The cryptocurrency market is growing and more and more traders and investors are interested in it. However, it is a complex and volatile market for which it is important to be well prepared and have a solid strategy. Here is a complete article that will tell you in 3 key steps how to define your crypto trading strategy.
Step 1: Define your crypto investor profile
Evaluating your investor profile is an essential element in the foundation of your investment strategy and, therefore, your financial success.
Defining your investor profile is determine your tolerance for investment risk. In other words, before setting up your investment strategy, you should ask yourself what level of risk you are willing to take.
As a general rule when it comes to investing, the higher the return, the higher the risk.
Determine whether you like investments whose value can fluctuate rapidly, or whether you prefer investments whose capital is guaranteed.
It can help investors like you choose suitable investments. For example, if you need to protect your money and your time horizon is short, you can follow a more conservative strategy.
An investor profile is therefore a summary of an investor’s financial goals, financial status, time horizon and risk tolerance.
To know your investor profile, you can directly write down your goals (horizon, risk tolerance) and draw conclusions if you are already familiar with financial investments.
Otherwise you can find on many sites (including that of AMF or banks and management companies) standard questionnaires that will tell youdepending on your answers, your investor profile.
This will now allow you to more easily sort the products to invest in (stacking, farming, volatile altcoins or bitcoins) as well as the strategies to prefer (scalping, day trading, technical or fundamental analysis, etc.).
Knowing your investor profile, you are now ready to take the next step in building your portfolio: investment type and strategy.
Step 2: Know the basic crypto trading strategies
You need a proven strategy to make money consistently from the cryptocurrency market.
Having a strategy allows you to keep your focus amid the constant stream of newseconomic data and market events that may interfere with your analysis.
Trading by intuition can be profitable from time to time, but it is difficult to be profitable regularly and in the long term. Therefore, a strategic approach to trading is required.
Cryptocurrency trading strategy is a an established method of planning and executing transactions that you follow.
Trading strategies usually specify the trades that should be placed, when they should be placed, when they should be exited, and the amount of capital that should be risked for each position.
Your crypto trading strategy is a fixed plan that you design to achieve returns positive when buying or selling in the crypto markets.
There are many trading strategies, but we will focus on the most popular ones:
Scalping is a popular trading strategy in the crypto market. This trading strategy allows traders to take advantage of small price movements at frequent intervals (second or minute positions) by using leverage and narrow stops to manage risk.
Day trading is to enter and exit positions on the same day. As such, day traders aim to take advantage of intraday price movements ie. the price movements that occur within the trading day.
Day traders trade on higher time frames than scalpers, but always close their positions on the same day. Day trading strategies are designed using technical analysis.
Transactions made in swing trading usually last more than a day, but not more than a few weeks or months. This is why some people call this strategy a medium-term trading strategy because it sits between day trading strategies and position trading, giving traders more time to think about their decisions.
Positional trading allows traders to hold trading positions for a long time (hodler). It could be months or even years. Traders using this strategy usually ignore short-term price movements and focus more on long-term trends.
Position traders also use fundamental analysis to assess potential market price trends and consider other factors such as market trends and historical patterns.
The practice of buying cryptocurrencies in one market and selling them in another market to take advantage of price differences is known as arbitrage trading. A trader makes money by taking advantage of the difference in quotes between several exchanges.
The cryptocurrency market is becoming more professional (robots), but arbitrage opportunities still exist.
Besides trading strategies, cryptocurrency investors can also turn to stacking and farming platforms to earn passive income (which is not without risk, the money is placed in a cryptocurrency that can crash and cause a loss greater than the interest received).
Step 3: define your crypto strategy and money management
Your personality and the time frame you choose to trade will determine your trading style. When developing a trading strategy, the amount of time you plan to spend trading is a very important consideration.
There is no “best” trading strategy that can be generalized and work for everyone, as it is highly dependent on each trader. Rather, the “best” trading style is the one that works for you.
Creating a cryptocurrency trading strategy that fits both your financial goals and your personality type is no easy task.
After reviewing the establishment of your investor profile and some of the most popular crypto trading techniquesyou should be able to figure out which one is right for you.
Keep a journal in which you record the results of your trades so that you can easily determine which ones are really successful and which ones are not. To do this, strictly follow your preset rules and take notes on the results of each of your strategies.
Cryptocurrency trading is very profitable when done correctly. However, if done incorrectly, you can suffer significant losses, some of which may never be recovered. Therefore, there are good trading habits that absolutely every trader should practice.
One of those habits is having a money management plan. Cryptocurrency money, just like in any other profit-oriented business venture, is a valuable asset that must be managed critically using a money management strategy.
Money management is a financial strategy that determines how a trader will invest his money in various crypto-assets. Money management defines when a trader will enter a trade, what volume they will buy and when he must finish his day.
Money management helps you smoothly handle the pressures of trading the financial markets. It teaches you patience and tolerance and above all it aims to protect your main working tool: your trading capital.
With these 3 easy steps you can start developing a strategy that suits you in terms of profile risk and investor with strict money management.
You will then be able to write a trading plan that you will refer to as you test against the most effective strategies that fit your profile. Finally, all you have to do is stick with it!
Want to learn the strategies and basics of cryptocurrency investing and trading? Feel free to follow the full Crypto Rider training to learn all the keys to your crypto trading success: