Different Types of Crypto Trading Strategies
With Tradu you can trade crypto via CFDs.
Having a strategy that works for you can help you steer your way through this increasingly popular market. As with all trades, there are different crypto trading strategies to try, and you may find that you have to try one or two in order to find the best fit for your trading needs. Read on to discover different strategies that can be used to trade different digital currencies.
Read our guide to crypto trading
What is a cryptocurrency trading strategy?
Having a strategy in place is important, whatever the markets in which you're trading. But when it comes to the volatile, unpredictable world of cryptocurrency, trading strategies are essential for ensuring that you can confidently navigate the price movements of these digital currencies.
A crypto trading strategy is the technique used to steer through the market's fluctuations, and there are several basic and advanced crypto trading strategies that are used to inform decisions. Both newcomers to the market and experienced traders will use a combination of these methods, depending on how the market is faring and what works for them.
Having a clear strategy helps traders to establish when to speculate on the market and profit from rising crypto prices.
One key consideration when approaching different crypto trading strategies is that traders must look at how to plan for changes in value. Additionally, there needs to be the understanding that crypto assets can be bought at any time of the day, so the restrictions that come with other markets, such as stocks and indices, aren't there.
Different crypto trading strategies
There are different strategies that are commonly used when trading cryptocurrencies. Here are some of the most common of which to be aware.
Relative strength index
The relative strength index (RSI) is a technical indicator that is used to highlight momentum, along with oversold or overbought markets. An overbought asset price is typically where the RSI is over 70 and an oversold price comes when it stands at 30 or under, although there are traders who instead use an 80/20 split in order to ensure that they get an accurate reading.
Looking out for signals of divergence from RSI can also be helpful. Divergence is when a crypto price moves high or low but the RSI does not match that movement. Traders will see either a bearish divergence, where the coin price is a higher high but the RSI is a lower high, or a bullish divergence, where the price is at a new low but the RSI doesn't correspond.
If it is a bearish divergence and RSI doesn't confirm the new high, this means that momentum is weakening. Bullish divergence is typically a buy signal for investors.
By gathering and following this information, traders are using a type of trend trading. It allows them to make decisions based on market patterns.
How you use RSI to inform your crypto trading strategy will depend on the level of risk that you want to take and how you typically go about trading. It can apply to both long and short trades and is particularly useful if you want to use the trends to know when to enter and exit a trade.
Moving average crossovers
A crossover is where one moving average (MA) crosses the other. An MA is a lagging technical indicator, which means that it is based on past prices - in this case, where the price points of a financial instrument over a set timescale are combined and then divided by the number of data points. This results in a single trend line, which gives traders the chance to determine the current trend.
As part of your strategy, you can use the moving average for ‘crossovers’. This is a price crossover, where the price of the asset crosses above or below an MA and indicates that there is a change in trend. You can use MA crossovers in cryptocurrency trading to follow the trend. Here, traders must hold off until the crossover before deciding to go long or short on the digital currency that's being traded.
What is the best cryptocurrency trading strategy?
If you're looking at the different crypto trading strategies, you might be wondering what the best one is. What suits you might not work for others who are investing in cryptocurrencies. There may be a preference for short-term positions offered by day trading while others might like looking at the trends and using RSI to take longer positions.
How to choose a crypto trading strategy
Experienced traders are likely to try different strategies. Whether they're adding crypto to their portfolio or dabbling in stocks, they will combine two or swap between different techniques depending on what best informs the position that they want to take.
Trying different strategies can be especially suited to crypto as this is a market that moves rapidly. What could work one day might not be suitable another. That's why following the trends might work best when accompanied by a strategy like day trading, where moves can be made quickly before the picture changes.
There may be some trial and error involved, especially if you're new to the cryptocurrency markets and you might have to try out a few things out when you get started. Being ready to explore other avenues can help you in the long run as you will learn to adapt the methods that you use based on how the market is performing that day.
Trade Crypto CFDs With Tradu
Trading forex with Tradu is easy:
- Open your trading account: Sign up for a Tradu live account.
- Grow your knowledge: Use our guides to trading, the markets and our advanced platform to get the most out of your trades.
- Develop a strategy: Create a plan to help you to carry out well-informed trades.
- Start trading: Our slick platform is full of helpful features.
- Trade different markets: Trade a range of other markets such as listed stocks and CFDs on stocks, forex and indices.
Complete your trading knowledge with our other guides.
Crypto trading guide
How to trade crypto
Types of cryptocurrencies
What drives crypto prices
The information in this article is for educational purposes only.