Cryptocurrency Trading: Key Strategies to Profitability

Cryptocurrency trading lets you buy and sell digital currencies. 

Cryptocurrency markets are operational 24/7; you can book profits whenever you see an opportunity. To start trading, you must choose a cryptocurrency exchange and wallet, but this requires a lot of homework. 

While selecting the most suitable platform is tricky, the trading strategies you would follow require a good amount of research. Hastily sprinting to trade in crypto might welcome losses instead of profits, as it’s a volatile market. 

You need to stay informed about market trends and run an analysis to make informed trading decisions. This article will start with the fundamentals of cryptocurrency trading and dive deeper into trading strategies and platforms to use. 

With crypto's potential, many investors have included it in their portfolios. Everyone wants a piece of the profits that the cryptocurrency market offers. For example, a Bitcoin’s (BTC) value was equivalent to $1 in 2011, and as of June 2024, it’s $68,404.60 per BTC. 

That’s a sizable profit, which attracts many people to regularly invest and trade in cryptocurrency markets. They can become sizable profits or extensive losses as they’re highly volatile. 

Why do cryptocurrency prices fluctuate? 

Several factors affect price fluctuations in the crypto market. From a high-level overview, supply, demand, and sentiment are useful ways to predict trends. When demand is met, prices remain flat. Prices will shoot up if demand is high and cryptocurrency tokens minted are few. 

Sentiments also play a key role in influencing demand. For example, if a major celebrity says they believe in an XYZ coin, it would lead more people to invest in it, increasing demand while shooting prices up. 

Conversely, if there’s a rumor about liquidity issues in a cryptocurrency, its prices will fall as the demand will be much lower than the supply. 

It’s simple demand-supply math. 

How do cryptocurrency markets work?

Cryptocurrency markets are decentralized and not backed by any central authority like a government. Cryptocurrencies on the blockchain are traded across computer networks on the blockchain. They exist only with the proof of ownership stored on its blockchain.

A blockchain is a distributed ledger that records every cryptocurrency transaction. When people want to trade in cryptocurrency, they transfer its units into the buyer’s digital wallet in exchange for either stablecoin like Tether (USDT) or regular fiat currency like the US Dollar (USD).

However, the transaction is considered complete only when verified and the record is added to the cryptocurrency blockchain. This transaction history shows changes in ownership of cryptocurrency, 

These blockchains have robust security features that are usually absent in standard computers. For example, multiple computers store blockchain records, making them accessible to everyone within a network. 

Moreover, cryptography links blocks in a blockchain, which involves complicated mathematics and computer science. If anyone attempts to alter these cryptographic links, systems on the blockchain identify them as fraudulent. 

Cryptocurrency trading strategies 

Crypto trades employ several cryptocurrency trading strategies, including: 

Day trading 

In day trading, crypto traders aim to profit from intraday price movements by taking a position and exiting on the same day. Success relies on technical analysis to understand where to enter and exit the market. 

Day traders analyze chart patterns and trading signals to make entry and exit decisions. They employ risk management practices to limit losses, such as using position sizing and setting up stop-loss orders. 

Forbes advisors suggest these cryptocurrencies to be good for day trading: 

• Bitcoin
• Ethereum
• Binance Coin
• Ripple
• Solana

Range trading 

Range trading is an active investing strategy in which traders buy and sell cryptocurrencies within a definite range. For example, if a coin trades at $50 and you anticipate growing to $60, you’ll set this range for a few weeks. 

Whenever the coin is at $50, you’ll repeatedly purchase and sell it whenever it’s at $60 in a set duration of a few weeks. 

Many experienced analysts give “support” and “resistance” levels each day. Support is a level below which the price of the cryptocurrency won’t depreciate. Resistance is the maximum price a coin can rise to. Support and resistance levels are below and above the current price of the cryptocurrency. 

Scalping 

Scalping is a short-term trading strategy where investors increase trade volumes to book profit from fluctuations in the market. Smart crypto traders will employ best trading practices like handling the margin when scalping. 

When employing scalping strategies, traders analyze charts, trends, and market liquidity to estimate an entry and exit point within a day. 

High-frequency trading (HFT)

HFT is an algorithmic trading strategy in which traders develop algorithms and trading bots to quickly enter and exit a crypto asset’s market. 

To develop such programs, you need a comprehensive understanding of the crypto market’s concepts in addition to a good grasp of mathematics and computer science. Usually, advanced traders go with this strategy. 

Dollar-cost averaging 

Estimating the most profitable time to enter or exit a cryptocurrency market is tricky — or nearly impossible. Many traders invest a fixed amount at regular intervals, a dollar-cost averaging (DCA) strategy. 

The exit strategies require you to analyze charts and perform technical and fundamental analyses before taking a final call. 

Above all strategies, you should perform primary research and keep yourself updated with the latest in the crypto market to become a successful trader. Apart from the strategies discussed above, some traders use arbitrage, buying crypto in one market and selling it in another, leveraging the opportunity to book profits from differences in liquidity and trading volumes in both markets. 

How to become a crypto trader 

Finding a suitable exchange will be the first step toward cryptocurrency trading if you're just starting out. 

While choosing the most suitable exchange, consider the following aspects carefully. 

• Check safety and security. Crypto is still largely unregulated and in its infancy. It’s advisable to pick an exchange that has been doing business for a while and takes appropriate measures to ensure your cryptocurrency's safety and security. Check if they have a know-your-customer (KYC) process, which will shield you from malicious threat actors. Look into the exchange’s insurance policy if it falls victim to a cybersecurity incident.
• Understand available coin diversity. Exchanges are usually selective about the coins they host. You should verify if the exchange you’re considering supports popular cryptocurrencies and those you want to trade in.
• Get familiar with the fee structure. Exchanges usually charge a minute percentage on every trade. Look around to see if other transaction fees involve making deposits or withdrawals.
• Check support for fiat currencies. Not all trading platforms will offer the same support for fiat currencies that you wish to use to buy crypto. Some might charge heavy transaction fees for trading crypto with fiat currency. In such cases, exchanges usually offer a peer-to-peer (P2P) model to get stablecoins in exchange for fiat currency that traders can use to buy or sell crypto of their choice. 

Once you have selected the crypto exchange you want to use, the next step is to choose a crypto wallet to hold and store your private key externally. Many exchanges would offer their own crypto wallets to help you manage crypto assets seamlessly. 

Before making a final decision, consider security, accessibility, customer service, and costs when selecting a cryptocurrency wallet. Setting up these wallets isn’t too complicated, and most will have in-product messaging to guide you through the process. 

As soon as your wallet is set up, you can start trading cryptocurrency and frequently move the coins bought on exchange to your crypto wallet. 

Think before you act

Cryptocurrency trading offers lucrative opportunities to earn significant profits. However, conduct thorough research to perfect your trading strategies before you make the final call. It’s a volatile market, and you must conduct a proper analysis before entering or exiting the market. 

Ensure the cryptocurrency exchange you selected offers analysis tools to study charts and other aspects to make an informed decision. 

Still on the fence about choosing a crypto wallet? Check out different types of crypto wallets you can use as a trader.