Three Market Trading Strategies for Crypto
It’s very well-known that Bitcoin’s price action is extremely volatile and can swing by over 20% either upwards or downwards in the span of a few hours. At first glance this might seem bad, but for traders this is great, because this type of market volatility generates trading opportunities that can be capitalised on. However, successfully trading cryptocurrency can be difficult without a good strategy in place. Here are some trading strategies that we see being used in the crypto market.
This is a trading strategy that has been used for a long time now and is especially useful in the crypto-space. Arbitrage trading aims to profit from the pockets of price discrepancies that exist in crypto. For example, usually Bitcoin can be bought on a wide number of crypto exchanges such as Binance and Coinbase. Sometimes the price of cryptocurrencies across these exchanges can be quite different, which might see Bitcoin trading at a slightly higher price on different exchanges by a few hundred dollars. With arbitrage trading you can buy a crypto that is trading at a lower price on say Binance, and then sell it at a higher price on say Coinbase, where the trading price may be slightly higher.
- Swing Trading
As we mentioned at the beginning of this article, a defining feature of the crypto market is its day-to-day volatility. This is where the swing trading strategy can prove to be especially effective, because it is well-suited to volatile markets. The key to being a successful swing trader is to enter trading positions on an up or down swing. Automating the trading process can make this easier, as trading execution will be much quicker. The use of crypto bots and crypto signals (e.g. Binance signals) can also prove to be useful in the execution of this strategy.
- Fundamental Analysis
This strategy is decades old and has its origin in traditional markets (e.g. stocks and bonds). This strategy is great for traders that like to take a longer-term view of their assets. The key behind this strategy is being able to determine the intrinsic worth of an asset. If you can find an asset that is undervalued by the market, then you can make some serious returns on any price appreciation when the wider market realises its true value. Being able to determine the intrinsic worth of crypto can be tricky, but assessing the quality of the development team and value proposition of the cryptocurrency are good starting points. These metrics differ to the ones used in traditional markets. So, measures such as Price to Earnings Ratio and Earnings Per Share Ratio are not useful as we are dealing with digital assets not companies.
We’ve only scratched the surface on the types of trading strategies that can be used when trading cryptocurrencies. Finding a strategy that works for you requires experimentation, but once you find a strategy that you are comfortable with, then you will be on the right path to being able to generate consistent monthly returns from the crypto market.