Trading in the crypto market is not for the faint of heart but with a robust trading strategy you too can navigate the treacherous waters to the shores of crypto riches. In today’s trading guide we teach you how to use crypto volatility to your advantage to substantially increase your gains. Without a defined trading strategy, holders are often caught off-guard by drastic price movements causing them to sell at the most inopportune time, we want you to avoid these kinds of mistakes.
If you are completely new to crypto trading strategies we recommend you read Vaultavo’s Crypto Trading for Beginners article to get you started before delving into the more advanced trading strategies and topics discussed here. If you are ready to take your trading to the next level, get ready to learn the best crypto strategies.
Why crypto trading strategies are important
Many newcomers to the crypto space have been lured in by the promise of exponential growth expecting that they would have to do little more than simply buy a crypto token and resell at a profit a few months later. The crypto industry is no longer in its infancy and realizing exponential gains is becoming harder to achieve without proper strategic planning. The classic HODL (holding long term) crypto trading strategies worked wonders for the early adopters and we still believe this is the lowest risk strategy to see growth, but there is nothing more painful than watching all your gains systematically dissipate as a bear market ensues. If you can recognize trends and patterns in the space and respond appropriately to secure profit and reinvest with private key security, you will be able to supercharge your portfolio.
Advanced trading strategies are not easy and there is no single solution, otherwise everyone would be winners in the market. It requires great discipline and commitment to identify opportunities and to execute them in a timely and correct manner. It can be hard to sell your top performing asset while it is on a parabolic run but this is precisely when you need to set aside emotions and stick to your crypto trading strategies to remain profitable throughout the mass adoption of crypto. One critical aspect of crypto trading strategies is understanding and managing risk.
Understanding and managing risk
One of the keys to creating your bespoke crypto trading strategies is by understanding your own risk profile. At one end of the spectrum are those unwilling to risk investment in any high risk asset class like cryptocurrencies, while others will bet the house the latest meme stock or NFT project. Most of us exist somewhere on the continuum between these two extremes of crypto custody risks. The first rule is to never invest more than you can afford to lose, if your crypto investment hypothetically goes to zero you should still be able to maintain the same lifestyle.
There is a reason why cryptocurrencies are considered a high risk asset class and you should allocate your capital accordingly. We strongly advise against high leverage trading, you may be on the best crypto exchange and feel confident using trading tools and charting, but the majority of retail leverage traders get liquidated therefore it is best to take a longer term, less risky approach. The more time you spend in the market, the more likely you are to be successful. It is okay to make mistakes along the way, but always put yourself in a position where you limit the downside risk and keep yourself in the market. This is achieved by timely profit taking and de-risking when uncertainty arises.
The crypto asset class as a whole is still in price discovery as investors try to establish crypto’s true worth and value in the marketplace. This price discovery begets volatility which presents many great opportunities to make a profit if you have the right crypto trading strategies to take advantage of such instances but also greatly increases crypto custody risks. The crypto market is particularly sensitive to movements in the stock market and international macro affairs, which is why we have seen it reacting negatively to news of inflation and the Russia-Ukraine War. When there is uncertainty and instability regarding blockchain security, investors flee risk assets. Thus, it is important to stay informed with the latest macroeconomic news so you too can de-risk before you are left holding your bags. Risk manifests in various ways but you can avoid certain aspects of it using a digital asset smart-card with fingerprint private keys.
The market capitalization of a crypto asset is the current price of a single share or token multiplied by its supply. A higher market capitalization requires greater volume of buying or selling pressure to move the price. Therefore, lower market cap cryptocurrencies are considered higher risk as price volatility can be initiated by a small number of high value traders. This is also one of the reasons that Bitcoin is perceived as the least risky cryptocurrency; its massive market capitalization of over $1 trillion makes it harder to manipulate the price. Consequently, if you want exposure to higher-risk, higher-reward assets you can invest in cryptocurrencies with lower market caps. Be very careful when trading or investing in lower market caps coins, as the potential of a lower market cap project failing is generally higher, another factor adding to their risk.
It is much more risky to invest in a project once it has had a parabolic price run. At this point earlier investors may wish to take profits on their appreciated crypto and will sell to those that are late to the party. There are several factors that need to be considered regarding the timing of your crypto trading strategies, whether it be buying or selling. You must consider both fundamental and technical analysis together to make the best-informed decision at that moment. As we saw during the late-2020 and early-2021 bull run, some assets like Solana and Luna had extended periods of parabolic growth during the mass adoption of crypto. If you sold all of your Solana after its first big move you would have missed out on most of the SOL gains.
