This guide is designed to help you if you’re new to the world of cryptocurrency and want to start your crypto trading journey. We’ll provide you with the best crypto trading strategies to help your get started.
Cryptocurrency has lately become a very popular thing amongst investors around the globe. One of the main reasons why it has become so popular is because of its ease of trading and better returns as compared to every other asset and commodity available in the market.
So, after checking the success stories of crypto millionaires, many people are intrigued to start their cryptocurrency trading journey as well.
One of the biggest questions you will have to answer to successfully start your cryptocurrency journey is what type of trading strategy you will be using on a daily basis. Just like the traditional stock market, there are lots of different trading strategies available in the cryptocurrency market as well, and every trading strategy has its advantages and drawbacks.
While using an active cryptocurrency trading strategy can provide you with good returns, it comes with a unique set of risks the trader must consider before starting.
So, if you are just starting, you might enjoy using a passive strategy, which is relatively safer but provides you with fewer returns in the long run.
In today’s cryptocurrency trading guide, we will take a look at the differences between active and passive crypto trading strategies and which one you should use the benefit from the huge crypto market.
Cryptocurrency Basics
Before becoming a cryptocurrency trader and executing crypto trades in the market, you must understand the basics of cryptocurrency and the key concept behind it.
Cryptocurrency is a digital alternative to fiat currency which is powered by a huge network of interconnected computers around the globe. Whenever you deposit any amount of cryptocurrency in a digital wallet, it is locked away and kept perfectly safe unless you decide to transfer it to your spot account and start trading.
The key difference between traditional currencies like the USD and cryptocurrencies like BTC is that they are not issued by governments and are instead controlled by a decentralized system that is immutable and transparent.
This means that cryptocurrencies are perfectly safe from government manipulation and control and can be used as a hedge against inflation in tough financial times.
Moreover, you should keep in mind that cryptocurrencies are digital-only assets, and there are no physical versions of them available in the market. All the transactions made on cryptocurrency exchanges are saved in a public ledger, and that ledger is visible to everyone around the globe without any restrictions. This is done to ensure transparency across the board.
Before a cryptocurrency transaction can be marked as “complete” and add it to the public ledger, it needs to go through a verification and process, also known as “mining”. The public ledger is saved on a blockchain, and that is why you will hear the terms public ledger and blockchain being used side by side in the crypto market.
Cryptocurrency transactions are also immutable. This means that once a transaction gets added to the public ledger, everyone can see it, but no one has the mandate to change the transaction information, nor can they delete it from the ledger. This is very a very important feature of cryptocurrency which keeps it credible and trustable across the board.
If you are an aspiring cryptocurrency trader, you might already know about a few popular cryptocurrencies like Bitcoin and Ethereum. These two cryptocurrencies are the pillar of the cryptocurrency market and hold the most amount of share as well. They have been doing well over the years and have proven to be the backbone of the crypto market.
There are loads of other crypto coins like BNB, Polkadot, and Solana available in the market as well. As of today, there are over 10,000 crypto coins available in the international cryptocurrency market.
Since the value of a cryptocurrency depends on its demand in the market, cryptocurrencies act more like commodities than fiat currencies. Moreover, cryptocurrencies are not yet widely accepted by merchants and retailers around the globe. This is the main reason why cryptocurrencies have to bear taxes like assets.
Let’s take a look at different trading strategies you can choose from when taking a start in the world of cryptocurrency.
Cryptocurrency Trading Strategies
When you learn more about cryptocurrency, you will find out that there are only two major types of cryptocurrency trading strategies being used by crypto traders. These strategies are termed active and passive trading.
In active trading, traders benefit from short-term crypto price fluctuations. On the other hand, the passive crypto trading strategy includes buying a crypto asset, holding on to it for long enough, and selling it for a big profit in the future.
Let’s take a deep look at active and passive trading strategies to help you get started.
Active Trading
There are lots of different types of active cryptocurrency trading. These types include crypto arbitrage, range trading, scalping, high-frequency trades, bots, and technical analysis of the crypto market.
Arbitrage
In the case of crypto arbitrage, an investor can buy the cryptocurrency from one exchange and sell it on the other exchange to benefit from the small price difference on those exchanges. In this method, you buy a cryptocurrency from one exchange and immediately sell it on another exchange which offers more returns for the coin, no matter how minimal they might be.
Although you won’t be making a lot of money with arbitrage trading, you can still make a decent amount of passive income if you can execute the trades fast enough.
High-Frequency Trading
In high-frequency trading, traders use a cryptocurrency bot which is automated and instructed to buy and sell a huge sum of crypto assets at once. It is just like arbitrage but places more trades at once, which is not humanly possible.
High-frequency trading is just like arbitrage trading, as it involves buying and selling with a very thin profit margin. However, since lots of trades are placed at once, the earnings add up to be significant.
Range Trading
In range trading, a trader chooses a price range in which they are comfortable placing trades. For example, if you buy a cryptocurrency for $10, the speculation that its price will increase to $15 in the next month or so, you can buy and sell that cryptocurrency within that safe range.
Bot Trading
Bot trading involves the use of an automated cryptocurrency bot to automatically execute buy and sell trades in the market to generate profit. However, the key difference between arbitrage and bot trading is market analysis.
While arbitrage trading focuses on buying cryptocurrency from one exchange and selling it on another exchange with more value, bot trading involves lots of other factors, like historical trends of a cryptocurrency and its overall trading volume.
Scalping
Scalping is one of the most active cryptocurrency trading techniques and is used by most traders who want to play it safe.
In scalping, the trader buys cryptocurrency and sells it back into the exchange whenever small price fluctuations occur. The key difference between arbitrage and scalping is that scalping does not involve buying crypto assets from one exchange and selling it on another exchange.
In scalping, all you have to do is open a cryptocurrency position, monitor the market throughout the day close your position at a profit within the same day.
Technical Analysis
In technical analysis of the cryptocurrency market, different tools and analysis strategies are used to analyze the historical data of a set of different cryptocurrencies, and future price predictions are made based on professional assessment.
The key to cryptocurrency technical analysis is discovering long-term market trends and predicting the time those trends will repeat themselves. However, technical analysis of the cryptocurrency market can be a bit tricky as the market is very volatile.
Because of high market volatility in the case of cryptocurrencies, you got to be very careful when executing technical analysis and placing trades based on your predictions.
This is why technical analysis is not suggested for those people who are just starting in cryptocurrency trading and have little to no technical knowledge of the market.
Passive Trading
Unlike the active trading strategy, passive trading involves opening trades and holding onto your positions for a long time in the crypto market. A passive cryptocurrency trader acts just like an investor and does not buy and sell cryptocurrencies based on small price fluctuations in the short term.
Some of the most popular passive cryptocurrency strategies include holding, index investing, and dollar cost averaging. Let’s take a brief look at each of these popular passive trading strategies.
Holding
In holding, you invest in a cryptocurrency asset and hold it for a long time in the hope so getting high returns as the value of that cryptocurrency appreciates over time. You can use hardware wallets or secure digital wallets to store huge sums of cryptocurrency away from the market, that is, unless you want to resell it for a profit.
This way, you won’t have to actively monitor the market every day, and long time price fluctuations will automatically benefit you. If you have multiple cryptocurrencies in your portfolio, your portfolio will keep expanding as the prices of those cryptocurrencies increase in the long run.
Index Investing
Index investing in cryptocurrency is just like investing in a traditional index fund. An index fund is made from an assortment of different cryptocurrencies. By investing in the index fund, you can make a unique portfolio of investments in cryptocurrency and benefit from it in the long run.
Cryptocurrency index investing involves the management of index funds by a team of market professionals, and the investors have to do nothing. This is the main reason why cryptocurrency index investing is termed a passive trading strategy.
Dollar Cost Averaging
Dollar-cost averaging includes an investor buying a crypto asset at regular intervals, no matter how the price of a cryptocurrency fluctuates in the market.
This method works by helping you buy more cryptocurrency at lower prices when the market is continuously bearish. This also lowers your average buying cost every time you buy the same cryptocurrency for a lower price.
As the price of that cryptocurrency recovers in the long run, you can sell it into the market as soon as it crosses your average buying price. It is termed as dollar cost averaging and does not include a lot of technical analysis and efforts from the investor’s end.
Crypto Trading for Beginners
To start cryptocurrency trading, you will have to first find yourself a reliable exchange and trading platform. After you buy cryptocurrency assets through an exchange or a broker, you can deposit them in your trading account’s wallet to proceed further.
Instead of using brokerages, we suggest using a cryptocurrency exchange to buy crypto assets. That is because exchanges charge very low fees for every transaction, and they provide you with a secure digital wallet to store your cryptocurrency without the fear of it getting stolen.
Before you can start crypto trading, you will have to find yourself a reliable crypto trading platform and deposit some fiat currency into it.
After doing this, you will have to choose a suitable cryptocurrency to trade in, and your crypto trading journey will begin.
Before choosing a crypto trading platform and a cryptocurrency to start your trading journey, you should first assess your technical skill level and set specific goals to achieve in the long run.
For example, you should determine whether you want to get into day trading and make the most out of your cryptocurrency investment by bearing the most amount of risk or you want to build yourself a safe, diversified portfolio that will help you retire at an early age.
After you choose your timeline and risk appetite, you will be able to choose from active and passive trading strategies rather easily. This will also help you choose a suitable cryptocurrency that will benefit you in the long run.
Once you have chosen a time frame and your desired cryptocurrency, you can start by choosing an exchange and depositing the funds to start trading.
The Best Crypto Trading Strategy for Beginners
If you are just starting as a cryptocurrency trader, choosing passive trading and depositing less capital at first should be your priority. This will help you minimize losses, if there are any, and will provide you with enough experience to scale your cryptocurrency portfolio later on.
Moreover, if you are looking to build an investment portfolio to support your loved ones in their time of need, the best trading strategy for you is passive crypto trading.
If you choose to go a long time on crypto investments, you should choose consistent and well-performing cryptocurrencies like bitcoin and Ethereum. On the other hand, if you are interested in active trading, you can buy cheap coins, which fluctuate a lot in value throughout the day, and that will provide you with a good trading experience with a high return on investment.
You should also do your tax calculations properly you choose cryptocurrency trading. Since the tax authorities trade cryptocurrencies as assets, you only have to pay the tax when you sell your cryptocurrency for a profit. In this case, active traders have to actively look after their portfolios and trades to report them properly at the end of every tax year.
So, if you want to take it easy and benefit from high returns in the long run, you will be better off choosing passive crypto trading.
Conclusion
Cryptocurrency trading is none of the best things to do if you want to earn some passive income in the long run. However, the complexity of cryptocurrency trading depends entirely on your risk appetite and the time you have on your hands.
While active crypto trading can provide you with high returns in the long run, it can complicate your tax process, and you will have to invest a lot more time as well. On the other hand, passive crypto trading will give you peace of mind and is a good strategy for anyone who is trying to build a cryptocurrency portfolio as a retirement fund or a long-term investment.
Keep in mind that this article does not contain any type of financial advice and that you should do your proper research before hopping into the world of crypto trading. If you do it right, you will be able to make a decent passive income.
Many crypto traders are even making a living out of crypto trading and have portfolios that are consistently profiting from them. If you have a huge sum of money, we suggest that you invest in something like crypto index funds to passively benefit from your investment in the long run.
