As one of the most volatile markets crypto market presents lucrative opportunities for traders. With wide daily changes in crypt currencies prices being more a norm than exception traders have an opportunity to use trading strategies suitable for short-term trading presented below.
Best Crypto Trading Strategies – Beginner to Advanced
In volatile crypto markets traders can use most short-term strategies as best crypto trading strategies based on their personal preferences and experience. And social media monitoring together with specialized cryptocurrencies monitoring tools will enhance profitability of crypto trading strategies.
1. Day Trading
In crypto day trading strategy traders make bets on crypto price movements that take place within just one day. Traders open and close all positions within the same day, so the strategy involves speculating on the price of a crypto asset over a single day.
Crypto day trading is essentially a short-term trading strategy withholding times for positions less than one session and is one of the crypto trading strategies for beginners.
One of the advantages of day trading strategy is then the absence of swap charges since no position is rolled over to the next day. Learning how to day trade crypto is essential if you want to make a profit in crypto markets.
Scalp trading or scalping is another short-term crypto trading strategy. The goal of scalping strategy is to make profit on short-term crypto price movements. Thus it involves making many trades that provide small gains so that together they generate considerable profit.
Scalping is essentially one of crypto day trading strategies. However since scalping relies on small price movements traders need to act fast to benefit from short-term volatility measured in minutes or even seconds.
This high pace and frequent trading framework may not be suitable for all traders as it can be too taxing, therefor scalping is not one of crypto day trading strategies suitable for beginners.
Arbitrage is a technique of gaining from differences in the price of a crypto asset in different markets. Profit can be earned by buying cryptocurrency from one marketplace and selling on a different one at a higher price. The arbitrage opportunity in crypto arises due to the differences in liquidity and trading volume in different exchanges.
Since there are hundreds of platforms for crypto trading, arbitrage opportunities allow to earn profit on different prices for the same asset. At the same time, one has to be aware of different operational speeds at different exchanges. A trader has to hold crypto assets in wallets provided by crypto exchanges and he is exposed to price risk during that period before the asset is transferred to another exchange – the price of the asset may change if it takes too long to execute the trade.
4. Range trading
Range trading involves identifying significant price levels between which a crypto asset will be trading and setting up trades by taking advantage of that knowledge. It is essentially based on identifying support and resistance levels and buying the asset when it is approaching a support level and selling it when the price approaches a resistance level.
Support is a price level at which demand is strong enough to prevent the price from falling any further. Resistance is a price level at which supply is strong enough to prevent the price from moving higher. So as the price drops and approaches support, buyers (demand) become more willing to buy and sellers (supply) become less willing to sell. The opposite is true for resistance level: as the price rises and approaches resistance, buyers (demand) become less willing to buy and sellers (supply) become more willing to sell.
Range trading is one of important crypt trading strategies. Successful range trading requires precise market timing, in other words knowing when and for how long the crypto asset will trade between two prices. It takes time to gain experience in identifying valid support and resistance levels and setting buy and sell orders to earn on price action between those levels.
5. High-Frequency Trading
High-frequency trading uses powerful computing and networking equipment to derive profit from price changes in short time intervals. To implement HFT, a trader must have supercomputing capabilities and trading algorithms that can quickly notice and react to market price changes.
High volatility of the crypto market is well suited for utilizing high-frequency trading strategy. Arbitrage trading is a type of high-frequency trading.
Liquidity detection is another type of frequency trading strategy other than the general detection of short-term price fluctuations and acting on projected market reactions. Liquidity detection involves recognizing the market engagements of other traders, often institutional investors, and trading on their market activity.
How to Trade Cryptocurrency Using Data Analytics
Here are a few ways data can benefit you crypto day trading strategy:
Marking the Volatile Patterns
Two patterns occur often in volatile markets – megaphones and flags. It pays to learns how to identify these patterns and be ready to trade them when chart analyses confirm these patterns are forming.
Megaphone pattern usually consists of five swings that a price makes between an upward sloping resistance and a downward sloping support lines. These swings, viewed as highs and lows reflecting off from the resistance and support lines, can manifest themselves in two distinct patterns: at least two ascending highs each followed by a lower low – known as a bullish megaphone; or at least two descending lows each followed by a higher high – known as a bearish megaphone.
These swing highs and lows close above and below the megaphone’s pivot line and therefore they create swing highs as pivot high (R1 and R2) and swing lows as pivot lows (S1 and S2).
Megaphone pattern occurs when the market is highly volatile and traders are not confident about the market direction. Usually this pattern forms when the market is at its top or bottom. The longer the timeframe the pattern develops in the higher the likelihood the pattern will work.
Megaphone pattern can be traded as:
- Breakout trades
- Swings trades (between higher highs and lower lows)
- Failures trades (when the price fails to break out)
When the price breaks the trend line after making the fifth swing and closes outside the pattern, a breakout is confirmed. Bullish or bearish breakouts happen depending on preceding trend.
After a prolonged bear run, when this pattern is formed at the bottom and the price closes above its upper trend line – the resistance, it then acts as a trend reversal pattern.
But when the price closes below the support line and makes new lower lows in the chart it will then be termed as a Continuation Pattern.
In each case traders can take a trade when the price closes outside the pattern – to get the best possible confirmation of the breakout.
Price targets in a megaphone breakout pattern are computed using the Fibonacci ratios of the pattern height – vertical distance at fifth swing point, added from the breakout levels. When a price bar closes outside the pattern above upper trendline in the direction of the breakout in a bullish megaphone pattern, a long trade is triggered.
Swing trades can be realized when price action has provided sufficient indication that a megaphone pattern has formed. Formation of four swings is usually a sufficient confirmation a megaphone pattern development is underway. Then, for long trades, R1 and R2 may act as a probable resistance while S1 and S2 may act as a probable support for a short position. In the chart above, R2 and S1 act as resistance and support targets for a Long and a Short correspondingly.
When the price fails to break the megaphone pattern trend line (upper or lower) after completing the fifth swing – a failure occurs. It can be traded like the swings. In the chart above R1 and S1 act as resistance and support targets for a Long and a Short correspondingly.
The flag pattern consists of the price pattern rebounding off two parallel temporary trendlines before breaking out in the direction of the dominant trend.
A flag occurs during a dominant trend and temporarily interrupts that trend before it resumes. This occurs after a surge – the flagpole – consolidates to form the actual flag. The surge can occur in either an upward (bullish) or downward (bearish) direction.
We enter our sell (short) order at either point 1 or 3.
Point 1 is the most conservative entry point because it is at the level of the bottom of the flag where the price is making new lows. Increasing volume as the new low is made is an additional confirmation that the pattern is developing successfully. It means there is momentum support, which makes it more likely to be sustainable.
Point B is where the price breaks out of the flag itself. This is more aggressive than Point A. Increasing trading volume can again be used as additional pattern confirmation.
Point C is a possible stop loss level where, if you were already in the trade, you’d exit with a small loss.
Social media monitoring
Social media monitoring involves using listening apps that rank tokens, topics and trends by employing factors like keywords and engagement. Here are two popular social listening tools that can help gauge crypto assets’ momentum and trading opportunities. There are many other tools that can be used based on trader needs and preferences.
LunarCrush collects information on bitcoin, over 2,000 altcoins, influencers, crypto exchanges and more, and categorizes it into two custom scores by the app: Galaxy Score and AltRank.
The Galaxy Score analyzes crypto price movements, while AltRank monitors market volume, social volume, percentage change vs bitcoin, and social score.
LunarCrush is currently available for free or for subscriptions worth up to USD 699.
BittsAnalytics is a social listening, sentiment analysis and data mining artificial intelligence application. It employs Natural Language Processing (NLP) combined with Artificial Intelligence (AI) trader for sentiment scoring.
BittsAnalytics offers three plans: Standard, Premium and Advanced
For $29, $49 and $69 per month correspondingly.
There are many cryptocurrencies monitoring tools that can help traders stay on top of crypto market developments. Below are a couple of applications popular with crypto traders.
CoinMarketCap: Crypto Tracker
CoinMarketCap helps track market cap and rank, prices, exchange volumes and currency conversion of 7,500+ more coins and tokens! It is a free app that provides real-time charts and alerts in one place.
Coinlib offers a comparison tool that allows users to view stats on up to four coins or tokens side by side. It displays a measure of “Bitcoin Dominance” at the top of its page. It also provides a price explorer that can assist with identifying arbitrage opportunities, in addition to the exchanges that might offer them the greatest value for their buys and sells. All data are updated in real-time.