What is a trading strategy and why do you need one?
Cryptocurrency buyers who want to do more than buy and hodl have many trading options available, but in a highly volatile market with more than a few questionable players, a defined strategy is key to success
There are many loud proponents of hodling — or holding — in crypto and particularly in Bitcoin. Buy and do not sell, as Bitcoin will always go up over the long term, the argument goes. But for traders who want to stay ahead of the curve, there are strategies. Otherwise, you’ll be buying based on FOMO — fear of missing out. And if you’re following the herd, you’re generally buying high and selling low.
While a strategy is necessary in any type of smart investing, it’s doubly so in the extremely volatile cryptocurrency industry, where prices rising or falling 10% in minutes is common and more than 50% in a few hours is not exactly rare. Beyond that, available leverage for margin trading can be dangerously high — as much as 100x at some exchanges — and there is very little regulatory infrastructure to protect investors from bad actors. Then there are factors that simply cannot be accounted for, like a whale suddenly dumping a huge amount of Bitcoin on the market and driving down prices.
What will help is having a strategy that you follow consistently, sources of data you can rely on, and an exchange with the reliability, speed, and liquidity to execute your orders in a timely fashion.
What is day trading?
Day traders invest based on complex strategies in a timeframe of minutes to hours, but at the end of their day, they’re out of the market, forgoing potential gains to avoid losses.
At first glance, day trading is pretty simple: You buy and sell cryptocurrencies many times over the course of a day, seeking to make a profit on the (usually) small minute-to-minute, hour-to-hour price fluctuations. It is, essentially, the opposite of hodling.
The reality is day trading is very complex because so many things affect the price — too many to factor them all in. So, you need strategies within it, relying on specific indicators, technical analyses, research sources, risk management strategies, and profit and loss tolerance. Which means access to good information and speed is vital. You also need to take fees into account if you’re making a high volume of trades.
Day trading is high-stress, but also comes with a cut-off. Day traders generally set a defined “day” in the 24-hour crypto market, and close out their positions by that time. So while it does come with high risks, wild overnight swings are not among them. While that means missing out on big gains, it also means avoiding big losses.
What is trend trading?
Trend trading is just that: Analyzing data to find mid-to long-term trends that suggest a cryptocurrency’s price is heading up or down, and when the direction is about to change.
Trend trading is a longer-term strategy that uses various analytical tools to predict if a cryptocurrency’s price is heading up or down over a matter of months at least. It seeks to ignore short-term price movements by focusing on technical analyses like indicators (patterns in historical data such as price, volume, and open interest) and price action (the up and down movement over time).
That said, what matters isn’t whether a cryptocurrency’s trend is up (time to buy) or down (time to short) so much as spotting the reversals, which tell you when to reverse tactics or just get out. It’s for more advanced beginners who spend the time doing analysis and managing risk, and have the stomach to ride out downward swings.
You can continue reading this article at: Cointelegraph