Cryptocurrency Trading Strategies: Whether trading is completely new to you, or you are already familiar with investing in financial markets this article will enlighten you on the specifics of buying/selling cryptocurrency and give you several tips to maximize your chances. to come out as a winner. Ready to discover cryptocurrency trading?
Are you made for Cryptocurrency Trading?
Before you get started, I suggest you start by checking that cryptocurrency trading is right for you. Indeed, to do things well, you have to be aware of certain prerequisites, and even do a little introspection.
Don’t roller coasters scare you?
With cryptocurrencies, thrills can be had every day. If only with Bitcoin, which is nevertheless the best-known coin and undoubtedly among the most stable:
- It has experienced a variation of around 8% over a week, at the time of writing these lines
- And around 14% over one month
And if I take Ripple (XRP), yet also among the largest capitalizations on the market, it experienced variations of 70% over the month which has just passed (from mid-September to mid-October 2022).
It can be a lot of euphoria, as well as a lot of stress. Without getting into psychology, it’s up to you to see if it suits your personality and the management of your emotions.
Nobel Prize-winning economist Robert Shiller’s research has shown how emotions influence traders, and this aspect cannot be glossed over. [Cryptocurrency Trading Strategies]
Crypto markets open 24 hours a day
Traditional financial markets are only open during the day. For example 9 a.m. to 5:30 p.m. for Euronext, which notably covers CAC 40 values. So, unless you trade on stocks from each continent, you can have a little respite.
For the cryptocurrency market, there is no rest. You can trade constantly, and the price of cryptocurrencies changes accordingly 24 hours a day, 7 days a week. Therefore, you run the risk of checking your wallet when getting out of bed, and just before going to bed.
Here too, take the time to ask yourself whether this suits you, whether you should set some rules for yourself… and whether you will be able to respect them.
A whole universe to discover if you are not already familiar with cryptocurrencies
When you invest in stocks, you can choose to bet on Peugeot, LVMH, Airbus, Apple, etc. in short, companies that you already know to a greater or lesser extent.
If you are new to the world of cryptocurrencies, Web3, Decentralized Finance (DeFi), Shiba Inu crypto, or Polygon (MATIC) may not mean anything to you. Except that these are relatively basic concepts or cryptocurrencies.
But when you trade, you cannot do it randomly. In any case, I don’t recommend it. You will therefore have to find out. Finance Heros can help you with this, as well as other resources, but whatever happens, you will have to devote time to it. [Cryptocurrency Trading Strategies]
Define the amount to allocate and its strategy
Choosing your overall cryptocurrency trading envelope
As mentioned above, active cryptos are risky. They are extremely volatile for the most part. In other words, their prices vary greatly, both upwards and downwards.
So, it is obvious that you should not use your precautionary savings to trade cryptocurrency. It is rather advisable to go with this approach: only invest what you are prepared to lose.
If this seems very conservative to you, know that during the crash of the “ stablecoin ” Terra (LUNA), psychological support groups were set up for people who had lost almost all of their money…
Define your trading strategy… and stick to it
The easiest way to detach yourself from your emotions in trading is to define your strategy in advance and force yourself to respect it. There are several ways to guide your investments.
You can invest according to the fundamentals of a cryptocurrency. To explain this, I will draw a parallel with the purchase of stocks. You can choose to invest your money in the shares of a company because you believe in its sector of activity, that it is a leader in its market, that its margins are good, that it pays generous dividends, etc.
Likewise, you can buy Bitcoin (BTC) because you think that it will be used more and more, that the limited number of coins will push prices up, that other cryptocurrencies will not do better, etc.
You can also choose to guide your crypto purchases and sales through technical analysis. Exceeding certain resistances, the appearance of certain figures on the price curve, etc. Several articles on this subject are available on our site in our Stock Market section if you wish to find out.
There are also certain indicators specific to Web 3.0, such as the TVL of crypto. This is the total value of the tokens immobilized to run the project protocol (for example staking). The higher it is, the more it is a good sign of the robustness of the project. [Cryptocurrency Trading Strategies]
Another element that can be good to set in advance: what are your thresholds for selling? This will allow you to set a framework for:
- Secure your gains by defining a level from which you sell all or part of your cryptocurrencies. For example, as soon as you reach 10% or 20% added value
- Limit your losses, by automatically selling your cryptocurrencies as soon as the price drops by X% compared to your purchase price
Finally, another great classic that you can opt for is dollar cost averaging (DCA). This consists of investing in several installments, for example once every day or every week, a fraction of the amount you wish to invest.
This makes it possible to smooth the entry price and reduce the “market timing” effect. This makes sense for positions that you hold a little long, and not day trading. More information is in our article dedicated to investing in DCA.
Choosing the Right Cryptocurrency Trading Platform
An essential tool to put it into practice, you will need a cryptocurrency trading platform. The established term is cryptocurrency exchange platform. Several criteria can be taken into account for your choice:
- the number of cryptocurrencies available for trading
- fees, both for orders and for deposits of money or others
- advanced possibilities, such as leverage or short-selling
- the security/compliance level of a platform, for example, if it has the status of Digital Asset Service Provider obtained from the French regulator the AMF
- the ergonomics of the application, its ease of use
Here is a selection of the best online crypto brokers to help you in your selection:
Direct investment in cryptocurrencies is provided by eToro (Europe) Ltd as PSAN registered with the AMF. Crypto assets are very volatile investments, and there are no guarantees. [Cryptocurrency Trading Strategies]
Binance: the world leader in crypto exchange platforms
Opting for Binance means accessing more than 350 cryptocurrencies, multiple trading possibilities, and a myriad of services. You can even buy Non non-fungible tokens (NFTs) or spend your trading earnings using your crypto card.
In addition, their fee level is among the lowest on the market. 0.1% for classic trades, and some are even free to celebrate Binance’s 5th anniversary, such as the Bitcoin (BTC) / Euro (EUR) pair.
The only drawback is that Binance’s offering is so rich that it can seem complex to navigate the platform or the mobile application, even if they are generally well done.
Bitpanda: cryptocurrency trading made easy
With the Bitpanda crypto platform, you can choose between two universes. Their classic platform, Bitpanda Pro is more advanced. The first is much easier to use than Binance and will allow you to easily invest in cryptocurrencies.
Fees are measured, and directly included in the prices displayed.
Finally, the platform will also allow you to invest in thematic crypto indices, types of crypto ETFs (e.g. infrastructures, the 25 largest capitalizations), do crypto staking to generate interest, or even a crypto bank card.
For more informed investors, or budding traders who are moving up the ranks, Bitpanda has been offering leverage since April 2023 (limited to x2) on a good dozen cryptocurrencies (Bitcoin, Ethereum, Cardano, Polkadot, etc.). ), as well as short selling on Bitcoin and Ethereum.
You can also use the Bitpanda Pro version which has more features. [Cryptocurrency Trading Strategies]
eToro: advanced trading features, on cryptocurrency or financial markets
eToro first established itself as a benchmark player among trading platforms, for investing in classic financial markets (shares, commodities, ETFs, etc.).
But this broker has been able to expand its offering to cryptos, and even quite seriously since it obtained PSAN status in 2022.
With this platform, you will therefore have access to several investment universes beyond cryptos, and the possibility of investing with leverage, or even short selling.
Favor limit orders
Once equipped with a trading platform, and a first payment made to fund your cryptocurrency account or wallet, you are ready to place your first order.
Generally, you will find the same possibilities as for orders on traditional financial markets. So I’m not going to go into detail here. If you wish to delve deeper into the subject, I invite you to consult our complete article dedicated to stock market orders.
I’m just going to focus on limit orders. To the extent that the crypto markets are highly volatile, that they are open permanently, and that you have defined your trading strategy, this type of order seems to me to be preferred.
So, over 3 days, if the price of Bitcoin drops to €20,000, then I automatically buy €100 worth of Bitcoins. If the price remains above, no purchase is made.
If my strategy is to resell from a 10% capital gain, in the same way, I can set an order to sell automatically as soon as the price of Bitcoin reaches €22,000 (= 20,000 x 1.10).
So, there is no need to constantly monitor the market or think about whether to sell or not.
Read also: The Crypto Firm Circle Prepares Its IPO
Frequently Asked Questions: Cryptocurrency Trading Strategies
What is cryptocurrency trading?
Cryptocurrency trading involves buying and selling digital assets like Bitcoin (BTC), Ethereum (ETH), etc.
with the objective of achieving added value.
Which cryptocurrency exchange platform to use for trading?
There are platforms that are more or less easy to use, with different fee levels and a number of exchangeable cryptos which can also vary greatly.
The number 1 platform with low fees and a wide selection is Binance. On the other hand, it can be quite complicated to use, in which case you may prefer Bitvavo or Bitpanda for example.
What are the promising cryptocurrencies to trade?
Whatever happens, you must do your own research and educate yourself before investing, as with any investment. In addition to well-known cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), you can be interested in other promising cryptocurrencies like Polygon (MATIC) or Polkadot (DOT) for example.