Basic Trading Strategies for Beginners in Crypto
A strategy makes a difference between walking into the traffic whirring by on a highway, or using a pedestrian crossing. In trading, a working strategy differentiates millionaires and people in need (of millions)
HODL
HODL is one of the simplest and most popular strategies when it comes to trading cryptocurrencies. It stands for “Hold On for Dear Life” (or it may have just a sarcastically glorified typo) and involves investors buying a particular cryptocurrency and then simply holding onto it for the long-term without trading.
This is because HODLers believe that by holding on to their investments over a period of time, they will benefit from price increases as more people begin to recognize the cryptocurrency's value. Surprisingly, with all the ado about crypto trading, statistics actually show that long-term holding is more profitable than trading.
Well, that’s an interesting turn
Why do then people bother wasting their time trading, which is so stressful that you can actually see beads of sweat coming down their forehead? That’s because for holding to be profitable in the long run, you need to pick the right coins to hold, otherwise one day it’s lights out for the crypto you thought special. For that reason, traders diversify, withdraw profits and convert them as soon as they make them, and so on. Or you can just have blind faith.
The idea behind HODLing is that if you buy a cryptocurrency and then wait long enough, eventually the market will reach a tipping point where its value will surge as people flock to invest in it. This is due to the fact that crypto prices are largely based on supply and demand, meaning that if there is an influx of buyers, the prices will go up.
Additionally, those who invest in crypto early can benefit from the first-mover advantage of getting in before the price surge takes place (like Hal Finney).
By HODLing, investors are also able to minimize their risk exposure since they don’t have to worry about trading fees or losses due to bad timing. Furthermore, as long as they don’t cash out their coins, they won’t have to pay any taxes on their profits.
There’s less stress, too: you just invest 5% of your monthly salary in Bitcoin instead of spending it on cigarettes, without having to change anything, really, in your life, and then just forget about the whole thing. If you wake up a millionaire someday, great. If Bitcoin collapses, you didn’t really lose anything except a healthy chance to die young surrounded by grieving relatives.
The biggest downside to HODLing is that it doesn’t provide investors with any active profits, so if the market crashes, they could be stuck with investments that don’t yield any returns.
Even though there is potential for great gains, there is also a chance that the market will never reach the tipping point and the value of these investments will never increase substantially.
Ultimately, HODLing is a good strategy for investors who want to minimize their risk while still taking advantage of the potential gains that come with investing in cryptocurrencies.
However, it should be noted that this strategy works best when combined with other strategies such as technical analysis and day trading in order to maximize profits and minimize losses.
A good example of a HODLer would be Bitcoin inventor Satoshi Nakamoto who now is estimated to have around 1 000 000 Bitcoins each of which now retails at $25 000. Good thinking!
Of course it is, #hodl. Let the market dance, #bitcoin will go up anyway. All is sound and safe by design. Soon or later those who sell, buy again. So #hodl. #satoshinakamoto #satoshin https://t.co/B7aY1un4xD
— Satoshi Nakamoto (@AceOfBitcoin) May 6, 2022
Smart trading (coming up with a mix of smart orders)
This is our favorite strategy, if only because it’s so interesting to put several types of orders together. In trading, you sometimes feel helpless, because outside forces control the outcome, and there’s nothing like tools like Trailing Stop Loss and Scaled Orders to make you feel like you genuinely are standing at the helm of your destiny.
Smart trading is a strategy that combines different types of orders, such as limit orders, market orders, stop orders, and so on.
For example, limit orders allow traders to buy or sell an asset at a certain price, while market orders allow them to buy or sell at the current market price. In addition to these types of orders, smart traders may also use stop loss and trailing stop orders to manage their positions.
A stop loss order is an order type that will automatically close a position when the asset reaches a certain price. Similarly, a trailing stop order is an order that will trail behind the current market price in order to capture any profits if the asset’s price moves in the trader’s favor.
Smart trading also involves combining different types of orders to take advantage of different market conditions. For example, a trader might combine market and stop loss orders in order to reduce risk while still profiting from price movements. By combining different types of orders, smart traders are able to create custom strategies to suit their individual risk tolerance and trading objectives.
Overall, smart trading using a combination of smart orders can be a great way for traders to maximize their profits in the crypto markets. Smart traders should always ensure they have an understanding of the different order types and how they can be combined before entering any trades.
Lots of smart people fail at trading because they lack discipline or they think they are so smart they don't need to manage risk.
— Mark Minervini (@markminervini) August 9, 2021
Technical analysis
Technical analysis is one of the most popular strategies used by crypto traders to make money.
