Common cryptocurrency trading strategies

Sun Apr 16 2023

Having a trading strategy is an essential part of being a successful trader. Let's go over the most popular trading styles and strategies that you should be aware of before starting to trade.

Cryptocurrency trading can be a profitable venture if you have a solid trading strategy in place. Having a strategy that you execute consistently is an essential part of the process whether you trade manually, or using an algorithmic crypto trading platform such as Æsir.

In this guide, we’ll discuss some of the most common cryptocurrency trading strategies, including technical analysis and fundamental analysis, and the difference between active and passive investment strategies.

What is a Trading Strategy?

A trading strategy is a framework you create to guide you in all your trading endeavors. It helps you organize your trading tactics into a coherent plan that you can follow, monitor, and optimize continually. A comprehensive trading strategy includes what asset classes you trade, what setups you take, what tools and indicators you use, what triggers your entries and exits, what dictates your position sizing, and how you document and measure your portfolio performance.

Having a trading strategy is an integral part of algorithmic cryptocurrency trading. In Algo trading, you will need to create your crypto trading bots based on your own parameters, meaning that you need to know what you’re expecting your strategy to do. You are of course encouraged to experiment and test as much as possible, and on some algo trading platforms like Æsir you can paper trade for free to test out your strategies.

Active Trading Strategies

Active trading strategies require more time and attention, and they involve constant monitoring and frequent portfolio management. We’ll discuss four types of active trading strategies: day trading, swing trading, trend trading, and scalping.

Day Trading

Day trading involves entering and exiting positions on the same day to capitalize on intraday price movements. On cryptocurrency trading platforms, day trading typically refers to a short-term trading style, where traders enter and exit positions within 24 hours or less. Day traders use price action and technical analysis to formulate trade ideas, and they may employ many other techniques to find inefficiencies in the market. Day trading can be highly profitable, but it’s often quite stressful, demanding, and may involve high risk.

Swing Trading

Swing trading is a type of longer-term trading strategy that involves holding positions for longer than a day but typically not longer than a few weeks or a month. Swing traders generally try to take advantage of waves of volatility that take several days or weeks to play out. Swing traders may use a combination of technical and fundamental factors to formulate their trade ideas, and they have enough time to react to how the trade is unfolding.

Trend Trading

Trend trading is a strategy that involves holding positions for a longer period, typically at least a few months, to take advantage of directional trends. Trend traders try to take advantage of fundamental changes that may take a long time to play out. Trend traders will typically use fundamental analysis, but they may also incorporate technical indicators in their strategy to try and increase their success rate and mitigate financial risks.

Scalping

Scalping is one of the quickest trading strategies out there, and it focuses on exploiting small moves over and over again. Scalpers don’t aim to hold their positions for a long time, and they typically open and close positions in a matter of seconds. Scalping can be an especially lucrative strategy, but it’s not recommended for beginner traders due to its complexity, and it requires a deep understanding of the mechanics of the markets.

All of the above trading styles and strategies translate really well in algorithmic trading. So long as you have a strategy that you want to apply consistently, it’s almost always a better call to do it through an algorithmic trading platform to ensure that you remain consistent, and exclude emotions and other human factors from the execution of the strategy.

Passive Investment Strategies

Passive investment strategies enable a more hands-off approach, where the management of the portfolio requires less time and attention. We’ll discuss two types of passive investment strategies: buy and hold and index investing.

Buy and Hold

Buy and hold is a passive investment strategy where traders buy an asset intending to hold it for a long time, regardless of market fluctuations. This strategy is typically used in long-term investment portfolios, and it’s based on fundamental analysis. The strategy also probably won’t involve monitoring the performance of the portfolio frequently – only once in a while.

Index Investing

Index investing means buying ETFs and indices in the traditional markets or creating a token that tracks the combined performance of a basket of crypto assets. It enables a more hands-off approach to investing in the blockchain industry and cryptocurrency markets, and it eliminates the risk of betting on a single coin.

Conclusion

Devising a crypto trading strategy that suits your financial goals can be challenging. It may also be beneficial to allocate different parts of your portfolio to different strategies and track the individual performance of each strategy while exercising proper risk management. Your trading strategies should be constantly evolving as you gain trading experience, and you should adjust and adapt your methods based on the data and trading records. With a solid trading strategy in place, you’re more likely to achieve your trading and investment goals.

To consistently apply your trading strategy, using an algorithmic crypto trading platform is recommended. You can get started on Æsir for free and build and test your crypto trading bots in paper trading mode. This means you can observe multiple strategies play out from a distance using virtual funds, and decide which ones you’re going to take to market based on their performance.