Trading cryptocurrency is one of the most widely performed activities in the crypto-space. The volatile price movements of cryptos such as Bitcoin are great for traders due to the number of trading opportunities that are often produced. However, being successful in trading a volatile market such as crypto is difficult, and a large part of being an effective trader is having a strategy in place. In this article, we’ll go over some of the more widely used trading strategies in the crypto market.
Arbitrage trading is a staple trading strategy in the crypto market. This is because it is well-suited to capitalize on the price discrepancies that often exist across cryptocurrency exchanges. For example, Bitcoin will often trade at different prices depending on the exchange that it is bought from. So, savvy traders will arbitrage, meaning that they will buy Bitcoin at a lower price on one cryptocurrency exchange, and then sell it on at a higher price on another exchange. Arbitrage trading can be hard to pull off, as arbitrage trading opportunities can appear and disappear very quickly. However, if done well, it can be a great source of monthly returns for a trader.
- Swing Trading
It is no secret that the cryptocurrency market is by far one of the most volatile markets out there. However, this is great for traders, because a volatile market produces trading opportunities. Swing trading is a particularly effective strategy for capitalizing on market volatility because you can generate returns on an upward or downward swing. To be a great swing trader an automated set-up is best to make sure that trade execution is as good as it can be. Crypto trading bots to automate your trading and also crypto signals (e.g. Binance signals) are tools that traders use when swing trading.
- Fundamental Analysis
This strategy is probably the most well-known strategy on this list. Fundamental analysis is frequently used in traditional markets, and we are now seeing it being increasingly used in the context of crypto. The thrust of fundamental analysis is to buy undervalued assets and benefit from price appreciation as other investors recognize the value of the asset. In crypto, identifying an undervalued asset can be tricky, so using measures such as the age of the project, quality of the team developing the crypto are all useful indicators to help identify if an asset is undervalued. You won’t see the traditional metrics of Price to Earnings Ratio and Earnings Per Share Ratio being used in crypto as we are not dealing with companies, but with digital assets.
These are just a few trading strategies that traders will use in order to gain an edge in the market. There are a lot more strategies out there for you to explore. Finding and being comfortable with a strategy that is well-suited to your trading style is the first step in becoming a consistent crypto trader.