value investing’, where investors look for stocks that are undervalued, believing that their worth will eventually be recognized by the markets and their price will rise. With momentum trading, investors look for securities that have been performing well in the past, believing that if they buy them now, it’s more likely that they will continue going up rather than taking a dip. Because other investors likely feel the same way, this creates a self-fulfilling prophecy that drives the prices of securities higher.
To identify securities that are trending up or down, momentum traders typically use technical indicators such as moving averages, relative strength indices, momentum oscillators, and volume bars. These indicators are mathematical calculations based on the historical price and/or volume of security and are used to identify trends and potential turning points in the market.
It’s important to note that momentum trading can be a high-risk strategy, as the market is constantly changing, and momentum can shift quickly. For example, a security that has been in an uptrend for several hours may suddenly experience a sharp decline. This is known as a “momentum crash.” As a result, momentum traders must be prepared to quickly exit their positions if the market turns against them.
Range and Trend Trading
The next on the list of 10 Crypto Trading Strategies You Need To Know is Range and Trend Trading.
This two are very popular trading strategies and are often used by traders in the financial markets. Both strategies involve identifying specific patterns in the market and making trades based on those patterns. However, the two strategies are quite different in terms of the types of patterns they look for and the types of trades they make.
So now I will explain how they work properly.
Are you ready?
Range Trading has the potential for generating consistent profits without incurring excessive risk. When the market is in a trading range, prices are generally moving sideways instead of in one particular direction and thus offer many opportunities to make profitable trades. By looking for securities that are trading at either the top or bottom of the range, traders can capitalize on these movements and profit from price action returning to the middle of the range. This is done by taking advantage of both buying or selling short preferences depending on what appears most profitable for each security, which may be clarified by using analyzing charts or by conducting technical analysis. As such, range trading can be an effective way for traders to develop beneficial strategies even during periods when there isn’t much market movement.
And what happens when the range trade breaks?
You can guess, right?
The sideway is a stage where the price is not trending in a particular direction. It has a support and resistance line and it is characterized by a lack of clear direction, low volatility, and a relatively narrow trading range.
To break the range the market needs more buyers or more sellers.
If more traders start to buy the shorters are forced to close their position to preserve their capital therefore the price will go up and break the range with an uptrend.
In the same way, if there are more shorters the buyers are forced to close their position for the same reason as above and the price will drop, and the downtrend started.
Market movers use the range trade to accumulate coins for breaking the range in a long position or piling short contracts to break the range with a downtrend.
Scalping is a trading strategy that relies on making large numbers of small, but profitable trades to realize its profits. By entering and exiting positions quickly, the scalper employs leverage to capitalize on opportunities within markets that may be missed by conventional strategies. Though the spreads per trade are tiny, the scalper hopes to realize a higher return on investment through an aggressive approach compared to longer-term traders; taking advantage of much smaller changes in price and volatility. Scalpers must have extremely tight risk management strategies, however, as the potential for losses can outweigh gains over a short period of time.
That’s how the chart will look like if this were a real scalping trading.
Just profiting from the small trends in any direction avoiding the risks and the moments where the trend is uncertain.
Seems easy, right? But let me tell you is not!!
One thing is watching a photo of a chart and another one is doing it in real time… You can try to scalp if you want just using paper trade.
Some platforms, like eToro, offer demos for trading without using real money and you still are in real-time with the same type of chart.
How do you manage to scalp?
You need to use a system that incorporates technical indicators. These indicators, such as moving averages, support and resistance levels, or momentum indicators can be incredibly useful for traders trying to identify profitable entry and exit points. By combining different indicators in a comprehensive scalping system, traders can gain an edge with detailed information on the current market conditions. Such information includes trend reversals, price movements, and volumes – all of which may have an impact on their trades. With access to such intelligence and insights into the market, traders can make more informed decisions when assessing their position in the market at any given time.
Is 2023, right? So, can we find some ways to make it works?
