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 comprehensive article that will explain in 3 key steps how to define your cryptocurrency trading strategy.
Step 1: Determine your cryptocurrency investor profile
The evaluation of your investor profile is an essential element at the basis of your investment strategy and, consequently, of your financial success.
Determining your investor profile is determine your investment risk tolerance. In other words, before setting up your investment strategy, you need to ask yourself what level of risk you are ready to take.
As a general rule, when it comes to investing, the higher the return, the higher the risk.
Determine if you are comfortable with investments whose value can fluctuate quickly or if you prefer investments whose principal is guaranteed.
It can help investors, like you, choose the right investments. For instance, 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 the investor’s financial objectives, financial situation, time horizon and risk tolerance.
To know your investor profile, you can write directly your goals (horizon, risk tolerance) and draw conclusions if you are already familiar with financial investments.
Otherwise, you can find it on many sites (including that of the MFA or of banks and management companies) standard questionnaires that will tell youdepending on your answers, your investor profile.
This will already allow you to do this ordering products to invest in more easily (stacking, farming, volatile altcoins or bitcoin) as well as the strategies to be preferred (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: the type of investment and the strategy.
Step 2: Know the main cryptocurrency trading strategies
You need a proven strategy to consistently make money from the cryptocurrency market.
Having a strategy allows you to keep your focus in the constant flow of newseconomic data and market events that could interfere with your analysis.
Intuition trading can prove to be profitable on an occasional basis, but it is difficult to be profitable on a regular and long-term basis. Therefore, a strategic approach to trading is needed.
A cryptocurrency trading strategy is a established method of planning and executing the transactions you follow.
Trading strategies usually define the specifics of the trades to be made, when they should be made, when they should be terminated and the amount of capital you should risk on each position.
Your cryptocurrency trading strategy is a fixed plan that you plan to achieve returns positive when buying or selling in cryptocurrency markets.
There are many trading strategies, but we will focus on the most popular ones:
Scalping is a popular trading strategy in the cryptocurrency market. This trading strategy allows traders to take advantage of small price movements at frequent intervals (seconds or minutes positions) using leverage and a tight stop loss to manage risk.
Trading day is to enter and exit positions on the same day. As such, day traders aim to take advantage of intraday price movements – that is, price movements that occur within a 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 exchange of swings they generally extend for more than a day, but no more than a few weeks or months. Therefore, some people refer to this strategy as a medium-term trading strategy because it sits between day trading and position trading strategies, giving traders more time to think about their decisions.
Position trading allows traders to hold long trading positions (hodler). It can be months or even years. Traders using this strategy generally 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 is known to take advantage of price differences. arbitrage trading. The trader earns money by taking advantage of the difference in price between multiple exchanges.
The cryptocurrency market is becoming more and more professional (robots) but arbitrage opportunities persist.
In addition to trading strategies, cryptocurrency investors can do so too switch to stacking and farming platforms to get passive income (which is not without risk, the money is placed in a cryptocurrency that can collapse and induce a greater loss of the interest received).
Step 3: Define your crypto strategy and money management
Your personality and the time period you choose to trade will determine your trading style. When developing a trading strategy, the time you plan to devote to trading is a very important consideration to make.
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 creation of your investor profile e some of the most popular cryptocurrency 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 you can easily determine which ones are truly successful and which are not. To do this, strictly adhere to your predefined rules and take notes on the results of each of your strategies.
Cryptocurrency trading is very profitable when done right. However, if done incorrectly, you could suffer significant losses, some of which may never be recovered. Therefore, there are good trading habits that absolutely every trader should practice.
One of these habits is having a money management plan. Cryptocurrency money, just like in any other profit-oriented business venture, is a valuable asset that needs to be managed critically using a money management strategy.
Money management is a financial strategy that determines how a trader will invest their money in different cryptocurrencies. Money management determines when a trader will enter a trade, how much volume he will buy and when his day must end.
Money management helps you to overcome the pressure of trading on the financial markets smoothly. It teaches you patience and tolerance and, above all, aims to protect your main business tool: your trading capital.
With these 3 simple steps you can do it 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 refine as you test according to the most effective strategies that fit your profile. In the end, you just have to stick to it!
Do you want to learn the strategies and basics of cryptocurrency investing and trading? Don’t hesitate to take the complete Crypto Rider course to learn all the keys to success in your cryptocurrency trading: