Trading Strategies for Crypto Beginners
Bitcoin and Nothing Else
If you’re only buying Bitcoin, Ether and other currencies in order to sell them at a profit a short time later, then the investment is turning into speculation.
You can trade the different tokens on a digital currency exchange (which are designed for trading fiat money for crypt currencies) or a crypto currency exchange (crypto for crypto). There are dozens of different exchanges that we’ll describe in detail in the guide.
Also Read: Best Crypto Trading Bots
The approach for speculating is the same as with stocks: you’re buying a value for money or Bitcoin. The value is stored in your account on the exchange. Once you have reached your goal, you can sell the tokens. Hopefully at a profit. There are many strategies, some of which we will present here.
Bitcoin and Nothing Else
You can buy Bitcoin, store it on a hardware wallet, bury it in your backyard and retrieve it 10 years later. Maybe you’ll have become rich by then. Maybe not.
This strategy requires no knowledge and only a little work. You invest 50% of your capital in Bitcoin and spread the other 50% among the nine next biggest cryptocurrencies. The site coinmarketcap.com sorts the most important values according to their market capitalization. As of February 2018, this order is:
- Bitcoin USD 150 billion
- Ethereum USD 53 billion
- Ripple USD 25billion
- Bitcoin Cash USD 17 billion
- Litecoin USD 9 billion
- Cardano USD 5 billion
- EOS USD 5 billion
- NEO USD 4.5 billion
- Stellar USD 4.4 billion
- IOTA USD 3.6 billion
For the sake of simplicity, you distribute the second 50% evenly among the nine following currencies. Then you check them every month or quarter, sell the currencies that have dropped out of the top 10 and use the money to buy those that have replaced them.
Advantage: You’re always betting on the winners, spreading the risk and don’t have to pay a lot attention.
Disadvantage: Conservative strategy = lower profits. The more stable the market, the lower the profits.
Only the Best
You do the work and find out which companies and which business models are behind every token. Then you select the companies you think will be successful.
You can create segments for that. Is there already a successful business behind the token or will this only be the case in the future? Is the token already a market-leader or a latecomer?
As an example, let’s look at platforms for smart contracts. The market leaders in descending order are: Ethereum, NEO, Qtum, Lisk, EOS, OmiseGo. From the present perspective, the most secure option is to trade Ether.
If you think the value of the token will increase in the long run, then you can buy it when the price is lower, sell it when it has increased, then buy it again on the bottom, and so on. If the value is increasing in the long run, then you can’t really go wrong with this strategy.
Advantage: the most secure form of speculative trading.
Disadvantage: besides the unpredictability, the evaluation of whether a company is good or not is based on your insight.
Utilizing Course Graphs
Look at the following chart. It shows the course of the coin OmiseGo in comparison to Bitcoin over a period of four days. You can see that the course isn’t linear, but wavelike.
If we increase the timeframe and look at the course over four months, the pattern looks the same: wavelike.
And even if we’re looking at the minute intervals within a single day, the graph takes the same course:
There are only two laws of the market:
1. The price will increase
2. The price will decrease
You can buy a value in a valley and sell it on a summit. If you’re doing that with coins you believe in, then you can sometimes also wait a while if the price doesn’t go up.
Mathematicians have noticed this arbitrary phenomenon that can be seen on every market. The have developed algorithms that allow for prognoses about when a valley or a summit has been reached. Some exchanges let you display these indicators.
Three of the better-known ones are MACD, RSI and Bollinger Band.
In this complex chart, you can see the current Bitcoin prices in the upper third. The green lines indicate a rising price, red lines indicate a falling price. The thin blue threads above and below the candle-shaped price indicators are the Bollinger Band. If the candle touches the top, then the value is “overbought” and will likely fall. If it touches the bottom, then the value is “oversold” and will likely fall.
You should combine this with the middle third. It shows the MACD. It’s best to wait until the MACD (here in turquoise) and the red counter value are both low, with the turquoise being higher than the red one. A rising price is expected.
The lower third shows the RSI. If the green line is down and starts to rise again, you can buy.
If all three signals show the same signs, then the probability of there being a trend is higher.
This is an extremely short explanation. Google the three indicators on the internet; you will find some good instructions. And you will find material for analyzing long-term trends.
Whether these indicators are better than reading tea leaves remains to be seen.
Here you are completely abandoning investing and are now only speculating. Daytraders use the same technologies we described above. Their timeframes are simply much shorter.
It’s called daytrading because the positions should be closed by the end of a working day. Some daytraders sleep badly if they own coins overnight. Who knows what might happen at night?
Daytraders try to utilize special short-term course fluctuations. In the crypto space, this brings them profits between one and three percent. On other values they lose money. It’s almost a zero-sum game. Allegedly, good day traders average one to two percent in profit per day. We tried it and we are evidently worse than the statistical probability.
Pump & Dump
This is when shady individuals manipulate courses. They meet in groups and pump money into a value that subsequently rises. Unsuspecting traders see this rise and invest as well. The price continues to rise within a very short time frame. Then, the manipulators dump their coins and the price crashes.
On the one hand this is illegal and on the other it’s only possible in markets with low volume. There are many cryptocurrencies where you can push the course with investments as little as 30,000 euros.
On average, every small cryptocurrency is becoming the target of a targeted pump & dump every three months. Within a few minutes, the price increases by 30 to 1,000 percent and then falls back to the initial level within seconds. Daytraders can try to spot pumps by themselves. Or they join illegal groups to find out about the pumps beforehand.