Crypto trading, also known as cryptocurrency trading, is among the most popular online businesses in the world today.
It dates back to 2009 when the first BTC transaction was executed. Though highly risky, cryptocurrency trading offers great potential for profits.
As a newbie to this nascent industry, it is important to understand the different types of crypto trading that we have.
What is Crypto Trading?
To understand what crypto trading entails, it is important to know what we mean by cryptocurrency.
A cryptocurrency is simply a digital form of money. They are digital assets or tokens that use blockchain technology to process and validate transactions.
Unlike traditional or fiat currencies, cryptocurrencies are not controlled by a central authority. They are decentralized in nature and usually transacted via a peer-to-peer (p2p) network.
It is similar to conventional trading as it involves buying coins or tokens at a low price and selling them at a higher value to derive profit.
But cryptocurrency trading is unique because it is usually carried out using any of the top crypto exchanges. A crypto trading platform can be centralized or decentralized.
Given the nature of these exchanges, cryptocurrencies can be traded 24/7, from anywhere in the world, and without the need for intermediaries such as banks.
Notably, these crypto trading platforms provide real-time market data, charting tools, and other resources that traders use to make informed decisions about when to buy or sell a particular cryptocurrency.
Digital Financial Exchange (DIFX) is among the top crypto exchanges where users can buy and sell various cryptocurrencies 24/7.
Top 7 Cryptocurrency Trading Strategies
Now, let’s examine the basic types of crypto trading we have.
1. Day Trading
This is a popular strategy that involves buying a crypto asset on a particular day and selling them on the same day to take advantage of short-term price fluctuations.
For illustration, a trader buys 5 BTC at $23,355 each (the price of bitcoin at the time of writing) at a certain time of a day and then sells them later on the same day for profits if the price of BTC rises to let’s say $24,355.
On the other hand, if BTC falls below the entry price ($23,355), showing signs of further decline to maybe $20,000 on the same day, the trader could sell off at a certain stop-loss price to cut a bigger loss.
Day traders require a great deal of experience and expertise, as they must make quick decisions and reactions to market changes.
Traders adopting this strategy usually use different technical analysis tools to identify short-term entry and exit opportunities.
2. Swing Trading
When you hold onto your purchased crypto assets for a couple of days or weeks to take advantage of price movements, that practice is dubbed swing trading. This strategy requires a trader to be more patient compared to day trading.
Swing traders aim to capture short to medium-term gains by buying low and selling high. They also use several technical analysis indicators including Moving Average (MA), and Relative Strength Index (RSI) to identify profit-making opportunities.
3. Position Trading
This is similar to swing trading but position traders hold their acquired crypto assets for weeks, months, or even years before they consider selling at a profitable price.
Position traders focus on long-term trends rather than short-term price fluctuations. They majorly use fundamental analysis and a little technical analysis to evaluate the long-term prospects of a particular crypto asset(s) before clicking the buy button.
Here’s another popular and widely adopted trading strategy by crypto traders. Scalping entails making multiple trades in a short interval to profit from minor price changes.
This type of trading is more suited for experienced traders who have a deep understanding of the market and its dynamics.
Scalpers aim to make quick profits by buying and selling at a high frequency. They use both fundamental analysis, technical analysis tools, and market-depth data to identify short-term trading opportunities.
This is a term in the crypto sphere that entails the practice of holding onto a crypto asset(s) for a long period, regardless of short-term price shifts.
The term originated from a typo of the word ‘holding’ in a Bitcoin forum post in 2013. Since then, HODL was adopted and it has become a popular term in the cryptocurrency community.
Holders believe in the long-term potential of a cryptocurrency and they are willing to wait for months, years, or decades until their investment grows to any desired level.
Traders who practice long-term hodling often pay deaf ears to FUD (fear, uncertainty, and disorder) and negative economic factors such as Fed’s rate hikes or crypto ban news. In other words, hodlers’ market sentiments are not easily influenced hence, they do not indulge in panic selling like some day traders and swing traders.
6. Algorithmic Trading
Ever heard of trading bots? It falls under this category.
As the name suggests, this crypto trading strategy involves the use of computer programs or coding to make trading decisions.
These computer programs use sophisticated algorithms to analyze market data and make trading decisions based on predetermined criteria. These programs are developed using several programming languages including Python.
Notably, algorithm-based trading is popular among institutional investors and high-frequency traders, but it’s also available to individual investors who have the necessary technical know-how.
7. Copy Trading
This strategy is relatively new and it involves duplicating the trades of experienced traders. It is mostly adopted by beginners and those who lack the mastery to trade on their own.
We have so many copy trading platforms out there that allow anyone to follow and copy the trades of other successful and expert traders.
But it is important to note that copy trading comes with its associated risks because you are practically entrusting your money to someone else’s hands.
Crypto Trading Caution
Cryptocurrency trading involves significant risks due to the volatile nature of cryptocurrencies and the lack of clear regulation in the industry.
Therefore, traders must engage in extensive research, and practice proper risk management. These can help to reduce the chances of incurring losses while increasing profitability.
While we have outlined several crypto trading strategies, it is pertinent to adopt a style that suits your personality. Combining different crypto trading strategies isn’t a bad idea either.
Register on DIFX Exchange today to begin your crypto trading journey. Happy Trading!