If you’ve learned the basics, accepted the risks, read up on losing strategies, and still want to try your hand at trading crypto – you’re going to want to develop a winning strategy. The number of traders and investors has increased significantly in the last couple of years and all are trying to earn a profit in a very volatile market. There are a few different types of strategies to consider depending on your goals, lifestyle, and capabilities. You will do yourself a favor if you honestly consider each of the three.
A fundamental HODL strategy requires no skills or experience in trading but does require patience and money. Hodling (crypto slang for holding) is probably the way most bitcoin millionaires made good on their investments. Few actually traded their way to profit. There are no technical skills required beyond the basics of creating a wallet and opening an account on an exchange to buy cryptocurrency. This strategy is the least stressful as the goals are long-term and daily price fluctuations are of no concern. That said, it is a strategy that can be made more fruitful if you monitor the price of your asset and do some fundamental analysis.
Fundamental analysis in its simplest form is to follow crypto news that may influence the price so you can make a decision to sell a portion of your portfolio and make a profit. Since the price of cryptocurrency relies on supply and demand, when demand is higher than the supply – price goes up. When supply and demand are equal, the price goes sideways, and when supply is higher than demand the price drops. News and events are both important drivers of price. Depending on whether the nature of the news or the event is positive or negative, the price may be impacted to rise or fall. Since there are no calendars in the crypto marketplace, most events generate unexpected news compared to traditional markets which have expected news based on calendars. This means monitoring the important news sources in the crypto world, and oftentimes even the crypto-twitter accounts of influencers. Pay special attention to any regulatory news regarding cryptocurrency.
Technical analysis trading is more short-term and requires active participation, but in a volatile market, gains can be significant if you are patient enough to become experienced. Learning about trend lines and how to use them is the first place to start, and then you’ll need to learn to put them on charts. Set up a free account at TradingView to get started, then spend time learning to read candlesticks, use trend lines, resistance, and support areas to help determine which way the market is likely to move. This strategy is visual, but technical analysis is subjective and may fail no matter what you think will happen. Learning to exit a position when your forecast goes awry comes with experience. There is a wide range of tools, data, and tutorials available to help move the learning process forward.
Scalping is a method long used in Forex and stock trading that can be profitable if you’re willing to put in the time to learn technical analysis. You use the same analysis tools, the indicators, candlesticks, Bollinger bands, moving averages and so forth. The difference is that you open 10+ positions during a single trading day. You enter fast and exit fast – hence the term “scalping” – and you look for 10+ pips profit, exit the position and look for another one. Holding positions too long will freeze your funds. This method requires full-time attention and focus to monitor the price for hours at a time. If you are not in a position to do this, then do not adopt this strategy. It is also very stressful, as high volumes of your capital are involved. Last but not least are the exchange fees. The more positions you open the more fees you will pay. Scalping requires skill and precision, so it is not for the faint-at-heart or the amateur trader.