Cryptotrading is more profitable by using suitable strategies. Some are successful in case of trading certain cryptocurrencies, others are successful if trading at certain times. Often, novice traders do not pay due attention to the differences between them and trade using the first one studied. This method rarely gives a positive result. What is the difference between trading strategies in the cryptocurrency market and how do they work? We will describe in this article!
How do trading strategies work in the cryptocurrency market?
Trading strategy is a method of trading under certain circumstances in the market. It is a set of rules, regulations, conditions under which a trader performs predetermined actions.
These parameters can give different results when trading different cryptocurrencies. For example, in the more popular and volatile cryptocurrency market, the trading frequency may be higher. In the markets of little-known, slowly growing currencies, transactions can be made less frequently, because it is more difficult to wait for the right moment (jump or fall).
Suppose if a cryptocurrency grows at a certain time of the day, a strategy is developed based on this difference. Another cryptocurrency has the ability to respond to a certain market situation by increasing volatility – the strategy takes this into account. And so on.
Forming a trading strategy means that the trader analyzes the market behavior of specific currencies. The most important patterns are taken as the basis. The remaining parameters of the developed strategy are designed to maximize the use of patterns.
Trading strategies are used to get the maximum benefit from the features of the cryptocurrency market behavior. Efficiency depends on how accurately the trader has defined the patterns and how correctly he has chosen the tactics of reacting to them.
Developing a trading strategy requires knowledge of technical analysis methods, the use of some fundamental analysis methods, and a good understanding of how other market participants behave in a given situation.
General strategies are based on the patterns of movement of the cryptocurrency course. Narrow strategies are based on the unique features of the movement of a particular cryptocurrency. Any cryptocurrency is based on a template, so common strategies are taken as the basis of narrow ones.
Crypto traders have long determined which sample strategies are most applicable in the cryptocurrency market. It is on their basis that most individual crypto strategies are built.
Common trading strategies in the cryptocurrency market
It means that the trader opens and closes positions during the trading day. Before leaving, he does not leave any open position.
Intraday trading is very common on a crypto-market because the price of an asset can move at an unpredictable speed in a unpredictable direction over night or per day. Closing positions before leaving reduces the risk of loss due to this.
A trader trades under certain circumstances, regardless of the frequency with which these circumstances occur. For example, if he decides to trade only at the moment of a trend reversal, he waits for a reversal and makes a deal. It does not matter if it happens once an hour, once a day, or every few days.
The advantage of the strategy is that the trader does not have to respond to every change in the market. It works with a small number of tools, it tracks the required circumstances relatively easily and makes less mistakes than traders who try to respond to everything at once.
It is a trading within the cycle. A cycle can be a long-term rise of an asset, or a recession, or a flat, or a temporary increase in volatility, or another situation that develops over a comparatively long time period.
The cycle rarely lasts less than ten hours, often it takes several days. The trader tracks the beginning of the cycle, determines its specifics, responds in accordance with it, waits for the end of the cycle, makes another transaction and fixes the income.
Proper definition of the specifics of the cycle allows you to fairly accurately predict the development of the situation and the end of the cycle. The trader does not have to work for short periods within the cycle. He just waits for it to finish and gets the predicted income.
High-frequency trading, which involves making a profit at every rate fluctuation, including the minimum. Transactions are concluded several times per hour, sometimes – several dozen times per hour.
The advantage of the strategy is that the trader does not need to wait for the development of certain situations, to analyze the market in detail and in depth. It performs a superficial analysis (or does not conduct it at all) and trades regardless of what happens on the market, because minimal fluctuations are always observed.
It consists in the use of periods of correction of cryptocurrency within the framework of the trend. At some point, the price of a cryptoactive starts to seem to the rest of the market participants to be too high (on an uptrend) or underestimated (on a downward trend). Then there is a slight correction, after which the trend continues.
Trading strategy on a pullback involves the purchase of an asset when it maximizes as part of the correction decreases (on an uptrend), or sale — when it maximizes as part of the correction rises (on a downward trend). When the trend continues, a second trade is made, as a result of which the trader makes a profit.
This strategy makes it possible to obtain significant profits on the crypto market, since the correction and the subsequent continuation of the trend due to its volatility are quite significant.
The fact is that with a downtrend, the trader waits for the mark from which the price will begin to rise again with high probability, buys a cryptocurrency at this point and then sells after the price rises above the average.
The trader trades in accordance with the trend when he sees signs of momentum. The impulse refers to confident movement of the course up or down, with almost no corrections.
A trader buys a cryptocurrency when he sees the beginning of a “pulsed” uptrend, sells – when he sees the beginning of a pulsed fall. Transactions are not necessarily made at the minimum and at the maximum in this case. The power of pulsed trends allows you to make good money even when the price just approaches extremes.
Highly profitable strategy. Impulse trends are quite common on a crypto market due to the volatility of currencies. So it is relatively easy to track them.
If a downtrend has broken through the correctly predicted price level, then it will turn around and go up. Accordingly, a trader who correctly predicted this level can buy cryptocurrency at the lowest possible price at the very beginning of the uptrend. The system works in the opposite direction, on uptrends.
The strategy allows you to use the most profitable entry points to the market and earn, without making any action in the process of ascent or the descent of the trend.
There are many other strategies – as involving trade in different time intervals, so focused on a specific market situation. These are used on the crypto-market more often than others, since they are most convenient for trading volatile and hard-to-predict assets, which are the majority of cryptocurrencies.
Should I use trading strategies in the cryptocurrency market?
Cryptotrading without a strategy, as a rule, shows the worst result. Trading with the use of individually developed strategies shows a better result than trading based on template strategies. Why?
Strategy streamlines trading. Trading in cryptocurrencies on the exchange includes the use of a huge amount of specific, but poorly captured mathematical data. Chaotic actions that do not take into account these data at all are naturally more unprofitable.
Actions that take into account certain data are more effective. Actions that take into account all the mathematical data will be the most effective.
All data one trader can not take into account due to their excessive number and complexity of the mathematical relationships between them. Therefore, strategies are formed that use only a small part of this data, the mathematical relationships between which are more or less clear to the trader.
Theoretically, the more data a trader understands, the more strategies he can make and the more effective they will be. However, practice shows that for successful trading on a crypto market, 3-5 well-applied strategies are enough. Competently applied – this is when the trader knows under what conditions, on the market of which cryptocurrency it is better to apply this or that strategy and why.
You can get in the market of some cryptocurrencies with 1-2 strategies. Moreover, some experienced traders after numerous experiments choose one strategy, study it thoroughly and work only with it.
The effectiveness of this method is quite high, since a thorough study of the strategy significantly reduces the number of errors (and, consequently, losses) and the vast majority of trader’s transactions turn out to be profitable.
Newbies often start with a long use of one strategy. This is less justified in their case, since other strategies may suit the novice trader not less, but even more. Because of this, newcomers are usually advised to alternately try different strategies.
A beginner is not recommended to try to use all strategies at the same time when working with a single cryptocurrency, because it interferes with the detailed study of each strategy, confuses the novice and creates chaos in his picture of the market.
Using strategies allows you to study their applicability in a particular market, which is important for future successful trading. In addition, strategies save the time of the trader, since they only involve trading under certain circumstances.
Also, the use of trading strategies helps to less emotionally respond to market movement. All this makes trading more efficient, so trading strategies on the cryptocurrency market are common and relevant for beginners and experienced players.