What are the best crypto spot trading strategies? Meet 5 easy-to-follow trading strategies that can be used in the volatile crypto markets.
Are you ready to enter the crypto markets as a pro trader? Or are you looking for ways to expand your activities as an investor? Crypto spot trading could be something you should start with.
In short, crypto spot trading is like buying and selling digital currencies right away at their current prices. Imagine a market where you can swap your coins for others or even cash instantly. It’s like going to a store and buying items at the displayed prices, no waiting. This direct trading is done on platforms called crypto exchanges.
Spot trading is great for quick trades and beginners, as it doesn’t involve complex agreements or waiting for future prices. Just choose what you want, check the price, and trade – all on the spot!
However, to be able to start being profitable in the volatile crypto markets isn’t an easy exercise. Therefore, most veteran crypto traders are using a plan to enter and exit the markets at the right time. By continuing to read this article, we’ll share with you some trading strategies you can use as a beginner and become profitable from day 1 👍
Best Crypto Spot Trading Strategies(Ranked)
Next, a list of the trading strategies beginners in crypto can use without taking too much risk or blowing up trading accounts. Additionally, the strategies are ranked from easy to hard.
- HODL(Buy and hold. Just buy crypto when the price is low and do not sell anytime soon)
- DCA(Dollar Cost Averaging. Buy crypto in tranches, despite current market conditions)
- Swing Trading(Buy/sell crypto for medium term. By using technical indicator tools)
- Trend Follow Strategy(Identify a trend(up or down). Use tools like moving averages to take a position)
- Support and Resistance Strategy(Identify support and resistance zones. Go long or short based upon market conditions)
The crypto spot trading strategies mentioned above, are just a quick summary of what is possible. Later on in this article, we’ll go into further detail and share some screenshots as well.
Why is Having a Crypto Trading Strategy Important?
Using a crypto trading strategy is like having a game plan. Imagine playing a game with rules you understand. Strategies help traders make smarter decisions and manage risks. They guide when to buy or sell, depending on market trends and goals. Without a strategy, it’s like wandering in a maze without a map – you might get lost or make bad moves. A strategy keeps you focused and helps you stay in control, increasing your chances of winning in the crypto trading world.
Spot Trading in Crypto vs. Spot Trading Forex
Crypto spot trading involves buying and selling cryptocurrencies for immediate settlement, just like buying goods instantly. On the other hand, spot trading in Forex is about trading traditional currencies, like dollars or euros, on the spot market.
While both involve current prices, crypto spot trading deals with digital currencies, and Forex spot trading deals with national currencies. The crypto market operates 24/7, while Forex has specific trading hours. Additionally, the crypto market is relatively newer and can be more volatile, while Forex is influenced by global economic factors.
5 Crypto Spot Trading Strategies for Beginners
Next, a list of crypto spot trading strategies explained in greater detail. In particular, using these strategies can help you a lot in navigating the volatile crypto markets.
Strategy 1: Buy and Hold(HODL)
First of all, HODLing is ‘slang’ introduced during the early days of Bitcoin. Back in 2013, a user called GameGyuubi wrote a post on the BitcoinTalk forum and wrote “I AM HODLING” rather than the correct version of the word.
Buy and hold is an ideal crypto spot trading strategy for beginners due to its simplicity and long-term focus. Unlike active trading, HODLing involves buying and holding onto cryptocurrencies for extended periods, sidestepping the complexities of frequent trades and market timing. This strategy aligns well with newcomers who may not possess in-depth market knowledge or technical analysis skills.
It minimizes the stress of tracking short-term price fluctuations and reduces the risk of making hasty decisions driven by market volatility. Additionally, it encourages a patient and disciplined approach, allowing beginners to benefit from potential long-term market growth.
By avoiding the stress and discipline of day trading, beginners can gradually build confidence and understanding in the crypto space. Consequently, this makes it a perfect entry point for those new to crypto spot trading.
Strategy 2: Dollar Cost Averaging(DCA)
Dollar-cost averaging (DCA) is like saving up a fixed amount of money to buy something regularly, no matter the price. Instead of trying to time when to buy in the market, you invest the same amount at consistent intervals. This helps you avoid stressing over when to get in, especially when prices are unpredictable.
DCA is most beneficial when the market is uncertain or volatile. Imagine you want to invest in a cryptocurrency, but its price goes up and down a lot. Instead of trying to guess the best time to buy, you use DCA. You invest the same amount every week or month, so when prices are low, you buy more, and when prices are high, you buy less. Over time, this smooths out the average price you pay for your investments.
Here’s an example: Let’s say you decide to invest $100 in a cryptocurrency every month for a year. In January, the price is $10 per coin, so you buy 10 coins. However, in February, the price drops to $5, so you buy 20 coins. Next, in March, the price rises to $8, so you buy 12.5 coins. This continues throughout the year. By December, your total investment is $1200, and you own a total of 154.5 coins. Your average cost per coin is about $7.77.
|Investment: $100,- p month||Price(per crypto)||Number|
In this scenario, DCA helped you benefit from both low and high prices. When the market was down, you bought more coins for the same amount of money, and when the market was up, you bought fewer coins. Over time, your average cost per coin became more reasonable compared to if you tried to time the market perfectly.
