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The crypto bull market is upon us. Many tokens are rising with the bull market tide, making it a great time to trade cryptocurrencies.
However, market risk is ever-present; therefore, traders are advised to prepare well before entering the market.
In this article, you will find some of the best crypto trading strategies practiced. You will also learn about AI-powered crypto trading strategies to assist in your investment journey.
Key Takeaways
- Day trading, trend following, and crypto futures trading are some of the popular crypto trading strategies.
- Traders are advised to put risk management tools like stop-losses into place.
- Crypto futures allow traders to use leverage to gain oversized market exposure.
- HODLing and DCA are long-term investment strategies suited for beginners.
- AI-powered crypto trading strategies remove cognitive bias and help monitor crypto prices 24/7.
Top 5 Most Popular Crypto Trading Strategies to Use
1. Day Trading
Day trading is a popular form of trading where individuals buy and sell crypto tokens within the same trading day. Day traders depend on identifying market trends and technical analysis to guide their crypto day trading strategies.
Although day trading appeals to those looking to make quick gains, it can also lead to losses during highly volatile markets.
Crypto day trading is often accompanied by the use of leverage, which has the power to amplify profits and losses. Inexperienced traders are advised to learn how to day trade crypto first before making big bets.
Day Trading Bitcoin
Simplified example:
You bought Bitcoin on March 11, 2024, at $67,829
You closed your position the same day, having sold Bitcoin at $68,574
Your profit is: $745
Simplified example:
You bought Bitcoin on March 11, 2024, at $68,912
You closed your position the same day, having sold Bitcoin at $67,805
Your loss is: $1,107
2. Trend Trading
Trend trading or trend following is a crypto trading strategy where traders buy or sell cryptocurrency based on the prevalent market trend.
Traders use technical indicators like trendlines, moving averages, and relative strength indices (RSI) to identify market trends. Once a notable crypto market trend is identified, the trader may choose to buy a crypto token that is on the rise or short a token that is seeing selling pressure.
Trend trading is best suited for mid-to-long-term crypto trading. However, traders must use risk management tools like stop-losses and limit orders to protect themselves from market volatility. Trend following is also used in crypto trading bot strategies.
3. Crypto Futures Trading
Trading crypto futures is an advanced crypto trading strategy that allows traders to speculate on crypto price movements and hedge against market volatility.
Perpetual futures are a popular crypto instrument that does not have an expiration date like traditional futures contracts.
Market participants mainly trade crypto futures contracts due to the availability of leverage.
For example, if a trader wants to go long on futures contracts worth 1,000 ETH, they will have to deposit amounts as low as 1% of the trade value.
The same trade would cost them about $3.8 million at current ETH prices of $3,800 per token.
4. HODLing
HODLing is a long-term crypto investing strategy popularized by early Bitcoin (BTC) investors who buy and hold BTC through bull and bear markets.
The term HODL is a play on the word “hold” and is understood to be an acronym for “hold on for dear life.”
HODLing originated as a bitcoin maximalist philosophy and advocated that true crypto believers would hold on to their tokens through market crashes and bear market cycles.
History has shown that HODLing can be a profitable crypto trading strategy for BTC and Ether (ETH) investors.
Over the last five years, BTC and ETH have returned over 1,600% and 2,700%, respectively, as of March 11, 2024.
5. Dollar-Cost Averaging (DCA)
Dollar-cost averaging (DCA) is a popular investing strategy that requires investors to invest a fixed and equal amount of capital at regular intervals, regardless of the state of the market.
DCA is well-suited for long-term investors. With time, the DCA crypto investment strategy can reduce the impact of price volatility. It also reduces the risk of irrational investment decisions and prevents poorly-time lump sum investments.
A Bonus Section: AI-Based Crypto Trading Strategies
Traditionally, algorithmic and AI-powered trading strategies have only been available to financial institutions, investment houses, and hedge funds.
Today, retail crypto traders can have access to AI-powered trading strategies via decentralized asset management platforms.
Techopedia spoke with experts in the AI and crypto investment field who shared five lessons for traders looking to use AI-powered trading strategies.
Crypto Trading Is a “Confined Learning”
Daniel Guan, the CIO at Kvants AI, a decentralized asset management platform that offers access to AI-enabled trading strategies, told Techopedia that one of the critical lessons crypto traders should keep in mind is that cryptocurrency trading is a “confined learning.”
According to Guan, what essentially AI is doing when used for crypto trading purposes is that it is trying to understand how the token is moving and how a particular user can benefit from that. He said:
“Machine learning is learning what it needs to know, like all the token prices in crypto and altered financial instruments, prices in the traditional world, and all sorts of macroeconomic news. In that sense, when AI learns this content, it generates models that try to predict price movements and then goes trading.”
AI Helps With Spotting Trends
One of the biggest upsides of using AI when trading crypto is the technology’s ability to analyze vast amounts of data in significantly short amounts of time. This skill helps AI crypto traders with decision-making in cryptocurrency trading, Vikas Kaushin, the CEO of TechAhead, told Techopedia.
Kaushin said:
“AI assists in spotting patterns and trends in the market that human traders may overlook because of cognitive biases. This provides more informed judgments that are supported by data, which eventually leads to better outcomes from trading.”
Crypto Trading Is 24/7
Unlike traditional markets, cryptocurrencies are trading 24/7, which could potentially be one of their trickiest aspects. No trader is able to stay up for 24 hours, seven days a week, meaning that many could potentially lose on great buy or sell opportunities during times when they are unavailable.
Kvants AI’s Guan noted this is why they have developed an AI-helping tool that aids investors with monitoring the crypto market 24/7. He said:
“We actually have a license in Singapore that allows us to manage the assets for our small clients. In that sense, clients’ assets are aggregates in finance, so like a custody service, such an aggregated account is managed by AI strategies that can react very fast to the market.”
Traders Have to React Fast to Market Trends
It is a truth universally acknowledged that cryptocurrency markets are highly volatile, which means that crypto traders must be quick when it comes to making important decisions.
Relaying his past experience in traditional finance, Guan noted that if crypto traders rely on some traditional financial strategies, their judgment may not be reactive enough for the volatile crypto market. Guan said:
“AI and machine learning are actually very suitable for this world because they can provide swift reactions and an adaptive learning environment to work with. In that sense, whenever something new happens to a cryptocurrency’s price, traders can always learn something and try to react to it.”
Risk Tolerance Is Vital
AI’s ability to quickly analyze big data sets has another major pro – the ability to spot and potentially mitigate risks.
TechAhead’s Kaushin explained:
“AI traders can implement particular risk management measures, such as stop-loss mechanisms, portfolio diversification according to an investor’s risk tolerance, and real-time monitoring, to effectively reduce the likelihood of potential adverse outcomes.”
Moreover, Guan said that risk management is a key issue in the financial industry and should be a key priority for crypto investors, too, especially because of the high volatility that the industry experiences.
“When a risk event happens [in crypto trading], investors need to decide whether they reach this event or not. And if they choose to react, they must react as fast as possible. That is why AI has an advantage, as it can make decisions based on the information it has processed over the years.”
The Bottom Line
Crypto investors must tread with caution when trading cryptocurrencies regardless of the bullish market sentiment.
Crypto bull markets tend to be highly volatile and can catch traders off guard, therefore it is crucial to assess your risk appetite and place risk management systems.