It is important to recognize which part of the market cycle you are currently in. The crypto market followed a relatively consistent 4-year cycle relating to the halving of Bitcoin when the mining difficulty increases and the rewards for mining BTC decreases. As the dominant force in the crypto market, this adjustment directly impacts all cryptocurrencies. The best trading strategies account for these cycles by reducing risk by selling off as the market gets heated as accumulating while the market cools-off and the price bottoms. Trading crypto is made more difficult by institutional adoption bringing a major influx of capital into the market resulting in price movements that have obscured the standard 4-year halving cycle market moves. Some speculate that we may see lengthening of these 4-year cycles while others believe the market cycles will decouple from the halving cycles and more closely resemble growth and tech stocks.
We further elaborate on fundamental and technical analysis in the next section of this guide. For now it is important to note that price movements often reflect the fundamentals of a project and that the price can factor-in future events. Thus, the current price is not all that should determine your trades but also the technical support levels, blockchain security, news and upcoming events, macro sentiment and the current state of cycle of the market (bull or bear), all of which we will elaborate in the next section.
Technical vs Fundamental Analysis
Investors have different approaches when it comes to crypto trading strategies. Some rely on technical analysis which relates to identifying trading opportunities by recognizing trends and patterns on price charts and predicting probabilistic outcomes while others use fundamental analysis which takes into account information about tokenomics, total value locked, developers, on-chain data and upcoming news about events launches comparing these metrics to competing chains. It is best to incorporate elements of both to create advanced trading strategies that have a higher probability of long term success. Let’s unpack each approach so you can identify what is missing from your crypto trading strategies.
Fundamental analysis focuses on evaluating the properties of a project such as its community, tokenomics, upcoming events and more to gauge whether the asset is under- or overvalued at a given point in time.
Fundamental analysis is the art of identifying and evaluating the aspects that make up a great project. It is no secret that many crypto projects are scams, therefore traders must be diligent in their research to prevent trading a coin that may rug-pull at any point. There are four factors that we recommend you check consistently as part of your crypto trading strategy to ensure that you are trading legitimate projects with some long term viability. Nothing is certain in stocks or crypto, but these metrics will help separate the wheat from the chaff. In no particular order we present four factors to watch when designing crypto trading strategies.
First is a transparent developer team. You should be able to hold the creators of a blockchain accountable as it relates to fulfilling promises and keeping deadlines. Team transparency is valuable as you can check their credentials (usually on LinkedIn) and past developer experience to assess whether they have the technical capabilities and capacity to achieve what they promise. Second is tokenomics. Tokenomics refers to the demand and supply that are programmed to impact the price of the token. Factors like a fixed max supply or deflationary burning mechanisms should theoretically increase price over time whereas high inflation dynamics (increasing supply) tends to negatively impact price over time. Most project will include these tokenomics in their white paper.
The third factor and arguably the most important factor is technology. What is the problem the project is trying to solve and is it better at solving the problem than competing chains? Metrics like decentralization, number of node operators or validators, proof-of-stake vs. proof-of-work, transaction speed, finality time, composability, parallelism; these are technical aspects you can compare across chains. Understanding which chains compete to solve the same problems allows people with the best crypto trading strategies to de-risk by betting on multiple horses in the same race. By diversifying across multiple potential winners you minimize your downside risk.
Fourth is demand. This can be assessed by social and usage metrics like total value locked, transaction volume, number of wallets, social media engagement, projects building, active developers, etc. Using these metrics you can get a sense of the chain’s trajectory, if it seems to be exponentially growing yet the price has not yet reflected the growth then it is the ideal time to invest. Conversely, if the chain has much fewer developers, total value locked, transaction volume yet still boasts a larger market cap than competitors it might be an indication that it is overvalued and would signal a good time to sell.
Crypto trading strategies as they relate to technical analysis are all about buying and selling at the right time. Buying when the market is oversold and selling when it is overbought is what you should aim for as an investor and trader. Technical indicators can help traders and investors create advanced trading strategies that are rooted in logic and not emotion. In this section we point our readers to technical indicators that are must-knows to improve your trading performance. These indicators will serve as a useful introduction to technical analysis that give you a foot in the door as you systematically grow your trading toolkit.
Support and Resistance
On your online crypto exchange or tradingview you can view price activity in various time frames (hourly, daily, weekly) in the form of price candles which show the high, low and final price point within the specified time frame. Use these candles to identify price levels of support and resistance. Support is a price level at which the price trend tends to reverse after a downtrend. The more instances of price reversal around the support the stronger it is considered to be. Resistance is the inverse of the phenomenon where an uptrend in price cannot break above a certain price level. Once price breaks support there is little volume protecting price on the way down to the next strongest support level. You can use this to your advantage by placing sell-orders somewhat lower than support and buy orders above the next support level.
RSI- Relative Strength Index
The RSI or relative strength index is a mathematical formula that provides a basic valuation of a stock’s price performance over a specific period. Fortunately there is no need to pull out the calculator as most trading sites will have this function natively which you can find under the indicators or oscillators tab. The RSI formula plots a line on a chart that oscillates between 0-100. Any number above 70 is said to be overbought while under 30 is said to be oversold. An overbought crypto suggests a good time to sell a small portion of your holdings while an oversold crypto suggests it is a good time to accumulate. This indicator is by no means perfect but provides a logical way to approach trading rather than jumping blindly into a trade.
Bollinger bands are a more complex indicator as it combines moving averages and volatility bands around it. The typical twenty-day moving average that is used provides you with a general trend in the crypto price while the bollinger bands indicate two standard deviations above and below the moving average. These Bollinger bands ensure that 95% of the price data will fall between this channel. This channel will expand and contract based on the price volatility of the past twenty days (if the 20-day moving average is used). The idea is that as the moving average approaches the upper bollinger band the price may be overextended and suggests a pullback in price. Similarly a moving average nearing the lower Bollinger band suggests an oversold crypto and a trend reversal is more likely.
The above technical analysis tools are just three of many that advanced traders use. We also recommend learning Fibonacci retracement and stochastic oscillator indicators as well as traditional chart patterns to supplement this knowledge. For most investors these will be sufficient to improve your timing and risk management, but know investment management is an entire field of study and these are just the basics to help you design your crypto trading strategies.
This concludes our guide on cryptocurrency trading strategies. We hope this guide will provide you with some of the necessary tools and fundamentals that you will need to successfully navigate your trading in the crypto market. Combine the simple yet powerful risk, fundamental and technical analysis practices we explained to design crypto trading strategies that work for you. Keep in mind that a fingerprint private key should always be used to protect your digital assets.
This educational guide on crypto trading strategies is for educational purposes only and should not be misconstrued as financial advice. We hope to answer the consideration of why self custody crypto is the future of the industry. If you wish to learn more about the world of crypto and how to best secure your valuable digital assets look no further than the Vaultavo website!
Trading Strategy FAQs
Which crypto should I trade?
If you are a new trader it is best to stick to the big names in crypto such as Bitcoin and Ethereum and others in the top 10 market cap. These cryptos have large communities that use the tokens and dedicated teams that build on their platforms and rely on its continued existence. Top 10 cryptos have generally proven themselves as highly secure protocols and thus investing as a beginner is a safer bet. Do extensive research on the underlying private key security, partnerships, user reviews and upcoming events to gauge the popularity and potential future success of a token.
How do I identify a crypto scam?
Identifying a crypto scam is an essential skill for anyone in the space to learn. The first rule is never to share private information such as passwords or account details which gives scammers access to your crypto wallets. Scammers will often imitate popular figures within the crypto community, be it founders of crypto projects, or youtubers and other social media influencers, to lull you into a false sense of security and promising you free tokens or airdrop or exclusive privilege if you share your security information. This will always be a scam.
When it comes to crypto projects being a scam, this is harder to identify, but the easiest way to avoid them is by only investing in projects with transparent projects that share the details of their initial token allocation, team credentials and to check whether their claimed partnerships are legitimate.
When should I sell my crypto?
It all depends on the timing and circumstances of that specific crypto. If it is a short term trade, it is best to take profits as soon as it is viable to do so, using your digital asset smart-card. If a project has not been performing well for an extended period and you have lost faith in it, it may also be best to cut your losses and sell it to reinvest the remaining capital in a worthwhile project. Closely follow the news and events of a crypto. In the run-up to a launch, event or upgrade, there may be significant price appreciation. This often results in a ‘buy the news, sell the event’ type situation where people purchase the token in anticipation of an event, but they sell-off just-before or right-after that event or moment is realized. It is better to secure profits leading up to the event.