People have been trading financial markets for nearly as long as they have existed. Whether it’s the vast liquidity of the foreign exchange (forex), shares of companies like Coca-Cola, or government bonds, people have long used trading platforms to make money off of market volatility, price action, the subjective values of market participants, and many other things. The crypto market is no different. Cryptocurrencies burst onto the scene with the emergence of Bitcoin (BTC) in 2008, and since then, the crypto market has grown at a staggering rate. Naturally, this has also meant that traders have worked out various crypto trading strategies aimed at profiting from these remarkable digital assets. Today, we’re going to talk about what these strategies look like.
(Disclaimer: Nothing in this article is intended as investment advice or finding the most profitable crypto trading strategy but merely to demonstrate various examples of trading strategies as a foil to explain trading concepts.)
An Overview of the Cryptocurrency Market
The crypto space consists of fully digital currencies that are almost always associated with an underlying blockchain. The best-known examples are Bitcoin and Ethereum (ETH), but there are also a variety of altcoins that are of interest to those trading cryptocurrency.
Though it won’t be our focus, it’s worth saying just a little bit about blockchains. In most cases, blockchains are distributed public ledgers that track transactions in their associated digital asset. The Bitcoin blockchain, for example, is essentially a giant spreadsheet tabulating all the exchanges of Bitcoin that have ever occurred, going all the way back to the very first genesis block.
This is worth understanding for the same reason it’s worth understanding any company’s technology: It can inform your investment decisions.
We should also try to disambiguate the term “altcoins.” There’s no agreed-upon definition of what an altcoin is, but most people consider it either “any coin other than Bitcoin” or “any coin except Bitcoin and Ethereum.” This is because the majority of existing crypto projects are forks of Bitcoin or Ethereum, or are otherwise based on them.
What Are the Biggest Crypto Exchanges?
Before we get into the best crypto trading strategies, let’s talk about simply buying crypto assets in the first place. By far the easiest way of doing this is with cryptocurrency exchanges, which specialize in making it as straightforward as possible to buy and hold crypto.
There are many, many cryptocurrency exchanges, but the biggest include Binance, Coinbase, Kraken, and HTX.
Picking a cryptocurrency exchange is not trivial and involves a number of factors. Not all exchanges offer services to people living in the United States, not all of them will allow you to trade the digital asset you’re interested in, and they vary in terms of how decentralized they are.
What Are the Main Types of Crypto Trading Strategies for Beginners?
As with most other kinds of assets, there are two basic crypto trading strategies for beginners. The first is to find a project that you believe has long-term potential, then buy and hold it. In the crypto space, this is generally referred to as HODL (or HODLing). HODL stands for “hold on for dear life.”
As cryptocurrency has become a more well-known asset class, people have devised various ways of HODLing. More and more people are using dollar-cost averaging, for example, which refers to simply purchasing a set amount of an asset over time. Dollar-cost averaging is a common way of investing long term in many assets, like exchange-traded funds (ETFs) or Bitcoin.
The second basic strategy is day-trading cryptocurrency, and we have a dedicated section below on the specific day trading crypto strategies investors use under the day-trading umbrella.
As you may have guessed, crypto day trading strategies refers to making short-term, intraday trades for a given stock or asset. Rather than HODLing an asset like a stock for the long-term, you’ll be buying and selling it very quickly, sometimes more than once per day.
Crypto currency trading strategies often boil down to using technical indicators to predict price action (which is trader speak for “price changes”) to try and make a profit. If your Fibonacci retracement analysis indicates that the price of Bitcoin is going to drop a few percentage points, for example, you can enter a quick short trade on it and make money when it does.
You may have heard the term swing trading, which is similar to day trading, except it usually involves slightly longer time periods of a few days or weeks.
What Are the Best Crypto Day-Trading Strategies?
Having laid the groundwork above, let’s now talk about the more advanced crypto trading strategies crypto traders may use.
It is very important for crypto traders looking to investigate Bitcoin trading or trading of other kinds of crypto assets to have a working knowledge of technical analysis, a term that refers to a constellation of techniques for discovering the statistical properties of a crypto asset. Armed with this knowledge, it’s possible for day traders to apply short-term crypto trading strategies using various kinds of technical indicators, trend lines, or chart patterns (ideally) to predict fluctuations in Bitcoin price and to make their trades accordingly.
There are many concepts in technical analysis, which vary from the fairly simple to the staggeringly complex. Let’s walk through a few examples in the top 13 crypto trading strategies below.
1. Moving Averages
On the simple side, there are moving average indicators. As their name implies, moving average indicators calculate some average for a crypto asset — usually its trading volume, returns, or price movements — over a particular window of time. Moving averages are usually calculated for 30 days or 200 days, though this isn’t a hard-and-fast rule.
