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The crypto market has gradually become a big player in the financial space. With tens of billions of dollars worth of transactions happening every day, this market has started to attract a large number of investors and traders. The crypto market shares some similarities with other financial markets, but it also has its own characteristics that distinguish it from everything else.
One of the characteristics that the crypto market is notorious for is high volatility. Cryptocurrencies are speculative assets that are not backed by anything. Because of this, their price purely depends on what people think and if there is a demand or not. This is what creates volatility in crypto as sentiments can change multiple times throughout the day and prices can move pretty significantly. While this volatility can be seen as negative as it disrupts a balance in the market and makes trading more risky, it also brings positivity. Volatility can be considered a double-edged sword, it can easily cause you to lose money, but if approached with caution and preparation, volatility can result in very good profits. But in order to make money with this, you need to have good trading strategies that are great in volatile markets. This is what we will be taking a look at today, as we check some of the best trading strategies to use when trading with crypto.
Before we take a look at some of the best trading strategies, first we need to understand why these strategies are important and how much they affect our trading experience. When we are trading with cryptocurrencies, it can be as simple as buying on the low and selling when high. It sounds easy, but how do we know when it is low and when it is high? This is where trading strategies come into play. Trading strategies are predefined criteria that evaluate market performance in a certain way, they look at different statistics and information to then provide us with market analysis. After looking at this information, traders can execute trades based on the information received.
Trading strategies are just one part of larger trading plans that also include stuff such as risk management, portfolio management, and so on. It’s also important to note that not every trading strategy is a perfect fit for everyone. Trading is a complex process that involves a lot of different data and information. Some people might have a better time dealing with certain types of information, while others might prefer something else. Because of this, someone might prefer certain trading strategies, because they use certain data and information. These traders might feel more comfortable using certain strategies, even though they might know that other strategies might be more effective. This is why it's important to realize your abilities and interests and then select the trading strategies that better suit your style of trading.
Trading strategies consist of set rules that traders follow based on the information they receive using different tools. One of the most important components of trading strategies is indicators, which read different market data and return certain information. After receiving this information traders look at their trading strategies and decide how they will act when the market is in its current state. Now let’s take a look at some of the most advanced trading strategies that are perfect for the volatile crypto market.
One of the most popular trading strategies for cryptocurrencies is range trading. As we mentioned before, crypto prices are greatly influenced by people's belief in them and they are not dependent on other assets and are not tied to anything. Because of this, there are some cryptocurrencies that have predictable behavior. This creates certain ranges for cryptocurrencies, which means cryptocurrencies usually trade between certain ranges. For example, Bitcoin might have a range between $15k and $20k, which means that when prices reach $15k, it’s highly likely that they will start going up. But when they reach $20k, these prices are likely to fall. Of course, these are not guaranteed and there is always a possibility that prices break out from these ranges. Because of this, it’s important to never believe this blindly and always keep an eye on the market.
When trading ranges, the idea is simple: you buy when prices reach the lower end of the range, and sell when they reach the top. But there is no universally accepted range for each cryptocurrency and these ranges change depending on the current state of the market and outside factors affecting it. Because of this, traders utilize different indicators that aid us in determining the range in which we should trade and exactly when we should make trades.
When we talk about range trading, this does not only mean trading in the price range. Indicators themselves provide us with different statistics and numbers and there are many range traders who use indicator data as the range. For example, one of the most popular indicators for range trading is the Relative Strength Indicator (RSI) which shows us the strength of the market and how overbought and oversold the assets are. When using this indicator, range traders typically associate RSI below 30 as oversold and RSI above 70 as overbought. What this means is that these traders usually buy the asset when it reaches or falls below the 30 mark, and then they sell these assets when it comes close to 70.