A little help comes from AI. Another strategy is to use a scalping robot ( check the link for more info), which is a computer program that can automatically execute trades based on predefined rules and algorithms. These robots can be programmed to scan the market for specific conditions, such as price movements or changes in volatility, and then enter or exit trades accordingly. However, scalping robots can also be prone to errors and can be affected by market conditions, so it is important to use them with caution.
Last but not least is time to talk about Arbitrage Opportunities. It is a powerful trading strategy, allowing savvy traders the opportunity to capitalize on discrepancies in the prices of assets or securities across different markets. This strategy, by taking advantage of differences in price between multiple exchanges and trading locations, enables traders to buy low in one market and sell high in another. Through arbitrage, it is possible to take a relatively small risk and make good profits quickly with minimal effort. Furthermore, as long as there is some form of discrepancy in asset prices between two markets, arbitrage opportunities will continue to exist and the applicability of this strategy makes it an attractive option for many traders.
Let’s dive into the details, shall we?
There are several different types of arbitrage opportunities that traders can take advantage of:
Spatial Arbitrage: It involves the idea that assets may have different prices in two or more markets because of imperfections in the market, allowing one to buy low and sell high. For example, a trader can purchase a stock on the New York Stock Exchange and then turn around and sell it for more on the NASDAQ. Profits can be made if the pricing gap between the two exchanges generates an arbitrage opportunity. It works with cryptos too, you just need to have access to multiple markets.
Temporal Arbitrage: It is an intriguing strategy employed by traders to maximize their profits. This technique involves the purchase and sale of the same security multiple times throughout the day, thus capitalizing on cost fluctuations that occur over a certain period of time. This strategy can be especially lucrative for those who trade with margin as these fluctuations allow for significant gains in a relatively short window. As long as prices move in favor of the trader, temporal arbitrage can be a highly profitable endeavor for investors.
Statistical Arbitrage: It is an attractive strategy for many traders as it makes use of the inefficiencies that exist in the markets to make a profit from only small differences in price. Using correlations between different securities, a trader can take advantage of any discrepancies that may occur due to excessive volatility or market updates. What’s more, this type of arbitrage does not require large amounts of capital and can often be achieved with just a few dollars and a keen eye for any pricing discrepancies. Ultimately, Statistical Arbitrage offers investors an opportunity to gain a solid return on their investments, while also reducing risk levels.
Triangular Arbitrage: It is a complex trading strategy employed by advanced traders to take advantage of discrepancies in the exchange rate of different currencies. By buying a currency at a low rate, converting it to another currency, and then converting it back to the original currency at a higher exchange rate, a trader can gain luxurious profit that would otherwise be impossible. As sophisticated mathematics are necessary to calculate arbitrage opportunities, triangular arbitrage traders require highly sophisticated software to find and execute these types of trades. While triangular arbitrage may offer great profit potential, the risk involved should not be underestimated as tiny discrepancies in rates can easily wipe out entire capital investments if used improperly.
Wow! That was a lot! Hopefully, you find it very interesting. But the second part of the article is not explained yet. So keep a comfortable sitting and let’s get started!
To make a point clear swing trading is trading for a long period. From a few days to even months. The idea behind swing trading is to identify a trend or pattern in the market and then enter into a position that will benefit from that trend or pattern. Swing traders aim to capitalize on the intermediate-term price movements in the market, rather than the short-term fluctuations that occur with day trading or scalping.
One of the key aspects of swing trading is the ability to identify trends or patterns in the market before they appear. This is typically done through the use of technical analysis, such as chart patterns, moving averages, and support and resistance levels. Swing traders also use fundamental analysis to identify companies or sectors that are likely to experience price changes. Swing trading can be a more passive approach than day trading or scalping as it doesn’t require constant monitoring of the markets because you use most of the time scanning, analyzing, and planning the next trade. That’s why, it also requires more patience and discipline, as well as a good understanding of market conditions and trends.
It’s usually done with a daily or weekly chart ( using a weekly chart is called trade to the core).
