How can we find the best cryptocurrency trading strategy that fits our needs?
Did you know that having an effective trading strategy to help you navigate the financial markets can dramatically improve your performance and decision-making over time? But what makes a trading strategy effective?
Each strategy has different aspects that you will have to consider when choosing. There are those who focus their analysis on certain indicators and others who try to operate faster on the market. In this article we will analyze the different trading strategies that work and that allow you to invest profitably in the financial and cryptocurrency markets.
Tools for choosing a suitable trading strategy
First of all, there are several factors to consider in order to make an informed decision about which trading strategy will be most effective and profitable:
- Goals: what do you want to get from your investment activity? Are you looking for short-term earnings or long-term income creation? Different strategies suit different goals. Some focus on generating immediate profits, while others seek slow and steady growth over time.
- CapitalHow much capital do you have available to invest? Different strategies require different amounts of capital, which affects the types of investments you can make.
- Risk management: It is an essential part of any successful trading strategy. Knowing how much you are willing to lose on each trade is key, as is having a plan for when things don’t go as planned.
- Time horizon: Some strategies require more frequent monitoring and may need frequent adjustments, while others require less active management and may be left running for longer periods.
Which trading method to choose?
The types of cryptocurrency trading strategies that exist can focus on different aspects: some strategies are based on a particular indicator such as the volatility of a financial asset, others use news or other macroeconomic aspects as a reference. There are also strategies that focus on the very moment in which one operates in the market.
Here are the 5 most used investment methods by investors from all over the world:
- Scalping – is an investment strategy which consists in identifying short-term price variations in the market and exploiting these fluctuations to obtain immediate profits.
- Day Trading – intraday trading is a technique of buying and selling during the day, without holding open positions overnight. It is thanks to the volatility that this strategy is effective. Indeed, the constant movement of prices during the day allows you to open positions quickly to obtain profitability. This type of strategy is a great option for someone who wants to develop a career in trading.
- Swing trading – it is applied thanks to the fluctuation of the price of a financial asset; that way, you buy it expecting it to go up in price in the future, and you sell it when it reaches its high point just before it goes down in price.
- Long-term trading – provides for the purchase of an asset and its holding for a period of time equal to or greater than one year. The goal is to buy an asset at a low price and wait for its price to rise over time. Fundamental analysis is an excellent tool for identifying opportunities that present positive growth prospects for the future.
- Positional trading – is perfect for those who intend to hold a title for the long term. They can buy shares and hold them for several weeks or even months.
What is the best trading strategy?
Here is the complete list of the 5 most popular and profitable trading strategies:
Price Action
The most popular trading strategy in the world is called Price Action. It is an intraday trading strategy. To use it, you need to know the graph and distinguish a number of “resistance” zones that prevent the price from moving up, as well as a couple of “support” zones that prevent any decline in the price.
How does it work? When the price gets to one of the price lines, two things can happen: either a breakout or a bounce. In a short time you can understand if the price will be able to break the support (or resistance) or if, instead, it will rebound.
RSI Oscillator
It is a scalping trading strategy, very simple to use because it is based on the indications of a single indicator: theRSI indicator. This indicator is configured in 3 ranges of values:
- 0-30: Oversold
- 31-69: no signal
- 70-100: Overbought
To operate there are two options:
- oversold: it means that there are too many sellers, therefore it is very likely that there will be a price reversal soon: it is the right time to buy.
- Overbought: at the moment the market is saturated due to too many buyers. You can expect a price correction and enter the market short.
This trading strategy is one of the most used in the world due to its effectiveness and simplicity. If you are a beginner, we advise you to operate on timeframe H1.
Fibonacci
The trading strategy named after the Italian genius Fibonacci is one of the oldest trading strategies in history. It is based on a range indicating key points on the chart. Thanks to rigorous analysis and intricate calculations, this strategy can be applied with ease on trading platforms thanks to its preset indicator.
If you are already familiar with Price Action, then the concept of this trading should be easy to understand. It’s about recognize and identify support and resistance levels based on breakout or bounce of the price.
Bollinger Bands
With a high success rate, Bollinger Bands are a strategy that gives traders an edge.
By channeling the price between the bands, it provides users an accurate metric to measure volatility and anticipate possible outcomes. Before entering the market, it is essential to wait for prices to reach their peak or trough. Normally, eventually, prices bounce back and re-range.
Onde di Elliot
This strategy takes some skill to understand, but the results are usually excellent. Simply put, the cycle is divided into several “waves” that need to be displayed on the chart in order to enter the market at the right time.
Using the ancient notion that history repeats itself, this strategy allows us to anticipate when the market is going to go down or up. To master it, dedication and study are essential; however, as to be expected, success usually follows. This process works exceptionally well in medium to long term trading, as it takes weeks to complete the entire cycle.
Conclusions
The best trading strategies don’t need great complexity to be successful. However, they must be robust enough to address issues such as investment decisions, money and risk management. It is vital to keep in mind that it is not advisable to focus solely on one investment strategy.