In the long run, holding cryptocurrencies such as Bitcoin has always been a beneficial investment strategy. Overall, the returns are better than most other types of financial investments.
One thing is certain: traders must use rules-based trading methods. Here are five profitable cryptocurrency trading methods.
1. Technical analysis
Technical analysis (TA) is the process of trying to predict the next move of prices through the application of statistical indicators and charts. For example, RSI can be generated by a computer tool such as TradingView, while other technical indicators must be manually determined by an analyst by checking the chart.
2. News and polls
Checking news headlines and general market sentiment is also useful in cryptocurrency day trading, although it is not very popular among short-term traders. News of major events can sometimes immediately affect cryptocurrency prices.
For example, Turkey stated in mid-April 2021 that it would prohibit the use of Bitcoin and other digital currencies as payment methods in its territory. As a result, the global crypto market plummeted. Bitcoin initially fell by about 3% and eventually fell by more than 10%.
The sentiment of popular cryptocurrencies can also be tracked by checking Twitter activity. According to this idea, tweets praising cryptocurrencies will generate more optimism, while tweets criticizing cryptocurrencies will generate more pessimism.
3. Interval trading
The premise of interval trading is that the price fluctuates within a narrow band. Observing candlestick charts and support and resistance levels are the keys to this method.
When the price reaches a certain level, traders can use the price level as support and resistance to trade. Or, if the price reaches a resistance point, they may decide to go short and then close the position when the price returns to the support point.
Through the use of pivots to prove trading in the way of interval trading. In order for investors to know where a price reversal may occur, they must calculate a pivot point.
This strategy focuses on profiting from minor price changes in the short term. These are common examples of market inefficiency, such as widening bid-ask spreads or lack of liquidity.
In order to maximize their profits, "scalpers" often use leverage such as futures or margin contracts to amplify their small price fluctuations. However, this also increases the likelihood of loss, making risk management even more important when using this technology.
Scalpers can use a variety of strategies, such as volume heat maps and order book research, to establish entry and exit points for trading positions.
Due to the high-risk and high-speed characteristics of trading, scalping is more suitable for experienced traders.
5. Robot Trading
The use of trading robots and algorithms that can be configured to conduct a large number of transactions in a short period of time is called high frequency trading (HFT). Using this method requires programming skills and knowledge of complex trading methods.
High-frequency traders don't just sit down and let software programs do all the work. Trading robots need specific strategies, the development of appropriate software to implement the plan, as well as regular monitoring, testing and upgrading procedures to keep up with the changing market environment.