Cryptocurrency trading and the blockchain technology powering it has minted billionaires. Billionaires like Sam Bankman-Fried, Brian Armstrong, and Changpeng Zhao owe much of their fortune to crypto. However, some have also lost their life savings in crypto investments due to a lack of due diligence, poor trading strategies, and many more.
That said, cryptocurrency is a volatile asset that needs sound strategies to become a crypto trading pro and earn from it. By leveraging a stock trading system and AI trading analysis software, you can now test your strategy and maximize your trading returns.
Also, you need to be keen and knowledgeable enough to avoid mistakes that can make you lose your investments. You can make it an active full-time activity or a passive income stream through trading automation software.
The article introduces you to cryptocurrencies and will cover the crypto trading process and strategies to get you started.
Understanding Cryptocurrencies and the Trading Process: What Is Cryptocurrency?
Cryptocurrency, also known as crypto, is a digital currency that acts as a medium of exchange but is not centrally controlled like fiat currencies e.g., the US dollar. Put differently: no bank or central government controls it.
Besides, cryptocurrency is encrypted and powered by blockchain technology – a tamper-proof and immutable system that makes cryptos hard to counterfeit or double-spend.
Cryptocurrencies are formed through mining which involves using computers to solve complex maths, and you’re rewarded with digital coins (cryptos). There are two main categories of cryptos:
- Cryptocurrencies. These include Bitcoin (BTC), Ethereum (ETH), and other altcoins (alternative coins to Bitcoin) like USD Coin (USDC).
- Tokens. Tokens include all programmable assets on an existing blockchain network that has value and can be used as a medium of exchange.
Other crypto assets that make up the crypto market include non-fungible tokens (NFT) and stablecoins – coins pegged to fiat currency or assets, and many more. There are over 12000 coins and 500 exchanges for crypto trading worth about $1 trillion at the time of writing.
Cryptocurrency trading is similar to stock trading; it involves buying and selling crypto assets to make a profit. And like stocks, different trading strategies are best suited for certain crypto assets. A trading strategy is a formula or algorithm with rules for buying and selling in a specific market to execute orders.
Flying blind can make you lose money quickly. You can maximize your investment outcomes through accurate predictions. Leveraging a stock trading system that uses the crypto asset’s historical data can improve your investment returns. With simulated crypto trading outcomes powered by data and AI, you can quickly test if your strategy will win or not.
These are some of the top cryptocurrency trading strategies that you also accomplish through trading automation software.
Cryptocurrency Trading Strategies: Scalping
Scalping is a short-term trading approach that helps traders make small profits from the slight price movement of an asset throughout the day. These small profits can accumulate to significant amounts over time.
Scalpers examine previous price trends alongside trading volume levels to determine the best exit or entry points. Savvy traders also consider margin requirements and other factors to avoid terrible losses.
Note that only highly liquid markets offer the best predictable outcomes. And you don’t have to have extensive know-how to monitor the movements. You can leverage AI trading analysis software to run and analyze historical data on price movements and other factors. Therefore, you get better and more effective entry and exit positions with assured small daily margins.
Day trading depends on price movements within the day. So, the strategy involves entering a position in the market and leaving the same day. It is similar to scalping; the only difference is day traders hold their positions for several hours. Scalpers hold their positions for less than 5 minutes. Someone even holds for a few seconds only.
Crypto assets like Bitcoin have extreme volatility that makes day trading lucrative and dangerous as you can lose. As such, you will need trading analysis software for the technical and complex mathematics to know when to make an entry or exit. It is also time-consuming, so you can be better off with an AI trading platform to accelerate the evaluation of your strategies.
HODLing is a trading technique derived from misspelling the term “HOLD.” Unlike day trading, which holds positions for several hours a day, HODL enters positions and keeps them for an extended period. The only way to profit from HODLing is if there is price appreciation during the long period you plan to hold your position.
An example is Ethereum (ETH) which is speculated to increase in value after the Merge and Shanghai upgrade. That means you HODLing ETH can get you more margins in the future. However, you must run a test on this to understand if the prediction is valid and when to exit to make a profit.
Arbitrage trading involves buying an asset in one market and selling it in another. In the traditional market, a good example is India buying Russian oil cheaply, packaging it, selling it to the US at a higher price, and pocketing the margin. Arbitrage trading in crypto involves buying an asset on one exchange platform and selling it on another.
But it only applies if there’s a price difference between the exchanges for your target asset. For example, assume Bitcoin is trading at $18,200 on the Binance exchange while in Coinbase, it is trading at $18,500. Buying BTC from Binance and selling it at Coinbase will get you a $300 margin. However, you will pay transaction fees that will eat into your margins, so it’s worth calculating that in advance too.
Swing traders play the market for a week or month during its volatility. Although they have time to evaluate price movements, swing trading needs sound judgment and quick execution. That’s hardly a novice’s cup of tea, but you can still crush it by leveraging signals or bots.
It is similar to trend trading but also needs one to check reversal trends. As such, you need to look for vital indicators like MACD (moving average convergence divergence) to increase your success chances.
That said, swing and trend trading strategies are not suited for beginners but advanced traders. But as stated earlier, leverage crypto trading automation software to run simulated trading, backtest your approach, and determine which one is best for optimum results. That will make you as good as a pro.
Cryptocurrencies give you another opportunity to expand your income streams, just like stock trading. The crypto market is highly volatile, and that comes with quick price movements that can generate a significant income for savvy traders.
Being a beginner should not prevent you from earning from crypto markets. Leveraging vital tools like crypto trading analysis software and bots can elevate you to a savvy trader. However, cryptocurrency trading has risks, so only commit an investment as per your risk appetite and tolerance for loss.