Before engaging in the trading of cryptocurrencies, one needs to understand how these markets work. Based on that knowledge, it is possible to derive multiple trading strategies. Making a profit with cryptocurrencies does not require a university degree, but going in blind is ill-advised.
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Why Trading Strategies Matter
When contributing any money to trading assets – cryptocurrencies or otherwise, it is often smart to do based on specific expectations or market analysis. Just looking at a price chart for the first time and randomly chugging money at an asset will often backfire. Learning to understand how markets work and why patterns tend to repeat themselves is the priority.
Contrary to what some people may think, trading strategies do work. They take the historical performance of an asset and compared it to the current market momentum. It is common to see patterns emerge every so often, allowing traders to create a foundation for their future trading strategies.
When a trading strategy is created, traders need to monitor their results carefully and adjust where necessary. There is no “cookie-cutter strategy that works all the time.” This is one reason why multiple strategies may look identical at first but work differently under the hood. No two traders are unique, and everyone has a different risk appetite.
In the end, it all comes down to putting together a trading strategy that makes you comfortable. Risk appetite, volatility, and financial means all play a crucial role in determining the best approach. A solid trading strategy can become very profitable, but there are no guarantees for profit, especially with cryptocurrencies.
Planning Ahead Is Mandatory
Before one can begin to create trading strategies, it is essential to set out goals. Making money quick is a fun thought but not an actual or reliable goal. Trading cryptocurrencies requires a lot of effort and may not even generate a profit. Even with the best trading strategy to date, these markets are a lot more volatile than some traders may think.
Instead, anyone who wants to develop their trading strategy needs to put together a long-term trading plan. This plan will help determine one’s risk appetite and which milestones the strategy needs to reach within an allotted time frame. Whether it is a big profit, or smaller and safer profits, having a viable course of action can make or break any trader.
One can always assume something unexpected will occur when trading cryptocurrencies. It is the name of the game in this particular industry. Any market can turn bullish or bearish on a dime and maintain that course despite every pattern or indicator telling something else. With a long-term plan in mind, it is also easier for traders to adapt to market circumstances.
Documenting The Journey
A core component of planning includes making a list of what your trading strategies will encompass. When putting everything down on paper, it quickly becomes apparent how complex trading can become without ample preparation. Some options to include are:
- Which cryptocurrencies to trade?
- Risk appetite for going into unexplored markets in search of profits
- What is an acceptable loss or gain to keep you going?
- Will you use stop-loss orders to protect your portfolio?
- Will you diversify or go all-in on one market at a time?
- Your preferred daily/weekly/monthly performance rate (e.g., 20% profit per month)
All of the options outlined above are merely tools to help traders become more successful. Personalized additions are more than welcome, depending on preferences. Some traders never trade in the evening or at night, for example.
Paper Trading Is A Powerful Tool
It does take some research and effort to put together a trading strategy. Even then, it is crucial to put that strategy to the test properly. Paper trading, an option in which one manually logs potential trades based on current market circumstances without executing them, will often provide valuable results.
Paper trading is also an excellent way to finetune one’s trading approach. It leaves a lot of room for tweaking, based on the recorded performance. All of this is achieved without any money changing hands, creating a perfect testing environment.
Cryptocurrency Trading Strategies Conclusion
Anyone can become a trader of cryptocurrencies, as long as they are willing to put in the effort. Copying other traders’ methods and signals is never a smart idea. Every trader wants to make money, and some will even try to trick others by making bold claims of how a market will evolve. Always cross-reference any trading “advice” with one’s strategy and market evaluation.
The beautiful part of trading strategies is how they can be modified whenever necessary. There is no reason to copy anyone else, especially if those methods are uncomfortable to maintain. Taking different bits of advice from individuals and combining it into something new is one option that may work out. Always try and test new ideas through paper trading first, and adjust when necessary.