Let’s look at the example of range trading using the RSI indicator. We are trading with Bitcoin and have an RSI indicator displayed at the bottom of our chart. We see that the price of Bitcoin has been falling and the RSI indicator is getting close to 30, and at this time we opened a long position for Bitcoin. Since an RSI of 30 means oversold, people started to realize the price is very good for buying, and buying volume started to rise. This caused prices to rise and we entered an uptrend. But then we see that RSI is getting close to 70 and too many people are buying Bitcoin. This caused the Bitcoin price to rise so much that it does not reflect its actual price. This was our signal to exit the long position and take profits. During this time, we then opened a short position and since Bitcoin was a bit overpriced, more people started to sell and prices started to fall. Then we repeat the process and trade in the RSI 30-70 range and take profits from predictable market movements.
But simply following this strategy is destined to cause more harm than good, as the market does not always follow predefined rules, and there is always a possibility that prices continue to fall even after RSI goes lower than 30, or they can continue to rise even after reaching RSI 70. Because of this, every crypto trading strategy needs good risk management that will make sure to limit potential losses, even at the cost of making bigger profits. For example, you can have a sell order when Bitcoin reaches a certain price, and this price can be based on your strategy. And while you will profit if this sell order is executed, prices can continue to rise and you miss out on potential profits. But it’s better to take profits when you can and don’t take unnecessary risks.
Another popular trading strategy amongst experienced traders is arbitrage trading. This trading strategy aims to capitalize on price differences between two markets and since cryptocurrencies are highly volatile, it’s pretty common to see good arbitrage opportunities. There are many different crypto exchanges that have a very large number of traders active at any given time. Combining this with the volatility of cryptocurrencies, there are instances where one cryptocurrency is valued higher on one exchange than another one. This is exactly what arbitrage traders are looking for, but in order to take full advantage of this strategy, you need a perfect and flawless system in place.
Crypto arbitrage trading is buying a cryptocurrency on one exchange and then selling it on another, where this cryptocurrency is valued higher. At first glance, this might seem a very simple and easy-to-use crypto trading strategy that can capitalize on high volatility. But when taking a closer look at it, there are many small details that need to be accounted for, or else the likelihood of making losses is very big.
When starting an arbitrage trading, it's important to come up with a strategy that will account for every threat. For example, you might see a good arbitrage opportunity, buy crypto send it to another marketplace, but by the time you are able to sell it, the prices adjust and the arbitrage opportunity is gone. There are also transaction fees that need to be accounted for when using arbitrage trading. You might buy crypto for cheap on one exchange and sell it for more on another, but end up making losses. This can happen if transaction fees are higher than arbitrage itself.
As you might have guessed, regular indicators will not be effective for arbitrage trading. This is because regular indicators are designed to read the market you are currently trading on, and they can not compare prices of different markets. Because of this, arbitrage traders use indicators that have been specially designed for arbitrage trading. These indicators are usually designed to compare prices between two specific exchanges and most of these indicators are also designed for specific crypto pairs. When deciding to start arbitrage trading, you need to study the market and see which exchanges are good for arbitrage trading and which cryptocurrencies have the highest arbitrage.
Let’s look at an example of arbitrage trading. Let’s say we are using an indicator that shows us arbitrage opportunities between Binance and Coinbase when trading with Bitcoin. The indicator showed us that there is a good arbitrage opportunity as Bitcoin is worth $25,500 on Binance and $25,000 on Coinbase. We took this opportunity and bought one Bitcoin on Coinbase and transferred it to our Binance wallet. There we sold our Bitcoin for $500 more and after accounting for transaction fees, we were left with a $300 profit.
But this was just a very simple overview and the actual process is more complex. But since arbitrage trading is done on specific exchanges using specific currencies, there is no single formula to follow. Each trader should find the exchanges they like the most and check what possibilities there are. Then there is a process of looking for indicators designed for your arbitrage strategy and adapting them to your trading system.
Scalping is a popular and very intensive trading strategy that is used by many experienced traders. Scalping refers to executing multiple trades in short periods of time and based on the way the crypto market behaves, the possibilities of big profits are there. As we mentioned multiple times before, the crypto market is volatile and prices change very quickly. This can be seen as a negative and unstable market, but for scalpers, this is something that generates very big profits.
