Interest in cryptocurrency trading continues to grow. This is not without reason – at a time when fully secured financial instruments do not bring the expected benefits, investors focused on multiplying their funds decide to use alternatives. High potential profits are offered to them by the cryptocurrency market, which is linked to considerable risk. To minimize it and increase the chances of success of the investment, it is necessary to define an action plan in the cryptocurrency exchange. What investment strategies are worth knowing?
Investing in cryptocurrencies is characterized by a high level of risk and profit potential. For this reason, it requires having the appropriate knowledge and choosing an effective strategy. Depending on their duration, investment strategies can be divided into short-term (including daily) and long-term strategies.
Short-term investing is buying virtual currency and closely monitoring its exchange rates. According to the principle “cheaper to buy, more expensive to sell”, when the price of the purchased coin increases compared to the price at which it was bought, it is sold by the investor at a higher price. The price difference represents its profit on the investment.
How to invest in cryptocurrency stocks? An alternative to short-term investments are long-term investments, which last from several months to several years. In their case, the investor believes in the ultimate growth of a given cryptocurrency over the long term. At the same time, they do not worry about short-term price spikes, which are the determinants of the success of traders who invest in the short term.
There are two methods of investing in cryptocurrencies – through brokers and on a cryptocurrency exchange.
The cryptocurrency market offers a wide range of opportunities for novice investors. Investing in cryptocurrencies can pay off by offering them very high returns. However, this can expose the trader to losses. Therefore, the first step for investors interested in cryptocurrencies is to develop a trading strategy, understood as a set of actions aimed at generating profits from cryptocurrency trading. Equity is essential in the case of a volatile virtual currency market – thanks to it, we have a chance to maximize potential profits. The action plan also limits the financial risk associated with the market subject to price fluctuations and exposure to speculation. It is also worth remembering to diversify your investment portfolio by placing funds in other financial instruments.
Since there are many trading strategies, we will discuss a selection of the most popular that will help you achieve profitable returns.
The term “day trading” comes from traditional markets, where trading is only open at certain times of the day. Nevertheless, today it is widely used in online commerce. It is fashionable among cryptocurrency investors. Most digital currency trading platforms are open 24 hours a day, 365 days a year. Day trading is therefore used in a slightly different context when it comes to cryptocurrency markets. It usually refers to a short-term trading style where traders enter and exit positions within 24 hours or even faster. It is a strategy to make a profit in a day or a stock market cycle in the simplest terms. Day trading, while profitable, is also stressful and high-risk – which is why it is especially recommended for advanced traders.
Another short-term cryptocurrency trading strategy characterized by low risk and immediate profit is scalping. This term is used to describe an activity that consists of making small profits from the small daily movements of cryptocurrencies in the market without taking into account clear trends. Scalping forces a trader to perform several interventions throughout the day – thanks to these interventions, they generate small profits that add up over time to reach a larger amount. A good scalper should act regularly and quickly, skillfully reading charts showing the chosen cryptocurrencies. Traders who use scalping to collect profits should also have a predefined exit strategy. This will protect them from losses that will eat away at their patiently realized profits.
By definition, swing trading is a strategy that involves holding a position for more than a day but less than a few weeks. In terms of lead times, swing trading lies between day trading and trend trading, which we will talk about in the next section. In addition, swing trading strategies are based on technical analysis supported by fundamental analysis, which allows you to make more rational and, therefore, more accurate decisions. Thus, swing trading can be the most convenient active trading strategy for beginners, making decisions with less haste and less stress.
The last strategy we have selected is trend trading, also known as position trading. The trend trading strategy is long-term, usually several months, traders who use it take advantage of the current trends in the cryptocurrency market. A trend trading strategy assumes that the underlying asset will follow the direction of the trend. At the same time, traders as part of a risky trend trading strategy should always consider the possibility of a trend reversal and losing money. Therefore, trend trading can be ideal for novice traders, provided they can manage the risks.
Traders who are new to the financial markets wonder what tactics they should use at the beginning of their trading journey. A well-thought-out trading strategy is essential for trading all kinds of financial instruments, including currently popular cryptocurrencies.
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