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Are There Crypto Trading Strategies?



 

As is the case with stock trading, there are plenty of crypto trading strategies that you can use to generate profits. In fact, many of the strategies that you would typically use for stocks and derivatives trading can be used to trade in cryptocurrencies as well. That said, here’s a brief overview of some of the most popular cryptocurrency trading strategies that are in use. 

Trading Strategies for Cryptocurrency

If you’re a beginner to crypto trading, it is of utmost importance to keep your strategies simple and clear. This way, you would be in a better position to implement them more successfully without getting confused. So, let’s take a look at some simple and easy to understand crypto trading strategies

 

 

1. Rupee cost averaging (RCA)

This is by far the best strategy for crypto trading that you can implement. It is a long-term strategy that involves purchasing cryptocurrencies in batches at regular intervals instead of going in for an all-out lump sum purchase. 

 

For instance, let’s say that you wish to invest Rs. 20,000 in a cryptocurrency. When you invest the entire amount outright to purchase it, the cost of purchasing remains fixed. However, if you invest Rs. 2,000 each month over a period of 10 months, the average cost of purchasing the cryptocurrency is likely to go down, especially if there has been a reduction in the price. 

 

Although this strategy takes a lot of time to implement, it has the ability to generate exceptional returns over the long-term. So, the next time you wish to trade in a cryptocurrency, make sure to spread out your investment amount over multiple months to leverage the price changes to your advantage.

 

 

2. Golden cross/death cross

Unlike the first strategy that we saw above, the golden cross and the death cross are slightly technical and require knowledge of technical analysis and moving averages. Here’s a brief look at these two trading strategies for cryptocurrency

 

The golden cross can help identify bullish market trends by examining two different moving averages – 50 day moving average (DMA) and 200 day moving average (DMA). Now, to identify the golden cross, the cryptocurrency must be recovering from a downtrend. Once the price of the crypto comes back up after falling, you would need to monitor the 50 DMA and 200 DMA respectively. You can use a charting tool for this. See if the 50 DMA crosses the 200 DMA at any point. If it does, then the point at which it crosses is the golden cross. And this signifies a bullish trend and that the price of the cryptocurrency is likely to go up from here. Once the golden cross is spotted, you can initiate your trades accordingly.  

 

The death cross, on the other hand, can help identify bearish market trends by examining the same two moving averages – 50 day moving average (DMA) and 200 day moving average (DMA). To identify the death cross, the price of the cryptocurrency must be going through a correction after a bullish run. As soon as the price of the crypto falls down after rising, start monitoring the 50 DMA and 200 DMA respectively. The point at which the 50 DMA crosses the 200 DMA is the death cross, which signifies the beginning of a bearish trend. Once the death cross has been confirmed, you can initiate your trades accordingly. 

 

 

3. RSI divergence crypto trading strategy

This is another one of the technical cryptocurrency trading strategies that traders love to use. Just like the golden cross and the death cross, the RSI divergence strategy also requires you to use a charting tool to help you spot the indicator. 

 

RSI basically stands for Relative Strength Index and is essentially a scale between 0 and 100. Traders typically use the 30 to 70 range of the RSI to determine whether an asset has been overbought or oversold. If the RSI indicator falls below 30, the asset is said to be oversold. And oversold assets have a chance of rising back up. On the contrary, if the RSI indicator rises above 70, the asset is deemed to be overbought, which means that the chances of the price falling down is high.   

 

Depending on where the RSI indicator is and whether the asset is overbought or oversold, you can initiate trades accordingly. But remember, the RSI divergence strategy is not fool-proof and there are chances of the asset not reacting according to what the RSI indicates. So, make sure to account for this when implementing this crypto trade strategy.

Summing up

Now that you’re aware of three of the most popular cryptocurrency trading strategies, why don’t you give them a try? But before you go around doing it, test these strategies out thoroughly using backtesting tools. This way, you will know whether the strategy will work for you or not. 

A quick recap

  • Rupee cost averaging (RCA) is a long-term strategy that involves purchasing cryptocurrencies in batches at regular intervals instead of going in for an all-out lump sum purchase. 
  • The golden cross can help identify bullish market trends.
  • The point where the 50 DMA crosses the 200 DMA after recovering from a downtrend is the golden cross. 
  • The death cross can help identify bearish market trends.
  • The point where the 50 DMA crosses the 200 DMA after correcting from an uptrend is the death cross. 
  • If the RSI indicator falls below 30, the asset is said to be oversold, meaning that the price is likely to rise back up. 
  • If the RSI indicator rises above 70, the asset is deemed to be overbought, which means that the chances of the price falling down is high.   



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