Cryptocurrencies such as bitcoin are decentralized digital assets that act as a store of wealth, a transfer of value, and a currency payment. It can be spent peer-to-peer across borders without needing a third party or central authority to validate transactions, which also works as an autonomous process. The main potential behind this technology is the ability to generate profits for investors and traders.
Earlier, Bitcoin and other cryptocurrencies were not well-known or trusted easily. But now, after maturing to another level, they have become highly traded assets alongside precious stones, commodities, and even equities. Further, renowned trading platforms like Blockchain Tradein let traders create a portfolio with distinct assets, inclusive of Cryptos, commodities, equities, etc. availed at a single click.
Technical Analysis (TA) and Fundamental Analysis (FA) are the two main sectors to be considered in building bitcoin trading strategies.
Technical Analysis is a procedure to predict the future price movement of a security, such as a stock or currency, based on market data.
Fundamental analysis occurs when a potential trader or investor strives to determine the actual value of an asset. This method is done by using all public information available about the investment to assess how financially profitable it will turn out to be. Sound fundamental analysis allows investors to buy assets that are undervalued and sell the ones which are overvalued.
Bitcoin trading strategies are divided into several parts; here are some of the basic yet informative types of processes:
Active Trading Strategy
Active trading strategies are defined by giving full time and attention. It is known as functional because it requires constant and continuous monitoring and recurring portfolio management.
Furthermore, three features define active trading strategies in detail:-
Day Trading is the most well-known active trading technique. Day Trading, as its name implies, is a method of buying and selling securities on the same day. Day traders aim to maximize intraday price movements, i.e., price moves that occur within a trading day. Whereas, in traditional market day trading is done by professional traders, market experts, and specialists. Nonetheless, electronic trading has opened up doors for novice traders. Although it also comes with pros and cons at the same time.
- It is among the most exciting and fast-moving methods of trading.
- Seize immediate opportunities to trade in the volatile market.
- Need much longer time and concentration to perform or implement.
- More likely to pay a higher amount of fees due to a higher amount of orders.
Swing Trading is a process that focuses on the smaller gains in short-term trends and on cutting losses swiftly. As a result, the earnings would be smaller, but as time passes by and swing trades are performed consistently over time, they can convert into excellent annual returns.
Swing traders often produce a set of trading rules formed on Technical or Fundamental analysis. Other trading rules or algorithms are originated to identify when to buy or sell the security. In comparison, the Swing Trading algorithm can be something other than exact or a prediction of the price value of the deposit. Although it also comes with pros and cons at the same time.
- It has a higher potential for more significant returns per date.
- It requires less time and attention than day trading.
- It has a higher potential for more significant losses per trade.
- It may miss out on great profits in search of smaller gains.
Scalping is one of the easiest and quickest cryptos and bitcoin trading strategies. Scalpers do not take advantage of big moves or muffle trends. Instead, it is a strategy that focuses on utilizing small moves over and over again.
Scalpers don’t target to hold their positions for a long time, and it’s common to observe that scalp traders open and close their roles in a matter of seconds. Scalping is generally ideal for markets with higher liquidity, wherein getting in and out is relatively smooth and predictable.
Although it also comes with pros and cons at the same time.
- Generally, it has less market risk as trades can be performed on low-volatile assets.
- It can earn a profit, even with a slight price variation.
- Often require high upfront capital for earning low-key returns.
- Out of all the trading strategies, this one is the most time-consuming.
Passive Investment Strategies
Passive Investment Strategies empower a hands-off approach, where managing a portfolio requires less time and attention. The primary and ultimate goal of passive investing is to build profit moderately.
Even though there are differences between investment and trading strategies, trading ultimately means buying and selling securities to make a profit. In contrast, investment defines being involved in something and growing with it.
Furthermore, some features define passive investment strategies in detail:-
Buy and Hold
Buy and Hold is a compliant investment strategy where traders or investors buy an asset expecting to hold it for a long time, even when the market is fluctuating. This procedure is used for long-term investment portfolios, where the motive is to get into the market regardless of timing. The buy-and-hold strategy is almost based on fundamental analysis.
As a result, the process will only involve monitoring the portfolio’s performance occasionally, mostly once in a while. Although Bitcoin and other cryptocurrencies have been around for over a decade, HODL (Holding On for Dear Life) is a perfect example of a buy-and-hold strategy.
Due to its slow and steady approach and lack of frequent trading, commissions and transaction costs are low while using a passive strategy. However, the management fees charged by funds are unpreventable; most ETFs (exchange-traded funds) keep charges less than 1%.
Index investing refers to buying ETFs and indices in the traditional market. However, this kind of product is also available in the cryptocurrency market, both centralized and decentralized cryptocurrency exchanges. The idea behind the crypto index is to produce a basket of crypto assets and create a token that tracks their combined performance.
The tokenized index will likely become popular over the coming years. That is because it allows a more hands-off approach to investing in blockchain technology and the cryptocurrency market.
Conceiving a crypto trading strategy that suits anyone’s personality style and financial goals takes time and effort. We went through some of the most common Bitcoin trading strategies, which can be helpful to crypto enthusiasts in figuring out which will suit them best.
The best technique to find out which trades work for you is by keeping a track or record where it portrays profit or loss and then getting through and looking further into how things have to work differently and accomplishing it. In simple words, your trading strategies should constantly evolve as you gain trading experience.