Trading cryptocurrency does not have to be as difficult as non-crypto believers perceived it to be nor does it have to be extremely risky. Though every kind of trading activity carries a certain degree of uncertainty, a trader can minimize the risks only if he sticks to his trading plans.
It is important to always bear in mind that one has to understand the market before delving into it as well as selecting a technique that’ll be both suitable and profitable. There are different ways to denote the styles of crypto trading.
Let’s go into an overview of the different styles of cryptocurrency trading.
To make very quick trades is what scalping is all about. Cryptocurrency traders that perform scalping are the most active cryptocurrency traders in the group because the type of trading demands a lot of time spent online, monitoring the market and taking advantage of every slightest turn in the market. The goal is to make constant profits regardless of the amount. You might make a trade every few minutes. Basically, you would want to be able to go long and short (and would thus need to margin trade, even at 1x leverage, so you can short). However, you can scalp by spot buying and selling (buying and selling crypto).
This requires constant focus. However, if you are good at it, you can make quick money. This requires risk management and considerable luck or skill, but on paper, you can make constant small gains and those gains can add up quickly. Scalping is for the rather impatient type of cryptocurrency traders who are good at making reasonable decisions under pressure and there is a reliable and conducive environment to work without any distractions.
It is much like scalping but instead of making trades over the course of minutes, you make them over the course of the day. Day trading type of cryptocurrency trading is done during most hours of the day when the market is most active.
You will still use stop losses and scale in and out of positions, but you still look for a little more profit on each trade than a scalper. Day trading is a good idea especially if the traders decide to fully make a living out of their crypto trades and for those traders who can keep their eyes out for market trends. To minimize risks on day trading, it is advisable to trade with smaller amounts, act quickly, and work with limits on the cryptocurrency exchange.
Cryptocurrencies will constantly define a range they are trading in. Generally, this range will be a type of consolidation (either accumulation, big players getting more coins for the next leg up, or distribution, selling coins at a high before the big players let the market drop).
A range trader trades the range and sets stops, he doesn’t really care if he is trading the range at the all-time high or trading the range at the local bottom, as he is simply buying the bottom of the range with a stop and then selling the top of it (or scaling out toward the top).
It is a type of day trading, but the goal is to trade the range, not to buy into an uptrend, or buy after a downtrend, etc.
Trading in a very large range is a swing trading style. Here you will open a position (sometimes gradually) at what you calculate to be the local bottom, then you will aim to HODL your position all the way to what you believe to be the local top (generally gradually scaling out of your position to lock in profits). Obviously, it is the reverse logic for shorting, you aim to short the top of the forming trend to the bottom.
Swing trading is generally done over the course of days or weeks. That means you’ll be taking a position, sleeping on it, watching it go up and down in waves — all without panicking.
If you can get a good sense of technical analysis, for example, if you feel like you can analyze patterns and detect likely support and resistance levels, it can make a ton of sense to focus on swing trading.
Crypto goes up and down in waves, swing trading is all about finding the bottom of the wave and riding it to the top (with long positions; it is the opposite with short positions).
Those who effectively swing trade using long and short positions tend to do very well and do very little work. That said, detecting the pattern, staying calm, and being willing to use loose stops takes some guts. Swing traders are more patient than day traders. They take more calculated risks and likely have taken time to understand market fluctuation of coins. They are better at market analysis and are less likely to fall to quick news of value drops.
Position trading is like a zoomed-out version of swing trading or like the trading version of investing. Here you’ll try to build or take a long position low or short position high and then stick with that position for weeks, months, or even years.
This is the simplest form of trading, but it also takes a lot of discipline. Position trading is a lot like investing, in that it is long term, but it isn’t purely investing, as the end goal is to make a killer longer-term trade based on overarching trends.
In crypto, you’ll need to hold through the crazy ups and downs, the bear and bull markets, the good and bad news, and keep your eye on the ball. Position trading requires a certain amount of trust in cryptocurrency holdings.
Investing or Holding
Investing and trading aren’t the same. Trading is all about taking a position and aiming to take profit. Investing is all about having ownership of an asset as a store of value with a very general goal of increasing that value over time.
Investors are more likely to sell their position because they don’t like the direction of the asset then they are to sell their position due to its current dollar value.
An investor isn’t necessarily going to set a stop loss. Instead, they will build a position in the asset and stick with their investment for as long as the reason they made the investment in the first place is true.
An investor is a true HODLer, he really doesn’t need to look at prices and charts unless he is looking to add to his position at a good price.
Investing is not trading, but ultimately buys and sells are made and it is important to understand that this style won’t suit everyone.
All of the above styles require patience. At the end of the day, success in any type of trading requires an understanding of one’s self. Once you find your crypto trading style, it will take work to refine and your tactics will likely need to be tweaked based on the current market and the coins you are focused on.
One can choose which style that suits him, he can mix and match styles as well based on his goals. Keep in mind that the best way to understand what styles work best for you is to try them out and to be honest with yourself about how effective you are at the style and how the style affects your emotion and logical balance.
It takes some crazy skills and a cold and calculating mindset to trade. Expect pain and try to learn some lessons along the way. Make your lessons affordable by using risk management.