Everyone who works in the financial markets and has achieved great success has a trading strategy. Every trader should have a specific trading strategy for himself.
With specific rules and methods, these strategies help traders to show calculated actions and reactions in different situations.
In digital currency trading training, various types of trading strategies are considered. For this reason, in this article, we will examine the types of digital currency trading strategies so that you can find the best strategy for yourself by understanding the importance of this issue.
In this article we will check out together:
- What is a trading strategy and why is it important?
- Getting familiar with different trading strategies
- Hold strategy
- Digital currency day trading strategy (Day Trading)
- Arbitrage Trading Strategy
- Swing trading strategy
- Stepped purchase strategy (Dollar Cost Averaging)
- Scalping trading strategy
- How to create the right trading strategy?
- Introducing the best digital currency trading strategy for beginners
- How to choose a professional strategy?
What is a trading strategy and why is it important?
Trading strategies are the rules and measures that traders use in different situations, especially the sensitive conditions of the financial markets.
In this way, no matter how difficult the situation is, the trader does not get stressed and can go through the transaction process with complete peace.
Most traders who are not professionals usually bring their emotions into the trading process. This issue can lead to irreparable losses.
But despite the detailed strategies, traders do not pay attention to their unstable and temporary feelings and focus only on their path and goal.
Having a calculated strategy has the following advantages:
- Strategies can show traders how to trade successfully.
- Traders with a trading strategy can explore the world of digital currencies with a better view.
- With the best trading strategy, traders can analyze their desired trade more precisely.
Getting familiar with different trading strategies
Fortunately, there are various strategies in the digital currency market that you can use according to your circumstances. The number of strategies is huge and this variety can confuse traders.
To clear up the confusion, we’ve rounded up the best strategies for you. The most important of them are as follows:
Hold strategy
Hold digital currency (Hold on for dear life) means keeping a capital for a long time. In this trading strategy, traders have a long-term goal and vision about their investment.
In this way, with the sudden changes that occur in the digital currency market, they do not buy and sell.
Those who use this strategy are known as holders. This strategy has its own advantages and disadvantages, which are as follows:
Advantages of hold strategy
- If you act smart, it will be a low risk for you.
- You are not affected by market tensions.
Disadvantages of holding strategy
- You may not be able to make much profit.
If the amount of capital is high, it will be difficult to liquidate it.
The hold strategy is suitable for long-term investments, and people who are looking for long-term profits will find this strategy suitable for them.
The long-term hold strategy has the following rules:
- Do not sell your currencies in this trading strategy to earn big profits in the long term.
- When the price of a currency reaches its lowest point, buy it very quickly.
- Holders should not follow negative and alarming news about digital currencies.
- Use hardware wallets to store your currencies.
- Invite others to use the holding strategy.
- You shouldn’t worry when digital currencies go up. If you wait, your currencies will also rise.
- In this trading strategy, stop your temptations to buy and sell digital currencies. If you can’t, definitely do it with the least risk.
Digital currency day trading strategy (Day Trading)
Day trading of digital currency is one of the most important strategies used by various traders. In this method, the trader leaves the position open for a period of one or more days.
For this reason, the daily trading strategy is short-term and will be suitable for those who have short-term goals of digital currency trading.
A day trading strategy helps the trader to profit from the small developments that occur in the cryptocurrency market. In order to make a profit in a short period of time, people follow the news of their desired field even political and economic news.
Traders have to buy and sell currencies that are always highly volatile.
They also focus on the developments that occur in large companies, especially financial companies. Any development that occurs in these cases can bring daily and big profits to the trader.
A trader who uses a day trading strategy should have the following characteristics:
- The trader must have enough knowledge to trade.
- Usually, some traders use technical and fundamental analysis for this type of strategy.
- Traders invest part of their assets in this method because they are likely to lose them.
- In the daily strategy, traders also use volatility trading, arbitrage, and news-based trading.
Advantages of day trading
- Traders can use different methods to buy and sell digital currencies.
- Because in this strategy, transactions are closed on a daily basis, hence the daily strategy does not have the risks of long-term investment.
Disadvantages of day trading
- You have to spend a lot of time for day trading and this strategy comes with difficulties.
- In the daily trading strategy, you must have complete mastery in technical analysis.
- You should always be learning and following different news. For this reason, you are under a lot of stress and mental pressure.
Exchanges suitable for day trading
There are many exchanges in this field where you can make your transactions. But in order not to get confused, you can trust the following exchanges:
- Binance exchange
- Kraken exchange
- Kucoin exchange
- Coinbase exchange
Arbitrage Trading Strategy
Digital currency arbitrage strategy is an old trading method where the trader profits from the price difference of a particular asset. Arbitrage helps the trader to earn more profit with less risk.
In this method, the trader can buy a digital currency from an exchange at a low price and sell it at another exchange at a higher price and make a profit.
Arbitrage trading strategy is a short-term strategy. Those who want to experience low-risk trading with minimal stress can go for this strategy.
Also, those who are not familiar with important analysis such as technical can use arbitrage strategy. This strategy has different types as follows:
- Trading between different exchanges: the trader buys the currency from one exchange and sells it at a higher price in another exchange.
- Local transaction: in this method, the trader buys and sells his currencies in the exchange of different countries.
- Triangle trading: With this trading strategy, a trader in an exchange moves his funds between different digital currencies in order to make a profit.
- Arbitrage in Decentralized Exchanges: A trader can make huge profits from converting his currency in a decentralized exchange to a centralized exchange.