You could trade an asset like Ethereum by looking at its 200-day moving average and then shorting it if its price dips below that figure.
2. Trend Lines
Similarly, you can also chart trend lines, like support and resistance indicators, which give you an idea of how high or low an crypto asset’s price movements are likely to go. If you notice a divergence, such as a breakout, you can base stop-loss or similar kinds of orders around these lines, profiting if you get the direction right. When done over short periods of time, this forms part of range trading.
3. Momentum
A somewhat more complex technical indicator is the relative strength index (RSI), which quantifies the strength and speed of a given crypto asset’s recent price movements. The RSI is sometimes used to evaluate whether a digital currency is underbought or overbought and, for this reason, can also be used to try and calculate when a pullback might be imminent.
You may notice, for example, that there’s been a flurry of activity driving up the price of Bitcoin because a famous crypto-entrepreneur has recently gone to jail and place a few stop orders on the hypothesis that it will return to a more sensible long-term price in the next few weeks.
4. Crypto Arbitrage
You can also profit off of small price discrepancies, which is known as arbitrage. In the crypto space, there can be situations in which the price of ACME coin is, say, $41,000 on exchange A but $40,500 on exchange B. If you happen to stumble upon such a mismatch, you can buy ACME coin on exchange B and sell it on exchange A, pocketing the difference.
These days there’s enough trading volume that you’re less likely to find an arbitrage opportunity than you would’ve a decade ago, but arbitrage is a pretty basic financial concept, so it’s still worth understanding.
5. High-Frequency Trading
If waiting three hours for a trade to execute seems far too slow-paced, you might be interested in the world of high-frequency trading (HFT). HFT refers to the growing use of algorithms or trading bots to execute trades in a few seconds, or sometimes even faster than that.
Because high-frequency trading is so difficult to do well, it’s predominantly used by extremely sophisticated investors, such as those from proprietary trading firms or institutions.
Still, it has a growing presence in the crypto space and can be used to structure high-volume trades profiting off crypto price movements.
6. Scalping
Scalping is a day trading cryptocurrency strategy that capitalizes on small price gaps created by bid-ask spreads or order flows. It is best suited for experienced traders as it requires a good understanding of the market and quick decision making.
A scalper makes dozens or even hundreds of trades in a single day to “scalp” a small profit from each. Because cryptocurrency markets have high volatility and liquidity, scalping strategies can be highly effective. It is one of the best crypto trading strategies for trading bots and automated systems that can execute transactions quickly and efficiently.
For example, Bitcoin traders use scalp trades during periods of high Bitcoin market volatility. They profit by taking advantage of minor price movements that occur within minutes or hours.
7. Leverage Trading
Leverage trading uses borrowed funds to amplify potential returns from small price movements in cryptocurrencies. Leverage strategies for crypto trading require a thorough understanding of the market, risk management, and the discipline to set strict stop-loss orders to minimize potential losses.
This strategy is for experienced crypto traders who are looking for significant returns on short-term trades and can manage the high risk associated with leverage. It’s particularly effective in the cryptocurrency market due to its inherent volatility and the availability of leverage on many crypto exchanges.
A trader might enter a leveraged position in Bitcoin, anticipating a short-term price increase. With leverage, even a small price move can result in significant profits. But if your prediction fails, leverage trading also amplifies the risk of loss.
8. Position Trading
While crypto day trading focuses on short-term market changes, position trading is a long-term strategy that holds positions for months or years.
Position strategies for crypto trading are based on the fundamental value and long-term potential of a cryptocurrency. An example of this would be investing in Ethereum for its foundational role in DeFi. Instead of focusing on sudden market shifts, a position trader looks to its long-term growth and value potential.
9. Sentiment Analysis Trading
Sentiment analysis crypto trading strategies study market sentiment to make trades based on the overall mood of market participants. By studying social media and news trends for insights, sentiment analysis traders predict upcoming market trends and invest accordingly. For example: a sudden spike in positive sentiment on social media regarding Litecoin might prompt a trader to buy in anticipation of price increases.
Sentiment analysis trading is especially important in crypto markets because they are so influenced by news and social media.
10. News-Based Trading
News-based trading is a crypto futures trading strategy that studies news announcements and events to predict quick, market-moving impacts. The crypto market is very sensitive to news and regulatory announcements, so it is definitely important to take these events into account.
Crypto traders must be adept at quickly analyzing news to determine its potential positive or negative effect on prices. If you want to keep abreast of what’s happening and what’s about to happen in the crypto industry, our financial news API can help.
11. Crypto Pair Trading
These crypto trading strategies involve trading on the price difference between two closely related cryptocurrencies, like ETH/BTC. Crypto pair trading falls under the broader category of pair trading or statistical arbitrage, which has been traditionally used in forex and stock markets.