It involves analyzing the price movements of an asset over time and using charts to identify trends and predict where the market might go next.
The technical analysis approach looks for patterns in the market, attempting to recognize repeating trends and taking advantage of them.
There are several different tools available to help traders analyze the crypto market, including trend lines, candlestick chart patterns, and oscillators such as the Relative Strength Index (RSI). If RSI reach a certain parameter, you buy, and vice versa, based on a guesstimation of what the market will do next: usually, when too many people sold the asset, it soon starts getting bought at the point when the price is low, so it’s a good time to get in (the terms used here are “oversold” and “overbought” markets). So studying the historical price action of an asset, traders can attempt to develop a trading strategy that will capitalize on future price movements.
The more indicators, the merrier, and a few exchanges are already implementing ultimate super-indicators that combine the readings of all known indicators to provide an indication of where things are going with the most probability of getting it right.
It is important to note though that technical analysis is not a sure way to make money, as past performance is no guarantee of future performance.But! Even though trading is not perfect, you either decided to trade or you didn’t and if you did, pretty much your only choice is to find the best strategy: minimum risks, maximum returns. Except for cream cakes, nothing in this world is perfect, so all you can do is calculate the strategy as best you can and accept the inevitable fails humbly.
It is always possible that a previously successful pattern may fail in the future. That being said, technical analysis can be a valuable tool for traders looking to capitalize on market movements.
As with any trading strategy, it is important to thoroughly research and backtest any strategy before risking real money on it. With the proper research and dedication, technical analysis can be a powerful tool for earning profits in the crypto market. Or not.
The best teacher of technical analysis we know (by far) is Paddy Hirsch:
Bot trading
Bot trading, also known as algorithmic trading, is the use of automated software programs to trade cryptocurrency. Bot trading allows traders to set certain parameters such as entry and exit points for trades, as well as define the size and frequency of trades. The bots will then execute these trades on behalf of the trader.
Though bots also guarantee nothing, because they’re based on AI, they will make the same mistakes as you much (some kind of joke), much faster estimate how to minimize risks and maximize returns much better than a human, and take advantage of market movements humans couldn’t possibly react to.
Bot trading enable traders to take advantage of market fluctuations without having to actively monitor the markets. This is especially useful for those who may not have the time or energy to devote to trading manually.
These are definitely a great choice, but nothing is without a price: bots are quite hard to learn to configure and need occasional monitoring (but spending a day at the beach, only checking your bots every hour, is still better than spending that day in front of the PC, stressing out of your mind). They will also get better as they evolve (and they evolve frighteningly fast).
However, it should be noted that while bots can provide an advantage in terms of speed and accuracy, they can also lead to losses if not properly managed. It’s important that traders understand the potential risks associated with using bots before committing to using them:
Day trading
Day trading is a popular strategy for traders who want to take advantage of short-term price movements in the crypto market. It involves opening and closing positions within a single day, and as a result, positions are usually only open for a few hours or even minutes.
Day traders should also have an exit plan in mind when entering into trades, such as setting a profit target or stop loss. This is especially important in volatile markets like the cryptocurrency market, where prices can move quickly.
When day trading, it’s important to have an eye for short-term trends in the market. This requires monitoring the charts and having a good understanding of technical indicators such as moving averages, relative strength index (RSI), and other charting tools. Day trading is actually what we had in mind when we said trading was famously stressful.
Scalping
Scalping is a trading strategy that involves opening and closing positions multiple times within a short period of time. It is one of the most popular strategies for trading cryptocurrencies.
Scalping is used by traders to take advantage of small price movements. Traders look for opportunities to make quick profits from small moves in the market, typically lasting from a few seconds to a few minutes.
The scalper will buy at the bid price and sell at the ask price, which provides a small but consistent profit on each trade. By rapidly entering and exiting trades, scalpers can generate several trades within a few minutes. This means scalpers need to be quick and have good analytical skills in order to identify the right opportunities in the market.
Scalping requires traders to have access to fast data feeds and powerful platforms that can quickly process orders. Traders also need to have a deep understanding of the markets they are trading in and be able to keep up with the price changes. Finally, scalpers should use risk management techniques to ensure that any losses are kept to a minimum.
Overall, scalping can be a very profitable way to trade cryptocurrencies, but it does require quick thinking and an intimate knowledge of the markets.
NB You probably spotted similarities between scalping and day trading, and they’re not the same: scalping takes place over very small time frames while day trading typically (or often) involves hourly charts.
Picking one indicator, investing your everything?
Don’t do it!
Don’t short Apple either.