Scalping is the process of opening and closing multiple trades in a very short time, usually less than 5 minutes. The goal of scalping is to make small but constant profits throughout the day, which at the end of the trading session can accumulate a pretty sizable amount of gains. Scalping is also closely associated with using leverage, this is because scalping profits are low, but using leverage these profits can be greatly amplified. But compared to other financial markets, where scalpers generally need to use very high leverage, in crypto a small amount of leverage can be sufficient. This is because cryptocurrencies are volatile, and scalpers can usually catch bigger movements in shorter periods of time than in other financial markets. This makes it possible to make good profits even with low leverage.
But just like other advanced trading strategies, there is a great deal of risk associated with scalping. First of all, scalping is all about reading the market and executing very fast trades, which creates a threat of making miscalculations. When scalping you might expect that prices are going to go up in a very short period of time, you open the trade but in the end, it goes against your prediction and falls. While just one bad trade won’t cause a lot of damage if you have good risk management in place, if you make multiple bad trades, especially in succession, this is where the problem arises. Since most scalpers use leverage, if the market goes against you, leverage will generate bigger losses and it can cause you to run out of trading capital.
Scalping is done using purely technical analysis and for that, scalpers use many different technical indicators. Since this is a very fast-paced trading strategy, the selection of indicators to use is important. For example, there are leading and lagging indicators, where leading indicators provide more up-to-date information while lagging indicators provide slightly outdated information. There are some lagging indicators that are good for scalping, for example, Bollinger Bands and MACD. In general, it’s not a good idea to use lagging indicators. This is because scalping is all about making fast trades, and if we receive outdated information, there is a threat of making bad trades.
Let’s look at the scalping example. Let’s say we are trading with BNB using the MACD indicator with a 3-minute timeframe. Looking at the chart we see that MACD has turned positive, meaning that the market is entering an uptrend. During the time we started opening and closing BNB trades in very fast succession, our goal here was to spot opportunities where we would have positive candlesticks and make profits in that 3-minute period.
When scalping in crypto it’s important to remember that the market is very speculative and volatile. What this means is that even if the indicator is showing one thing, the possibility of the market going in the opposite direction is pretty high. Because of this, it’s important to have a very strong risk management system in place which will make sure to limit possible losses. When scalping, psychology plays a great role in your decision-making, and if you make a few bad trades in short succession, the psychological impact will be high. You might start making rushed decisions in the hopes of quickly making lost money back. But rushed decisions are never good, and a good risk management system will make sure that psychology will not have a great effect on your decision-making.
Cryptocurrencies are attractive assets to trade with thanks to their high volatility and big selection. Looking at all of the financial markets, if we take investment and profit proportions, cryptocurrencies will have the highest profit possibilities. But high profits also bring possibilities of big losses and in order to be able to achieve success when trading crypto, you need a good trading strategy. All of the mentioned trading strategies are simple strategies on the surface, but these are also the ones that need a lot of expertise and dedication. It’s important to understand that having a good trading strategy is not enough, and if you want to succeed you need to implement these good strategies into your trading plan. This trading plan should also include risk management and other small details that affect our trading. If you are someone new to crypto trading, it’s best to start using simple strategies, which will help you learn more about the market. Only after you think that you are familiar with the crypto market, you can move to more advanced trading strategies and start using more complex tools.
There is no such thing as the most profitable trading strategy, as each strategy can generate good profits if used correctly, and they can also make you lose money if used incorrectly. But there is one strategy that can be considered most profitable, based on the fact that the likelihood of making losses is low and that is arbitrage. When you are using arbitrage, you are buying crypto on one exchange for cheap and selling on the other for more. While there can be times when prices adjust fast and you don’t make profits, if arbitrages are big enough, you will make fewer losses. But in order to consider arbitrage the most profitable trading strategy, you need to master it and take advantage of every situation.
It depends on your experience and your goals. Trading during volatile markets is of course risky as prices move around pretty quickly and making proper analysis is challenging. But volatility also brings possibilities of big profits, you can open a trade for a certain crypto, and in just a few minutes, you can see very big profits. Because of this, it’s definitely a good idea to trade during volatile markets, but when doing so, it’s important to have a good risk management system in place. There will be times when volatility will have a bad impact on your trading, and this risk management system should be there to limit this negative impact and make sure you lose the least amount of money.