There’s no doubt that crypto assets and crypto currencies are here to stay.
Crypto currency adoption has surpassed retail and is now at the institutional level, with publicly traded companies and even governments bringing it into the fold too.
Currently, there are many ways to make money in these markets and trading is one avenue with the least barriers to entry.
If you were about to engage in crypto trading, you have to ensure that you have the best strategies for trading crypto at hand.
Excitement and investing money without a clear plan is the surest way to get wrecked. The million dollar question therefore is, “How can you build the best crypto trading strategies and realize steady profits?”
First, let’s get a better understanding of crypto trading strategies.
What are crypto trading strategies?
Crypto trading strategies can be basically defined as fixed plans aimed at facilitating efforts in realizing profits by choosing to either go short or long in a crypto market.
A trading strategy is usually helpful when thoroughly researched as results can be quantified for consistency and the strategy can be verified and modified when needed.
Steps to build your crypto trading strategy.
Actively indulge in extensive research.
While some may believe that the charts have all the information you need, that isn’t necessarily the case. A good crypto trading strategy is built on solid research.
These markets are still young and therefore there is a lot of development, partnerships, regulatory clashes and many other activities that can affect the price of crypto currencies.
It is extremely important to discern between fundamentals and technical.
Fundamentals can be defined as the core attributes of a crypto project that give it intrinsic value and induce behavior that contributes to the project’s growth.
Technicals deal more with price action, volume and other data points seen on charts.
Read the whitepapers of different coins/tokens, particularly their tokenomics to find out whether the coin started as a fair launch or with an initial coin offering (ICO).
Dive deeper into the distribution of the tokens to find out what portion was allocated to incentivizing developers and how much of the token is held by initial investors.
If someone is sitting on a huge stash of a crypto currency, who is to say they won’t dump it right when the price has risen enough for them to get a decent profit?
Pay attention to such things to make sure you’re not caught napping. Find out the circulating supply, total supply and maximum supply of the crypto currency.
You should also know whether the coin or token is deflationary or inflationary, the rate of inflation and whether the crypto currency applies a rebase mechanism.
Additionally, go ahead and take note of what investors in other traditional markets follow, for example the currency market cap, trading volume and liquidity.
If an asset has a low market cap, there’s a tremendous upside for it and if it has low trading volume, it means that one large trade could suddenly move the price drastically.
While this might sound like a lot, it’s just the basics. Trading without being aware of any of these things is reckless behavior that will probably have you losing money.
Set risk levels & goals to be achieved.
Different crypto trading strategies help to facilitate achievement of different goals.
You need to ask yourself, “Why am I trading crypto? What do I want to achieve?” Are you just trying to quickly flip that money for a new pair of headphones into a new car?
Additionally, ask yourself, “Do you want to stop renting and own your own home?” or “Are you a diamond-handed “hodler” hoping to retire on your crypto profits?”
Without a clear vision, you’ll never be sure if you’ve made enough. You’ll always treat it as a game, totally driven by the question of how much you can make.
You’ll always get caught out by sudden dumps and end up panic-selling. Always envision your goals in terms of real-world achievements and not just zeros and commas.
Having clear goals and a timeline for achieving the respective targets offers a better idea of how much risk an individual can take on in the crypto currency market.
If you’re pursuing a short-term goal in the crypto currency trading markets, you might have to risk more money to capitalize on small changes in the short term.
However, if you are targeting a much further long term goal, you can start with small amounts and gradually increase the risk you take on or keep it moderate in size.
Choosing a crypto asset investment.
Once you’ve done some fair research on the various strategies and you know your goals, look at a number of assets and see which one fits your vision the most.
For example, getting into a matured crypto currency market is better for investors who are looking for a steady and modest financial gain that lasts over time.
However, when the crypto trader’s goals are getting rich quick, they will definitely need to go further up the risk curve and get into a low market cap crypto asset.
Always remember that while these younger assets have a lot of upside theoretically, if you jump in at the wrong time, the violent swings will dent your pocket very fast.
One thing for sure is, don’t be a fanatic.
Don’t get caught up in the hype around a coin and get in for silly reasons such as a good logo, funny memes, a celebrity entrepreneur or superstar developer on the team.
If all that draws you to a project is catch phrases like “Doge to the moon” or “my link stinks,” its highly recommended to slow down and give it some more thought.
The entire crypto asset choice process can’t boil down to “I saw this YouTube video with a thumbnail saying it was going to a million by the end of the year.”
Don’t let the YouTubers and TikTokers feed you on what we call “hopium.”
Choose an appropriate bar interval.
After choosing an asset, you’ll need to settle on an interval when reading the charts.
While you might think that the right interval to choose a crypto asset depends entirely on whether you’re trading short-term or long-term, the reality is different.
Investors may not be planning to sell their crypto currency or asset for at least three years, but that doesn’t mean that they only stay zoomed out on the monthly chart.
At the end of the day, it’s about how much activity is in the markets.
If the crypto asset’s price becomes considerably volatile, it pays to zoom in and even at times look at the hourly chart for good opportunities to enter the market.
When looking for quick gains, you definitely have to watch the shorter time frames.
Great significance ought to be attached in attempts to alternate between the hourly, daily and weekly intervals to differentiate between patterns or trends and one-offs.
Create crypto market entry and exit rules.
