Strategies in crypto trading

Crypto Trading Strategies

• What is scalping?
• What are resistance levels?
• What is MACD?
• How to trade on the trend?
• What is Cryptoarbitrage?
• FAQs

Any investor interested in the crypto market faces the question of which strategy to choose. Let's try to figure out what opportunities exist depending on the experience of a particular trader, and also analyse the key terms for choosing the optimal strategy, including what resistance levels, MACD and crypto arbitrage are.

What is scalping?

Any trading is divided into different types depending on the period of time during which a particular investor is ready to hold certain assets. Thus, trading can be long-term, medium-term and short-term. In the first case, the trader invests in crypto assets for a period of more than a year, in the second case - from a month to a year, and in the third case, he owns specific coins for no more than a month. There is also a shorter-term method of trading - when transactions are made during the day, and sometimes several minutes pass between buying and selling an asset. This strategy is called scalping.

In fact, an investor monitors the slightest fluctuations in the price of a particular coin, and in case of a change in the trend, decides to buy or sell a token. For such a strategy, a trader must first of all master the elements of technical analysis, as well as distinguish between the main patterns that can be formed on the rate movement chart, for example, Head and Shoulders Pattern, Double Top, etc.

The scalping strategy has its advantages and disadvantages. The main advantage is that with a proper understanding of the processes in a particular market, an investor can make serious profits, especially if he uses leverage. However, the main disadvantage of scalping is that such trading is only suitable for investing in volatile markets, where the price of assets can change very quickly depending on the situation or the news.

Therefore, scalping is not actively used in the stock market, but it is very popular in commodities trading (primarily oil and natural gas futures), as well as in the crypto market. Moreover, the most fertile ground for scalping is provided by trading in the Altcoins, their rate can change very quickly, which gives an investor a serious profit.

The decision to trade sometimes needs to be made in a few seconds. But in reality, automated trading tools, such as customised stop loss and take profit orders, often help the trader. In the first case, the system will automatically place an order to sell the Cryptocurrency if its rate falls to a certain level. In the second, on the contrary, the decision to sell will be made if the rate rises to a specific mark.

What are resistance levels?

In order to understand at what level to set stop loss and take profit, the so-called resistance levels are used. This term means that a certain line has formed on the chart of the course movement, which for some reason cannot be broken through by a particular cryptocurrency. Most often, these lines can be associated with various psychologically important marks. For example, for Bitcoin in the summer and autumn of 2022, this resistance level was $20,000, above which BTC could not rise for a long period of time.

The opposite of a resistance level is a support level. This term means a certain line, below which a particular asset also cannot fall. The technical analysis helps to determine the level of support, as well as the level of resistance. An experienced investor, analysing the chart, can determine the corridor below or above which the rate of a particular Cryptocurrency does not move. Again, the level of support can be associated with a psychologically important mark, for example, for the second cryptocurrency in the world - Ethereum, for a long time $1,000 was such a support level.

What is MACD?

In addition to support and resistance levels, the experienced traders use the concept of a moving average. This term means a curved line based on the average value of the price over a certain period of time. Thus, the average value of the course is obtained.

Traders also use oscillators, that is, tools that help to suggest the direction of trading when there are no significant events in the market. The main task of the oscillator is to determine whether a particular asset is oversold or overbought.

For example, one of these oscillators is the MACD (Moving Average Convergence/Divergence). It allows the traders to determine the divergence of these lines from each other. Such a mechanism helps to understand the further movement of the rate, when the market has moved into the so-called flat, and there are significant price changes on it.

How to trade on the trend?

If scalping and any short-term trading require the investor to have serious knowledge of the market and their own initiative, then less experienced investors can choose a medium-term strategy - often called trend trading. This term means that the investor is trying to determine the direction of the market movement, as well as making decisions to sell or buy a particular coin in accordance with the opinion of the majority of traders.

In early November 2022, the US market regulator, the US Federal Reserve, decided to raise the key rate by another 0.75 percentage points. This decision, as expected, led to a collapse in global stock markets. The fact is that the growth of rates in the economy provokes a rise in the cost of money for business, which means that in the medium term it leads to the curtailment of business activity. In such a situation, the companies are forced to postpone their development programs, and the investors begin to look for "safe havens" for their capital. In the event of an increase in rates, money leaves the cryptocurrency market for more reliable assets, such as gold, precious metals, or US government bonds.

Other news, on the contrary, may lead to an increase in demand for cryptocurrencies. The latest example is the purchase of Twitter by Tesla owner, billionaire Elon Musk. After the deal was declared closed, the crypto market moved to growth. The fact is that Musk himself is considered a supporter of cryptocurrencies and has repeatedly expressed sympathy for Dogecoin. Therefore, it was this coin that showed the maximum growth against the background of the news. But at that moment, the crypto market in general felt a rise - almost all cryptocurrencies, including Bitcoin, went up in price. There were no objective reasons for this - only the expectation of positive news, and these expectations were justified. In particular, quite quickly after the conclusion of the transaction, it became known that the Binance exchange would introduce the possibility of paying with Binance Pay in the social network.

What is Cryptoarbitrage?

Finally, traders who are able to identify trends and make quick decisions may be interested in a strategy such as crypto arbitrage. In essence, this means buying a Cryptocurrency on one exchange and selling it on another. The difference in value arises from the different liquidity on the exchanges. For example, a popular platform may have more orders, and the rate on it will be lower than on a lesser-known exchange.

However, when choosing crypto arbitrage, you need to remember that lesser-known and popular platforms are much more at risk of being hacked and may not be safe for storing cryptocurrencies. Therefore, analysts recommend that traders, especially beginners, focus on the most reliable sites. This will reduce the risks, which are already quite numerous in the crypto market.

FAQs