- Statistical strategy: Traders use certain statistical and computational methods to maximize profits.
Advantages of arbitrage strategy
- The risk of this strategy is low.
- Traders do not need different and complex analysis.
- Traders can use a pricing strategy for this method to reduce investment risk.
Disadvantages of arbitrage strategy
- The risk of this strategy is low, that’s why small profits are given to the trader.
- Fees paid as a result of buying and selling in different exchanges can be detrimental to the trader.
- Because traders move between different exchanges and use exchange wallets, there is a possibility of hacking of exchange wallets.
Swing trading strategy
Swing trading is a digital currency trading strategy that is suitable for beginners in the world of digital currencies. Swing trades are a combination of short-term and long-term trades.
In this strategy, traders can rely on short or medium time frames to profit from the high and low prices of digital currencies. In the swing trading strategy, traders should take help from technical analysis.
It is also possible to use fundamental analysis for traders. The advantages and disadvantages of this trading strategy are as follows:
Advantages of swing trading strategy
- This trading method takes less time than daily trading.
- Because traders use technical analysis, they can find the best opportunities to trade.
- Traders spend little time analyzing the market and making trades.
Disadvantages of swing trading strategy
- The fees that traders pay for this trading strategy are significant.
- There is a possibility of fluctuations at the end of the working week.
- The market trend is not always stable and sudden changes can cost the traders of this trading strategy.
Stepped purchase strategy (Dollar Cost Averaging)
Dollar Cost Averaging is one of the most important strategies for managing capital. The most important point in this strategy is that traders should not buy and sell in one step and suddenly.
Rather, they should buy and sell in steps. Because the transaction is in steps, the trader makes the least loss.
This is a long-term investment strategy. The trader divides the funds he has into different parts. Then he trades them slowly or gradually and at specific times.
The trader uses split capital on only one currency. The advantages and disadvantages of this strategy are as follows:
Advantages of the Stepped purchase strategy
- This strategy is both a smart investment and a savings.
- This trading strategy plays an important role in neutralizing price fluctuations in the digital currency market.
- It is considered one of the least risky trading strategies.
- Because you don’t need any special analysis to make a trade, it is known as an easy strategy and conveys the least concern to the individual.
- In this trading strategy, the time when you should buy and sell is determined in advance.
- This strategy is suitable for beginners.
Disadvantages of the Stepped purchase strategy
- Because this is a step-by-step method, you may miss out on some of the price increases.
- There is a temptation to trade at unspecified times.
- This method does not eliminate investment risk, but reduces it.
Scalping trading strategy
Scalping is known as one of the simplest short-term trading strategies. A person who uses this strategy is known as a scalper.
A trader can make small profits by making multiple trades in a day. If traders apply the principles of risk and capital management, they can make good profits.
When there are small changes in the price of currency and currency pairs, the scalper can profit from this change.
Traders using this strategy may make 10 to 100 different trades in a day to make a profit. In this strategy, traders should use important analysis such as technical. The features of the Scalping trading strategy are as follows:
- This strategy is suitable for fast-moving traders.
- Traders use holding in the shortest possible time to make a profit.
- In this trading strategy, scalpers use the important Candlestick indicator to achieve maximum profit.
In addition to its advantages, this strategy also has disadvantages for traders. Before choosing a strategy, be sure to check its positive and negative features. These are as follows:
Advantages of scalping trading strategy
- The trader takes the least risk in this method. For this reason, the risk of capital loss will be reduced.
- Traders can use bots to trade and earn profits.
- In this trading strategy, the trader can more easily find positions that lead to profit.
- A trader can always profit from small price movements. These movements exist even in stagnant conditions.
Disadvantages of scalping strategy
- If you face a small loss during the trade, then the small profits you have already made will be lost.
- The trader should trade with smart and powerful robots that are in the market.
- This trading strategy requires high speed and is more suitable for professional traders.
- You have to pay a lot of fees due to doing different transactions daily.
- You need to focus a lot for this trade and that is why this trading strategy takes more time from you.
How to create the right trading strategy?
In order to be able to determine a trading strategy and use it to achieve acceptable profits in different conditions, it is necessary to follow the following steps:
- Set a specific time frame for yourself. See in which of the short-term, long-term and medium-term time frames you tend to profit.
- Analyze yourself well in terms of psychology so that by knowing your positive and negative characteristics, your behavioral pattern and risk-taking level can be determined.
- Check your skills including technical and fundamental analysis and see which one you are more professional in.
- Check how much capital you want to trade in the market.
- To determine your trading strategy, determine your profit limit and loss limit in the transaction.
- Predict how your strategy will perform. To understand this, you need to experience it.
- After testing the strategy, its flaws will be identified and you can use your strategy to make a profit by fixing them.
Introducing the best digital currency trading strategy for beginners
Beginners are always worried about which trading strategy is right for them. This makes them go for strategies that do not have the necessary efficiency.
Arbitrage is one of the best trading strategies for beginners in this market. Of course, this is only one of the strategies suitable for beginners.
There are many strategies for these people that they can use to make huge profits.
How to choose a professional strategy?
In this article, we reviewed different types of trading strategies. You should know that your right strategy is the one that has a direct relationship with the intensity of risk taking, your skills and your level of professionalism.
Therefore, a good strategy should have the factors of determining the trading market, different trading methods, capital management methods and the amount of time you are going to spend on it.
In fact, the closer a strategy is to your personality psychology, it can be considered as the best trading style for you.