Traders capitalize on the correlation, buying the underperformer and selling the outperformer. Trading pair crypto exchange strategies are effective in a volatile market where relative price movements can be predicted. For example: if due to market events, ETH temporarily underperforms BTC, a trader might buy ETH and sell BTC short, betting on ETH’s price recovery.
Tiingo’s API provides detailed price histories and real-time data for a multitude of cryptocurrency pairs. Traders can analyze these datasets to identify divergences and convergences between pairs, making informed decisions on when to enter or exit trades based on statistical arbitrage opportunities.
12. Breakout Trading
Breakout crypto futures trading strategies use a combination of technical indicators, historical price levels, and volume analysis to identify key price levels for expected breakouts. Breakout traders set buy orders above resistance or sell orders below support levels. This helps them capitalize on the market’s volatility and momentum while placing limits on their potential losses.
For example, a crypto trader might place a buy order above Ethereum’s resistance level, expecting a breakout. If the breakout fails to hold, the trader sells when Ethereum crosses the support level.
13. Volume Analysis Trading
Volume analysis trading relies on trading volumes to gauge market sentiment and momentum and indicate the strength of price movements. It looks for volume spikes as confirmation of trends or potential reversals. For example, a sudden volume increase during a Bitcoin price dip could point to a potential reversal point.
Volume analysis is most effective when combined with other day trading crypto strategies, such as price trends and technical indicators. With Tiingo’s comprehensive volume data, traders can discern the strength behind price movements, identify potential reversals, or confirm the momentum of trends
Automating Strategies for Crypto Trading with Tiingo API
By introducing the Tiingo Crypto API into trading bots and algorithms, traders can automate their strategies and capitalize on opportunities around the clock without the need for constant manual oversight.
Here are some of the features that you can expect when you incorporate Tiingo into your crypto day trading strategies.
Selective Exchange Data You select the exchanges from which to gather top-of-book feed and intraday bars. This customization means traders can fine-tune their automated strategies to react within milliseconds to the best bid/best ask prices across their preferred crypto API endpoints, optimizing for both speed and relevance.
Easy Crypto & FX Conversions Tiingo automates these conversions. This simplifies the process of calculating the value of your trades in any desired currency, which makes it much easier to manage a diversified portfolio.
Professional-Grade Data Feeds The best crypto trading strategies demand the best data feeds. Our platform was built by former hedge fund algorithmic traders who understand the critical importance of connectivity, speed, and reliability. Tiingo delivers institutional quality data feeds and provides traders with fast, accurate, and reliable market data essential for executing automated trading strategies effectively.
Reliability and Speed Tiingo provides consistent uptime and high-speed servers optimized with in-memory caching. We provide your automated trading systems with real-time data delivered quickly and consistently and offer minimal latency in trade execution.
Risk Management Considerations
When trading, it’s always important to manage your risks, and that’s true in crypto just like it is in TradFi.
The simplest way to do this is to never use money that you can’t lose. Traders tend to get in the most trouble when they make bets they can’t realistically cover, and if you don’t fall victim to that tendency, your losses will likely be manageable.
Another problem with crypto trading strategies is known as “fear of missing out,” or “FOMO” for short. This refers to the habit of crypto traders becoming caught up in excitement around a new crypto asset (or a bunch of activity in an established one) and rushing in without carefully researching the asset. This is a good way to lose your shirt (or your house).
Beyond this, there’s a whole science to managing trading risk, which involves using various kinds of hedging strategies to cap your downside. If you’re bullish on Bitcoin but bearish on Zcash, for example, you can buy a call option on Bitcoin and a put option on Zcash. This means that if both assets decline in price, your losses on incorrectly forecasting Bitcoin will be offset by your gains on correctly forecasting Zcash.
Tiingo’s API can serve as the foundation for dynamic crypto trading strategies. It lets traders set real-time alerts for price changes, volume spikes, or other critical market events. This lets you swiftly adjust positions, implement stop-loss orders, and safeguard their investments against sudden market shifts
Fuel Your Crypto Trading Strategies with Good Data
In this piece, we discussed the crypto asset class in broad terms, spent some time discussing technical indicators, and then turned to discussing crypto trading strategies directly.
One thing to remember about all of this, however, is that it’s really only as good as the data you use. For all the talk about the glories of artificial intelligence and machine learning, at root these technologies are just algorithms, and no amount of algorithmic power is going to overcome having bad financial data.
That’s where Tiingo comes in. We’re a premier provider of financial data, and we take pride in carefully gathering, cleaning, and validating all our data before it makes it to our end users.
If you want to execute a crypto trading strategy, you’ll need to have the best information possible, so sign up for a Tiingo account today!
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