Trades should never be done impulsively.
Many people try to time the market so they can get in at the very bottom and exit at the very top. The problem with this approach is that you can’t always be sure.
An investor can see a significant dip and enter the crypto currency market, only for the price to go even much lower, and this instance can happen on the way up too.
This is why it helps to have rules on when you get in or out.
An entry can be as simple as “I’ll buy an amount X every time the price drops by 10%”.
An applicable example of a simple exit rule can be, “Once my money has doubled, any additional 5% increase will warrant a sale of 10% of my coins.”
Entry and exit rules help to avoid getting huge chunks of your money in or out while there’s still action and help to buy or sell at a decent average price over time.
Entry and exit rules facilitate crypto currency traders to buy very close to the bottom and sell very close to the top both when the price is going up or down.
Crypto currency traders and investors can always modify their entry and exit rules to buy or sell more as the price continues to move in a particular direction.
Back test your crypto market assumptions.
With rules in place, you need to apply them to a chart and see what results you get.
Pick different starting points in the history of a chart. Your strategy will most likely provide different results depending on the point at which you made your first entry.
Analyze your crypto trading results.
It is critically important to take a look at how long it took you to get back in the green when you started near the top versus when you started near the bottom.
You may find that you need to increase the percentage change that triggers a buy or sell.
In a market that moves by over 20% in either direction every couple of weeks, it may not help much to have your entries and exits triggered by a mere 1% change in the price.
If the market moves by about 2% every couple of months, you may need to have your entries and exits more dependent on smaller fractions of a percentage change in price.
Revise your crypto trading strategy.
If you realize that your current crypto trading strategy doesn’t get you anywhere near your goals within the desired period, you should adjust it to be a little more aggressive.
However, a strategy shouldn’t be revised entirely because it isn’t very profitable.The best strategies are those that speak to you and your situation.
Sometimes the more profitable crypto currency trading strategy requires you to make sizable trades and yet you may not always have huge stacks lying around.
As you revise your crypto asset trading strategy, make sure that it not only increases your profit margins but also stays within your financial capabilities.
Tips to improve your crypto trading strategy.
Emphasise that safeties are instituted.
Since you can’t always be glued to screens watching charts during both day and night, you need a contingency plan in case your predictions start going terribly wrong.
Safeties like a stop loss or trailing stop loss can protect you from losing too much on a crypto currency or asset trade just in case the price does the opposite.
Endeavor to take profit as part of your safety measures.
Tread cautiously to limit risk.
The “go big or go home” mentality isn’t ideal for crypto trading. Markets can revert at the first sign of bad news so it is not wise to always have all your money in a trade.
Divide your portfolio and create cushions for when you’re losing. Try to play with only a portion of your money so that you still have resources to deploy if a trade goes south.
Diversify the crypto asset portfolio.
Rather than having all your eggs in one basket, its advisable to try different crypto markets. Not all coins move in sync and some occasionally have inverse correlations.
For example, many times in recent years when Bitcoin hits a peak and plateaus or starts to go down, the gamblers move to altcoins and many start to pump.
Therefore, it’s good to have your money spread out in different markets. You should also try different time frames in order to take advantage of abrupt opportunities.
Utilise the available data on crypto assets.
Analyze multiple data points to gauge the results of a crypto trading strategy in comparison to different goals, resource levels and a number of other factors.
Attempt to find out how many people use a similar strategy and what the implications are.
If a good number of people in the crypto assets market are always preparing to react in the same way to a particular event, it’s easier to bet against them.
You might also start to hear statements such as, “buy the rumor, sell the news”. This is simply a case of people telling you to prepare for an event X on a day Y.
They thereafter take action way before you indulge so that by the time you notice that everything is happening much earlier, they are on their way out of the event.
Switch up your crypto market back tests.
Avoid looking for the same setup in the history of a chart when backtesting. It is important to see how your strategy performs both in a bull market and in a bear market.
You should also try it out in periods of prolonged sideways movement. Therefore, always backtest in different market conditions because things won’t always be the same.
Adjust accordingly to the crypto markets.
If your backtests show that your crypto trading strategy loses performance in certain conditions, make sure you adjust the strategy as those conditions get closer.
Sometimes all you need to do is stretch out a little bit, while in other cases, you need a near total overhaul in the volatile crypto currency and asset markets.
Choosing tools to build crypto strategies.
- Focus on user-friendliness and flexibility
- Go for tools with access to lots of data, especially historical data for backtesting
- Look for tools that don’t need programming skills
- Check for the ability to apply indicators on multiple timeframes within the same strategy
- Find tools that enable you to customize existing indicators
- Get a tool with advanced analytics for strategy results
- Search for tools that have a demo trading option, allowing you to simulate the market before committing real money
- Opt for a tool which offers both live trading and automation of strategies
- Choose tools that help you follow your investments easily, with easily comprehensible results for a deployed strategy
At the end of the day, what you’re doing as a crypto trader is balancing greed and fear. This isn’t something that you get right once and never have to think of again.
The markets always have a new anomaly to test you. Developing the best crypto trading strategies is a continuous effort. What’s winning today won’t always be winning.
Gerald Ainomugisha is a freelance Content Solutions Provider (CSP) offering both content and copy writing services for businesses of all kinds, especially in the niches of management, marketing and technology.