Trading strategy cryptocurrency

Trading strategy cryptocurrency: 4 common ways

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When it comes to trading, whether you trade in crypto or on forex, the goal of every retail trader is to become profitable in the end. It’s not only about being profitable but also being more profitable compared to holding a specific asset over the same period of time.

Trading strategy for cryptocurrency & getting profitable

Theoretically, to reach this target, your trading strategy for cryptocurrency should be very simple; buy low, sell high. Unfortunately, to reach this goal a trader has to deal with unexpected market fluctuations, daily news, FUD, market manipulation and even accidents on exchanges like big hacks(when you’re trading cryptocurrency). This makes reaching the goal of being profitable in the end very difficult.

Trading strategy cryptocurrency: how not to trade

A lot of beginning traders, especially in the crypto space, approach this trading like playing some casino game. Just throwing in money without a plan or strategy which results in losses or even very big losses. Trust me on this: when I started trading cryptocurrency back in 2014, I made the same mistakes over and over again, before starting getting profitable. The main cause of these losses is that you have to realize that trading is a zero-sum game, every trade made on an exchange, such as Binance, has a winner and a loser party. Below a list of trading actions which could cause losses or even big losses.

List of trading actions for cryptocurrency

  1. Too stubborn to exit when proven wrong: You just refuse to take a loss, you think a loss is not real as long as you do not exit a trade.
  2. Too much ego to take a loss: You are on the wrong side of the market trend but think if you hold a losing position you can be proven right on a reversal. While you are waiting to be proven right your loss gets bigger and bigger.
  3. Too much hope for a reversal: You think the market just can’t keep moving against you and must reverse at current price levels.
  4. Trading too big a position size: The bigger you trade the bigger your potential loss and the more likely that your emotions will override your trading plan.
  5. Buying in a downtrend: Bulls in bear markets lose money as markets make lower highs and lower lows.
  6. Selling short in an uptrend: Bears in bull markets lose money as the market makes higher highs and higher lows.
  7. No trading plan: When you don’t have a plan for your trades you plan to fail.
  8. No trading system: If you do not have a quantified and proven price action trading system then your trades are just random in nature. Big losses will happen due to the random nature of entries and exits.
  9. Bad position sizing parameters: Big losses will occur when position sizing is not based on historical volatility and worst case scenarios.
  10. No discipline: No self-control to create a systematic trading process and even if there is one, then no discipline to follow a predetermined method.

So how do you avoid this(very human) mistakes and start being profitable from day one?

Choose a trading cryptocurrency strategy

In my opinion to start being profitable when trading cryptocurrency on an exchange like Binance or E-Toro, is to develop some system and have the discipline to commit to it. What does that mean? There are several ways to approach trading. It all depends on the time you have available for doing research, analyze markets and trade setups. But when you do trade setups and start performing orders, you have to repeat many times. This is very useful because afterward you can analyze your winner and losing trades, get rid of the losers and adapt your strategy to your winners. So what trading strategies are commonly used?

RSI trading strategy

RSI means Relative Strength Index and measures the ratio of upward and downward movements and normalizes the calculation so that the index is expressed within a range of 0 to 100. The indicator was originally developed by J. Welles Wilder. There are two very important borders when using RSI strategy:

  1. If the RSI value crosses 70, it means that the asset your targeting is overbought. This is a situation where prices have risen more sharply than expected by the market.
  2. If the RSI is at the level of 30 or less, it means that the asset your targeting is oversold. In this case, it is a situation where prices have fallen more than expected by the market.
RSI trading borders
Overbought vs oversold

How to use RSI strategy

When the total market is in an uptrend the RSI indicator will eventually hit the target of 70 or even crosses it. At this moment the current market of the asset is in “overbought” status. It means that a lot of people are buying and the interest in the asset is high. Based on this strategy you shouldn’t buy at this moment.

When the market is in a bearish downtrend and the market crosses the value of 30, the total market has reached “oversold” status and based upon this value it’s a good opportunity to buy. This is a very simplistic explanation of this strategy but in short, this is the basic theory of RSI. It’s very important to know that you shouldn’t consider your decisions based on this strategy alone. For example, it’s also good to consider the underlying volume of the markets.

Momentum trading strategy

This trading strategy is not really based on technical indicators but the underlying volume of the asset is very important. When the price of an asset suddenly moves in a certain direction accompanied by high volume, then this is a good moment to start buying. You can say the trend or direction of an asset is very important. In my opinion, this strategy can be used in the cryptocurrency markets very well. When trading cryptocurrency the price of bitcoin is leading in this market.

Important actions for crypto currency trading strategy

So when for example bitcoin makes a strong move higher accompanied by a lot of volumes, it could be a good moment to start buying alt-coins. If you want to use this strategy the following are very important:

– The use of watch lists

– Resistance levels of an asset

– Technical indicators

– The use of targets

– Discipline

Scalping trading strategy

This trading strategy is mostly used by day-traders which uses very low timeframes. The timeframes used are mostly 1 minute, 3 minute or 5 minutes. This means that traders should have a good eye on what is going on the markets. Technical indicators for this strategy are very important. When using this trading strategy these two indicators are commonly used:

1. Exponential moving average(EMA) with periods between 100 and 50

2. Stochastics with periods 5, 3 and 3.

Also, traders who like to take risk use this strategy a lot. For example trading with leverage could be an option if you are very experienced and have a strong stomach. When trading with leverage, a trader speculates on which direction the underlying asset is going. There are two options, going long or going short.

Going long or short

When a trader decides to short an asset, he or she expects the price will go down or even drop fast. So this means that the trader will sell first and buy back later when the price has made a down move. When traders are scalping, most of them are using leverage when shorting.

Going long is the opposite of going short, so when a trader decides to go long, he or she expects the price to rise. Also, this tactic is commonly used when trading with leverage.

Going long and going short
Going short vs going long

Turtle trading strategy

This cryptocurrency trading strategy comes with a lot of rules, but the most common rule used is called “the trend is your friend”. When using this trading strategy the trend of the underlying asset is very important.

Richard Dennis, a former trading guru, invented this strategy. He made a bet to friend about random traders adopting this strategy would turn them into profitable traders. His quote about turtle trading:

We’re going to raise traders just like they raise turtles in Singapore.

Richard Dennis

Turtle trading

When the underlying asset breaks out to the upside this is a buying opportunity and also when the trend changes and moves to the downside, it’s a shorting opportunity.

Scalping cryptocurrency trading strategy

It’s totally opposite of scalping because you are trading on high timeframes; like 12h, daily or even weekly timeframe. This trading strategy has some strict rules and traders should commit to them at any time. This strategy is also very popular when using trading bots because these strict rules can be programmed in some sort of algorithm. The idea is to enter a position in an asset and ride the underlying wave as long as possible, which could result in very high profits. Position sizing is one of the most important methods using this strategy, whereby positions are being accumulated when riding the wave.

Also, this method has an exit strategy. This means taking profit takes place on different time frames, whereby for example 40% of a position is being sold hitting a target after 20 days and the other 60% is being sold after 60 days.

Turtle trading strategy
From entry position till taking profit

Related : 3 Trading Strategies for this Crypto bearmarket

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Jelmer Steenhuis

Online entrepreneur at uDigitize
Crypto believer and 'Hodler' of Bitcoin since the early days. Spreading the word about this exciting new technology..
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