Last Updated: October 30, 2022.
Cryptocurrency trading is a highly risky process of making a living. Like with forex and stocks, most people who start trading don’t succeed in it. In this article, we will look at some of the best crypto trading strategies for beginners and how to use them well.
Trend following is one of the simplest trading strategies in cryptocurrency trading. A trend is a period when a financial asset is making a series of higher highs and higher lows.
A bearish trend, on the other hand, is when the asset forms a series of lower lows and lower lows.
In trend-following, a trader identifies a cryptocurrency that has already formed a trend and then follows it. As such, if Bitcoin is rising, the trader will simply open a buy trade and take advantage of this trend. On the other hand, if it is retreating, the trader will open a short trade.
Trend-following can happen in all timeframes, including in a one-minute chart or in a daily or weekly chart.
Note: This is a sponsored article and we do not encourage to use crypto curriences for the jurisdictions where the usage of such currency is banned by law, also we do not take any responsibility of the information in this article. All complaints will be entertained.
Traders use several approaches to determine when to exit a trade. The most popular ones are trend-lines, Fibonacci retracements, and technical indicators like moving averages and Bollinger Bands.
For example, the chart shows that Bitcoin was in a bearish trend between October 7 and 14. In this case, a trend-follower could have entered a bearish trade as long as Bitcoin was below the 50-period moving average.
Price Action Strategy
Another simple crypto trading strategy for beginners is known as price action. Here, a trader looks for patterns in charts and candlesticks to decide whether to buy or sell a cryptocurrency.
There are two main types of chart patterns: continuation and reversal patterns. A continuation pattern means that the asset will move in the existing trend, while reversal patterns mean that the coin will likely start a trend in the opposite direction.
Examples of popular continuation chart patterns are bullish and bearish pennant, bullish and bearish pennant, ascending and descending triangles, and cup and handle.
Reversal chart patterns include double and triple tops, head and shoulders, and rising and falling wedges.
On the daily chart below, we see that Bitcoin is in an overall bearish trend. It then formed a bearish flag pattern that is shown in black. Therefore, in most cases, this pattern is a sign that the coin will have a bearish breakout. As such, a trader can place a sell-stop trade slightly below the lower side of the flag pattern.
Bearish flag example
Crypto Trading Arbitrage Strategy
Another simple crypto trading strategy is known as arbitrage. It is a good approach that tends to eliminate or reduce risks in trading. There are several types of crypto arbitrage strategies.
One way to trade crypto– using this approach is to use a peer-to-peer exchange like Paxful, Local Bitcoins, or BinanceP2P. After this, you will just buy a coin from a cheaper seller and then flip it at a higher price.
You can sell it using the same company or an alternative one. For example, you can buy Bitcoin from a seller for $20,000 and then find another buyer for $20,200.
Another arbitrage strategy is to identify two closely correlated cryptocurrencies and open two opposite trades. For example, assume that the XRP and XLM coins are trading at $0.50 each and that they are both closely correlated.
Also, assume that you expect the two coins to rise.
In this case, you can spend $200 to buy XRP and $150 to short XLM. If you are correct, the XRP trade will be profitable while XLM will not. Your profit will, therefore, be the spread between the two.
The Bottom Line
There are many crypto trading strategies, but we believe that these are the easiest ones for traders. All these approaches come with their risks.
For example, in crypto arbitrage, it is possible for this correlation to shift immediately after you place your trade. Similarly, with trend-following, it is common for a bullish trend to turn around immediately after the trade is placed.