DCA is like a steady, gradual approach that can work well when the market is unpredictable. It takes the pressure off trying to predict price movements and helps you build a balanced investment over time.
Strategy 3: Swing Trading
Swing trading is a strategy where you try to catch short to medium-term price movements in a market. It’s like hopping on a ride at an amusement park that goes up and down. Beginners can find entry and exit points using tools like RSI and MACD. RSI shows if a coin is overbought (too expensive) or oversold (a deal). MACD tracks trends, helping decide when to get in or out.
To manage risks, only use a small portion of your money for each trade. In other words, never go all-in at a single trade instead use only 10% of your money for it. Also, set a stop-loss, like a safety net, that automatically sells if the price goes too low.
For execution, say you want to buy a coin when it’s cheaper. You set up a limit order on an exchange like Binance. If the coin’s price hits the amount you’re comfortable with, the order buys automatically.
Example: You want to buy Solana(SOL), which is $10 now, but you want it for $8. So, you set a limit order on Binance for $8. If the price drops to $8, your order happens.
Overall, swing trading can be thrilling, but remember, markets are like roller coasters – they can be wild. So, use tools, manage risks, and be patient for your ride to go up and down!
Strategy 4: Trend Follow Strategy
Next, in the list of crypto spot trading strategies is the Trend Follow Strategy. Trend following in crypto is like going with the flow of a river – you follow the direction it’s moving. Beginners can spot trends using tools like moving averages or trendlines. Moving averages show the average price over time, helping you see if the trend is going up or down. Trendlines connect the dots to show the general path.
To use this strategy, first, identify if the trend is going up (bullish) or down (bearish). If it’s going up, you might want to buy. If it’s going down, you might want to wait or sell. Then, set up a trade on an exchange, like buying when the trend is up and the price is still reasonable.
The good thing is, you’re following where the market is already going, which can lead to profits. But there are risks, like sudden changes in direction that could make you lose. So, it’s important to keep an eye on the trend and be ready to change your strategy if needed.
Overall, to protect your capital it’s important to use a stoploss and other tools that can help you avoid losses.
Strategy 5: Support and Resistance
The last crypto spot trading strategy is an advanced one. At this point, you are a more experienced trader and know when to buy or to sell. The Support and Resistance strategy in trading involves finding key levels in a trading chart. Beginners can find support (price floor) where prices often bounce up, and resistance (price ceiling) where prices often fall back down.
Identifying Support and Resistance:
Support is like a price floor, where the cryptocurrency tends to stop falling and might bounce back up. Beginners can spot it when the price touches a level multiple times without going lower.
Resistance is like a price ceiling, where the cryptocurrency tends to stop rising and might drop down. It’s seen when the price hits a level repeatedly but struggles to go higher.
Going Long and Short with Leverage:
Going Long: If you expect the price to go up after hitting support, you can use leverage to amplify your gains when it rises. For example, if you have $100 and use 5x leverage, it’s like having $500 to trade.
Going Short: If you expect the price to fall after hitting resistance, you can use leverage to profit when it drops. Similar to going long, leverage magnifies your potential gains (or losses).
Using Additional Indicators:
To confirm potential breakouts (price going above resistance) or reversals (price changing direction), beginners can use indicators like the Relative Strength Index (RSI) or Moving Averages.
RSI helps identify if a cryptocurrency is overbought (too expensive) or oversold (a deal). A high RSI might suggest a potential reversal and a low RSI could indicate a breakout.
Moving Averages show the average price over time and can help you spot trends. When a shorter-term average crosses above a longer-term one, it may signal a breakout.
In summary, the Support and Resistance strategy involves recognizing key price levels to make informed trading decisions. Beginners can use these levels to go long or short with leverage, and additional indicators like RSI and Moving Averages can help confirm potential breakouts or reversals. Remember, it’s like navigating a room with a known floor and ceiling – use these tools wisely to trade crypto effectively.
Related: 7 Best Crypto Spot Trading Exchanges
If you are interested in spot trading cryptocurrencies this article gives you a head start. Overall, spot trading crypto on an exchange like Binance is less risky as you aren’t using any leverage yet. Meaning, you can lose or have a bad trade, but it’s impossible to blow up your account with a single trade(REKT).
Remember, to be profitable in crypto requires patience and proper risk management. Practice this and your account will grow over time.
Recommended: 8 Best Crypto Trading YouTube Channels
FAQ – Best Crypto Spot Trading Strategies
Does Crypto Spot Trading Have Liquidation?
The short answer is no. When using spot trading Bitcoin on an exchange like Binance, you take a position(buy or sell). When you decide to buy when the price is high and after that price goes downwards you only have a paper loss. It’s up to you to decide if you are selling or not.
Does Crypto Spot Trading have fees?
Yes, every centralized exchange(Binance, Coinbase, or Bitfinex) charges fees for any single trade made in the order book. Overall, it depends on the size of this trade, but you are charged about 0.1% for this.
Can you Short on Spot Trading ?
For more experienced traders, it’s possible to go short when crypto spot trading. On exchanges like Binance, you have to initiate an advanced order. Using a cross-order allows you to borrow funds and use 5x leverage.
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