A crypto trader takes a long-term position on the price direction of a cryptocurrency against the dollar or another currency on an ongoing basis. So the first question that comes to mind is it worthwhile to trade cryptocurrency? Well, it is risky, but it can also be incredibly lucrative. All you need is to know about crypto trading. There are different ways and methods of trading that aid in the organization of other trading techniques into a logical, followable framework. You may also monitor and tweak your cryptocurrency strategy.

New in crypto trading? Don’t worry. Here is the complete guide for you.

Start with the basics first.

What Is a Crypto Trading Strategy?

A crypto trading strategy can be defined as a comprehensive plan for your trading actions. It is a structure that you build to guide you through all of your trading attempts.

Using a trading strategy can also help to reduce financial risk by removing many unnecessary decisions. Although a trading plan isn’t required for trading, it can be helpful at times. If something unexpected happens in the market, your trading plan should determine how you react, not your emotions. You can forecast potential outcomes by implementing a trading strategy. Consequently, you are less likely to make rash, impulsive decisions that result in significant financial losses.

A comprehensive trading strategy might incorporate: What asset classes do you trade, what setups do you use, what tools and indicators do you employ, and what triggers your entry and exit points? What determines the size of your position, and how do you document and measure the performance of your portfolio?

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How to Analyze Crypto Trading Strategy?

When developing a trading strategy, the two most influential schools of thought to consider are technical analysis and fundamental analysis. Before we proceed, you must understand how each of these concepts differs.

Technical Analysis

Crypto technical analysts use mathematical indications based on recent price action data to anticipate future trends. It is commonly believed that markets follow specific patterns and that trends generally persist once established. Technical analysts use math equations, charts, and graphs to identify trends and practices that support a buy or sell signal. 

The idea behind technical analysis is that past price movements and market activity can deliver valuable information about how a specific asset will perform in the future.

For crypto technical analysis, there is no single, all-encompassing method. Each trader will favor different indications and interpret them in somewhat different ways. It’s also worth noting that no technical analysis is ever 100 percent accurate.

Fundamental Analysis

Determining the value of an item based on associated economic or financial considerations is known as fundamental analysis. A fundamental analyst would look at the broader economic trends that affect the industry and look at the mechanism to determine the intrinsic value. This kind of analysis is usually reserved for long-term investors. Fundamental analysis evaluates all of an investment’s tangible and intangible characteristics using publicly accessible information to determine its intrinsic worth. The objective is to determine if the asset is undervalued or overvalued.

How to Test Crypto Trading Strategy?

Backtesting and forward testing are two methods of verifying a trading strategy. Both testings play a crucial role in developing a successful trading strategy.

Backtesting

Backtesting compares a trading system to historical data to see how it would have fared over a given time. It is available on many trading platforms nowadays. Traders can put ideas to the test with a few keystrokes and obtain insight into their effectiveness without losing their trading account’s assets. It can also test simple concepts like how a moving average crossover would operate on historical data and more complicated systems with multiple inputs and triggers.

Forward Testing

Forward testing, often known as paper trading, gives traders additional out-of-sample data to analyze a system. Forward performance testing is a simulation of real-world trading in which the system’s logic is followed in a live market. Trading is done on paper only, which means that trade entries and exits are recorded along with profit and loss for the system, but no actual transactions are conducted.

What Are the Types of Crypto Trading Strategies?

The following article will focus on two types of trading methods: active and passive.

Strategies for Active Trading

Active strategies necessitate more time and effort. They’re called active because they require continuous monitoring and portfolio management.

Day Trading 

The Positions are entered and exited on the same day with this trading method. A trader aims to profit from intraday price fluctuations in the cryptocurrency he chooses with this strategy. Technical indicators are often used by investors to determine entry and exit opportunities for specific crypto assets.

Range Trading

Market participants also rely on expert analysts, who provide daily support and resistance levels. The term resistance alludes to the price’s potential rise; therefore, a resistance level is a price higher than the current price. ‘Support,’ on the other hand, is a level below which a coin price is not supposed to fall; hence a support level is always lower than the current price.

Scalping

To book profit, this trading method requires increasing trade volumes. Despite the risk, a savvy trader pays attention to the margin requirement and other crucial rules to avoid having a terrible trading experience. Scalpers examine the crypto asset, historical trends, and volume levels before deciding on an entry and exit point within a day.

Strategies for Passive Trading

Portfolio management is less hands-on with passive investment strategies, requiring less attention and time. Despite some distinctions between trading and investing, both involve buying and selling assets.

Buy and Hold

Traders that use the “buy and hold” approach buy an asset intending to hold it for a long time, regardless of market volatility. This method is most commonly employed in long-term investment portfolios, where the goal is to enter the market without concern for time. Over time, timing and entry price will be less important, according to this method.

Index Investing 

Investing in indices and ETFs on traditional markets is typical of index investing. These goods are also available on cryptocurrency exchanges and within the Decentralized Finance movement (DeFi).

Essentially, a crypto index is a token that measures the performance of a group of crypto assets. Tokens from the same industry, such as privacy coins or utility tokens, could be included. Also, it might provide a consistent pricing feed, in which case it would be entirely different. Since most of these tokens rely on blockchain oracles, it’s not surprising they are mostly derived from that technology.

Copy-Trading

Copy trading is primarily a passive activity. You’re delegating the problematic task of investment selection to someone else. Increasing the value of your portfolio doesn’t require hours of market research. In addition to diversification and risk management, the trader makes investment selections.

Closing Thoughts

It’s not easy to develop a crypto trading strategy that suits your financial goals and personality. The best way to figure out which trading strategy works for you is to track it without breaking the rules you set. 

Try BuzzShow Network a simple way of understanding crypto and trading. It is a decentralized blockchain-based social video media platform that benefits all of its users. The platform rewards its user with its native utility token “Goldies (GLDY)” for watching sharing, curating, and uploading videos. You can earn these tokens for every action you take on the platform.  You can trade these and you can also convert them into ETH and Polygon Matic tokens. Another advantage of the network is that you can also measure all your earnings and trading record in your BuzzShow Wallet. Moreover, GLDYs are also traded on Coin Tiger and Probit.

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