Cryptocurrency Trading Styles

Cryptocurrency Trading Styles

If you are interested in the cryptocurrency market or any other financial system and you want to take action, first you need to understand the concept of trading, as well as investing. When most people are first introduced to financial or cryptocurrency markets, it is through traditional investing. It is a more passive approach to gaining profit. Its goal is to build a fortune over time slowly.  An investor can achieve it by following a “buy and hold” strategy which focuses on the potential long-term increase in an asset’s value, disregarding its short-time price fluctuations. Trading, on the other hand, is an active technique of engagement in a financial market which aims to outmatch traditional investing. While investors’ goal is to earn from long-term uptrends or prospects by holding assets for long period of years, traders look for short-term strategies to profit in both bullish and bearish markets by finding opportunities to buy low and sell high. The timeframe for a trader can vary from seconds, minutes to months and sometimes years, depending on the trading style they have adopted.

trading styles

There are several trading styles, and some of them have overlapping features. You can use a variety of strategies to identify and realize opportunities in the cryptocurrency market. Here are the four most common trading types you can choose to adopt:

Scalp trading can be considered an extreme and very active form of day trading involving frequent and quick buying and selling within the trading session with no overnight holding. The goal is to make consistent small profits. Traders who use that style, hold the assets for just minutes or even seconds. This style is based on concentration, aims at the smallest intraday price movements and relies on a trader’s risk management skills. It requires time to constantly observe the market to take advantage of the slightest turn. This type of trading is for impatient and active traders who are good at making rational decisions quickly and under pressure.

Day trading involves buying an asset and then selling it on the same day. Positions are not held overnight, and day traders close all of them by the end of the trading day. Day traders only hold assets for minutes or hours, so they expect mainly minor to medium price movements and rely on regular small gains. This means traders need to commit and spend long hours analyzing the market and deciding when to buy and sell. It is not as impulsive as scalping, but it is still a very active trading style. It also requires quick action and risk management. To minimize the risk and losses, it is a good idea to trade with smaller amounts.

Swing trading is considered a short-term trading style with which positions are held for days or weeks with the goal to identify the overall trend and capture short-term market changes. Swing traders usually count on price action and technical analysis to pinpoint profitable trades, pushing aside the fundamental factors. Swing trading ignores small price fluctuations and doesn’t require constant monitoring of the trend. It makes sense for bigger positions and larger amounts of capital. This type of trading is suitable for more patient and calculative traders.

Position trading entails the most extended hold period of weeks, months to years. It is more comparable to investing than to active trading as it can be a combination of long and short trading strategies, and at times it might even resemble investing, as it uses a more passive approach than other types of trading. Most commonly short-term price variations are ignored in favor of identifying more major and lasting trends. Position traders use a combination of technical and fundamental analysis to determine future trends and identify potentially profitable assets. It requires less time spent on monitoring the market characteristics, but it also takes a lot of discipline and patience. Position traders may utilize both long and short-term strategies and profits while investing involves long-term positions and gains only.

Some styles are more likely to fit different people’s preferences than others. Your style depends on your personality, the time you are willing and able to dedicate and your goals. There are no strict rules as to which timeframes and techniques you will use, but still, if you know them well, understand the differences and acknowledge your strengths and weaknesses, you’ll be better equipped to navigate in the cryptocurrency world.