Being a trader in the cryptocurrency market is a challenging but rewarding endeavour, especially if you are a beginner. One way to achieve consistent returns whilst day trading cryptocurrency is to plan. More specifically, it’s a good idea to have trading strategies in place to follow. This will bring structure to your trading set-up that will increase the likelihood of more consistent returns. Now, there are various trading strategies that you can adopt, let’s take a look at a few.
Fundamental analysis is a particularly well-known trading strategy that is used in traditional markets such as stocks. With this strategy, the goal is to identify companies that are undervalued. By being able to identify undervalued companies, you are then able to buy them at a lower price with hopes to sell at a higher one when the market realises that the company is undervalued. Now, it might not seem like this trading strategy is applicable to the crypto market as cryptocurrencies such as Ethereum and Bitcoin are not companies. However, we can use new and different metrics to determine if a crypto-asset is undervalued such as:
- NVT Ratio – Network Value to Transactions Ratio
- Crypto-asset value proposition
- Quality of the team
This is in contrast to traditional metrics that we would normally see being used for traditional assets such as stocks:
It is very likely that, as the crypto-space continues to mature, we will be introduced to new and better metrics to help us with trading. So, keeping up-to-date on everything crypto trading related is vital.
2. Swing Trading
It’s likely that you have heard of the swing trading strategy. This trading approach is all about capitalising on the volatile nature of the crypto market. The market can easily swing upwards or downwards by 20% in the span of a few hours, which is great for swing traders. You are able to generate a return when the market swings upward or downwards. The key to successfully executing this strategy is being able to time the market. You need to be able to call when the market will seing upwards or downwards. This can be tricky given the volatility of the market, but with practice it is do-able. That being said, automated trading has been useful in increasing returns by being able to gain better entry. Automated trading via bots or signal groups e.g. Bitcoin signals have been particularly useful in successfully carrying out the swing trading strategy.
The arbitrage trading strategy is a particularly useful strategy to use in the crypto market because of the price differentials that can exist between exchanges. It is not unusual to see the price of Bitcoin differ between popular exchanges such as Binance and BitMEX. With arbitrage trading you can exploit this price difference by buying Bitcoin (or any other cryptocurrency) at a low price on one exchange and then sell it at a higher price on another exchange. To be successful with arbitrage trading you need to be fast, so using bots would help in executing this strategy.
These are just a few strategies that you can use in your trading. There are a lot more that we have no covered. However, the important thing is to find a trading strategy that works for you and that you are seeing good returns with.