Five Basic Crypto
Trading Strategies for Beginners

A strong trading strategy helps you get the most from your cryptocurrency investments. Strategising involves setting profitable targets, evaluating potential risks and deciding a risk/reward ratio appropriate for you. As a beginner, do your homework before you begin trading, either by reading different articles or observing how the S&P 500 is trending.

Once you are better informed, develop your entry and exit strategies. Your entry strategy can be based on what you are looking for in a particular cryptocurrency. An exit strategy fixes the price at which you close out a position in case a trade goes against you. Then, you must analyse the performance of your asset. Evaluate why trading took a particular direction and think of ways to improve on your next trade. Here are five strategies that can help you:

Buy the dip

‘Buying the dip’ involves purchasing an asset following a short-term price decline. However, the term holds different meanings. It could entail buying an asset when it drops within a long-term upward trend. It could also mean buying an asset when there is no upward trend, but you hope to see a spike in the future. This strategy is based on Elliot Wave’s theory of price waves. Essentially, traders who buy the dip hope to purchase an asset at a lower price in the hope a rebound in the market will grant them profits.

Try scalping for profit

Scalping is profiting off small price changes. When scalping, the goal is to gain as many small profits as you can. This strategy gives less exposure per position, since traders typically look for smaller market moves. When you expose yourself to the market only for short periods, it limits your chances of unfavourable encounters. Scalping works well when you have a consistent exit strategy and trade on an exchange with low fees.

Use fading to buck the trend

Fading refers to trading against the dominant trend to profit from the reversal. This strategy assumes three things: (i) The price is oversold; (ii) Early buyers/sellers are prepared to take profits; and (iii) current holders/short sellers could be exposed to risk. While fading, you must first identify the overbought or oversold conditions. Technical indicators, such as Relative Strength Index (RSI) or Stochastics, are used for this purpose. Next, watch out for a change in the short trend. These include the volume in the direction of the market move and whether technical indicators move away from extreme overbought/oversold levels. Finally, enter the trading strategy with stop-loss and take-profit points. Given that it goes against the dominant trend, fading is a risky strategy. Make sure you set loss and profit points with which you are comfortable.

Make daily pivots

This strategy uses pivot points – technical analysis indicators defining future support based on the previous period’s high, low and close price. Pivot points are used to determine stock market trends over different time periods. There are two types of pivot trading – breakout trading and bounce trading. Breakout trading involves opening a position using a stop limit order just when the price breaks through the pivot point level. In the case of a bearish breakout, initiate a short trade. If the breakout is bullish, initiate a long trade. With bounce trading, initiate the trade if the price bounces after hitting a particular pivot point. Buy if the stock hits a pivot line from the upper side and bounces up. Short the security if the stock hits a pivot line from the lower side and bounces down.

Gain with momentum trading

Momentum trading involves buying rising assets and selling these when they peak. It involves five components – selection, risk, entry timing, position management and exit points. You must select an asset and be aware of the risks involved in opening and closing trading. Carefully consider the timing of your entry and how you manage your position. Also, ensure your exit points are consistently charted.

Before you begin trading, you must mentally prepare yourself. Clear your mind of all distractions. Take your time developing a strategy that works for you. Once you master these, you could try your hand at more advanced strategies.

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