By far the most talked about part of the cryptocurrency ecosystem is the cryptocurrency market. We can all remember the monumental news coverage that Bitcoin received when it rose all the way to the $20,000 mark. Since Bitcoin’s ascent, trading cryptocurrency has become an increasingly popular activity. This is due to the large market returns that can be generated. However, the key to becoming a successful cryptocurrency trader starts with having a strategy with which to approach cryptocurrency trading. Here are 3 strategies that can be used to successfully trade the cryptocurrency market.
- Fundamental Analysis
This trading strategy might be familiar to some of you given its roots in the more traditional markets of stocks and bonds. The purpose behind this trading strategy is to attempt to identify the underlying value of an asset. If a trader can determine the true value of an asset, they will be able to make a judgment call on if the asset is being undervalued by the wider market. If this is the case, then a trader will be able to profit from the upward gains that will occur when the market gradually recognises the value of the asset.
Now, there are a ton of metrics that are used in traditional markets to assess the true value of an asset. For example, in the case of shares, the following metrics are used:
Given the wide difference between shares and digital assets such as Bitcoin, it is not possible to use the above metrics. Instead, new metrics that are tailored to the unique differences that exist in the digital asset space will need to be used. For example, the following metrics are good starting points from which to begin the analysis of determining the true value of a cryptocurrency such as Bitcoin:
- Crypto-asset value proposition
- Quality of the team
- Swing Trading
This trading strategy is amongst the most commonly used trading strategies in cryptocurrency trading. This is because it is well tailored to capitalise on the volatile nature of the crypto market. It is not uncommon to see wild 20% swings in the price of Bitcoin on a daily basis. The swing trading strategy is one of the best strategies to use to profit from this. To execute this strategy successfully, a trader will need to be able to judge when the market is going to go into an upward or downward swing. It is also useful to have an automated set-up when swing trading, as precision matters a lot with this strategy. Crypto trading bots and signal groups (e.g. Binance signals) are good tools to use when attempting the swing trading strategy.
Arbitrage trading is another popular strategy that is utilised when cryptocurrency trading. Very simply, arbitrage trading involves buying an asset in one market at a lower price and then selling it in another market at a higher price, thus, profiting from the price difference. In the context of cryptocurrency trading, arbitrage trading exploits the fact that the price of cryptocurrencies often trade at different price points across exchanges. For example, it is not unusual to see the price of Bitcoin trading a little differently depending on the exchange. For example, a trader could buy Bitcoin at $10,000 on Coinbase and then sell for a profit on Binance if the price of Bitcoin was trading at a slightly higher price point of say $10,100.
These are just a few strategies that you could be using when trading cryptocurrency. This list is not exhaustive, and there are a lot more strategies that are out there. The goal is to find strategies that suit your trading style and that you are seeing good returns with.