After saying that let’s look at what kind of position you can open.
Position Trading Long
Position trading provides traders the opportunity to capitalize on long-term market movements without being overly influenced by short-term fluctuations. This strategy requires patience, a strong fundamental understanding of the underlying asset, and careful risk management. Research is needed to identify key support and resistance levels to enter/exit positions at opportune times. While it may not be suitable for traders who prefer active trading, position trading can be rewarding if an investor can identify and capitalize on larger trends in the market over time.
As you can see from the chart I’m using a weekly chart for the swing trading. The buy area is somewhere inside the blu circle and the selling point is at the end of the trend somewhere inside the other circle.
Position Trading Short
Is the same type of trading, the only difference is it’s the opposite. Position trading short can be an effective strategy for those looking to take advantage of the eventual decline of a security’s value. By taking short positions and setting a timeline for profit, investors can benefit from longer-term trends, as opposed to shorter turns that are more unpredictable. The strategy involves the careful selection of stocks or securities to increase the chances of capitalizing on a downward momentum. Careful research into the security’s background, market conditions, and outlook is an important part of successfully executing position trading short. This strategy requires patience and discipline due to its time frame; however, with consistently applied knowledge it can be a powerful option for traders aiming to realize gains over months or even years.
As you can see from the chart the selling point is at the beginning of the reverse of the trend and technically we are in the downtrend so this position may still open.
The Moving Average Crossover Strategy
The Moving Average Crossover strategy is a powerful technical analysis tool used by traders to identify potential buy and sell opportunities in the marketplace. This strategy involves plotting two moving averages on a chart, one with a shorter time period and the other with a longer time period. The goal is to use these two periods of time to create an average that will show traders when an asset might be experiencing an uptrend or a downtrend. By studying this information, traders can potentially identify buying or selling opportunities in the market. Ultimately, the Moving Average Crossover strategy helps traders make better decisions about their trading activities and profits by providing them with a short-term view of market changes.
When the short-term moving average crosses above the long-term moving average, it is considered a bullish signal and traders will often interpret this as a signal to buy. Conversely, when the short-term moving average crosses below the long-term moving average, it is considered a bearish signal and traders will often interpret this as a signal to sell.
With only two moving averages needing to be monitored, it can easily fit within any trader’s budget of time and resources. Additionally, there is great flexibility with this strategy, as the period lengths of both moving averages can be changed to suit individual preferences and investment goals. Moreover, the strategy works across different asset classes – not just stocks, but currencies, commodities, and even cryptocurrencies. In short, with its combination of simplicity and flexibility, the Moving Average Crossover strategy can be an invaluable component of an overall trading plan.
Despite its advantages, the Moving Average Crossover strategy involves certain limitations. Not only is it restricted to past data and unable to account for unpredictable events, but it can also generate false signals with some probability when market conditions are volatile.
To counter this, most investors employ extra technical indicators or chart patterns alongside this strategy to get more reliable insights into the market. Additionally, traders may also set a stop loss order to safeguard against losses due to any false signals generated by the strategy. Thus, if implemented thoughtfully, the Moving Average Crossover strategy can still offer valuable results despite its inherent limitations.
It is clear that 10 crypto trading strategies can be used to increase the chances of success in cryptocurrency markets. From short-term scalping and position trading to long-term trend following, each strategy has its own advantages and limitations. Ultimately, what matters is that the trader continually researches their strategies, remains disciplined in implementation, and adjusts their approach as needed over time.
The 10 crypto trading strategies discussed above are just some of the many that can be employed by traders in the cryptocurrency markets. Ultimately, success comes from a combination of practice and consistently applying these strategies in an informed way. Remember to do your own research, think critically, and use risk management when trading cryptocurrencies.
So that’s all for now.
As always if you liked the article please share it with your friends and family and let us know what you think about these 10 crypto trading strategies and what you use in your trading.
Have a great day and see you all in the next article!
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