On the way to becoming an excellent cryptocurrency trader, ROKKEX posts educational articles that will guide crypto newbies in the world of altcoins, volatility, and market caps.
By this time, you might already know the difference between public and private key, disregard the FUD, and aware of 3 Don’ts in Cryptocurrency Trading. I believe it’s high time to share crypto trading strategies with you!
No, today we’ll teach you scalping, arbitrage, and volatility trading!
When trading and investing in the cryptocurrency, different currency pairs can behave quite differently depending on the trading strategy. Which currency pairs are better suited for a beginner and what you need to remember when choosing?
Most newbies can master the trading strategy called scalping. Technically, scalping is high-speed and high-frequency trading. A trader opens and closes positions very often: with a frequency of 1 to 15 minutes. Each transaction ideally brings a small profit. In sum, a small profit from each transaction pours out after a few hours into tangible numbers.
If we use limit orders and set the bid price a little lower ($198.5 for 1 ETH, for instance) than the last best price in the market ($200), this order will be completed faster than others (unless competitors kill it). After a successful purchase, you should try to sell at a price slightly higher ($201 for 1 ETH) than the last best price in the market ($200).
To make the described strategy more or less effective, it is worth knowing which trading pairs are suitable for it. First of all, this applies to pairs with a high spread, which is more than twice the size of the commission, and moderate movement.
If the asset fluctuates weakly, say, within 1–2% per day, the scalper will not earn much. Successful transactions will bring mere pennies, and no significant amount will be gained. Another thing is cryptocurrencies, which fluctuate within a day to 15–20%, or even 30%, and within a few minutes up to 1–2%. 1–2% in total bring good profit if the scalper is trading at least $100.
However, yes, scalping differs from other strategies in a high percentage of unsuccessful transactions.
Scalping is a temper, spirit, way of life. It’s nice to start trading with scalping as it will give you solid experience and knowledge of the market; however, it doesn’t mean that you’ll follow the strategy further.
A suitable environment for scalping is possible in a situation (unfortunately, quite rare) when the best bid price for cryptocurrency in one trading pair proves to be much more profitable than the price of the same cryptocurrency in another trading pair. Let’s explain everything with a specific example.
You can buy 1 ETH (ETH / USD) for $180, (for example), then sell (again at the current market price) for 0.0187 Bitcoin, and then exchange BTC for dollars at a rate of $10,696 for BTC. In this case, not taking into account all commissions, you can get a $21 profit, which is more than the initial amount.
This strategy is called arbitrage. It has three essential points:
- Waiting for a favorable situation can take a long time;
- The number of assets at a reasonable price can be minimal;
- The price can at any time cease to be so “good” before the completion of the transaction, that you will incur more losses than profits.
Having become accustomed to the market, you can switch to volatility trading (i.e., operations based on the movement of rates). It is generally described by the principle “buy BTC cheap, sell high” (DON’T MIX THAT UP, PLEASE!). Instead of BTC, you can insert any cryptocurrency to your taste. The main problem of this strategy is the exact choice of moment for acquiring an asset and exiting the transaction (the closer to the local peak, the better). For this strategy, it is necessary to choose trading pairs with high volatility.
The speed of acquiring skills to work with this strategy does not depend on the number of transactions. Until you gain enough experience (which can be understood from the positive dynamics of trading for at least a month), it is better to limit yourself to the minimum deposits for each pair. Please note that trading with unpopular trading pairs may not be so profitable due to an overvalued rate and small trading volumes.
If you doubt your skills, choose a pair with the minimum transaction volumes and the trading dynamics that suits you. Then start to learn a little (including your own mistakes) using small amounts until you feel more confident. You can choose two or three of such pairs.
It should be noted that the volatility of altcoin pairs (for example, DASH/BTC) is usually significantly higher than the volatility of pairs with BTC and fiat currency. That is why BTC-based trading involves less risk but also less income. It is also worth remembering that the optimal trading style for such unlike pairs can vary considerably.
Things to Remember
If the rate of cryptocurrency is growing for several days and weeks (such as the price of BTC in April and May 2017), with a little patience, the trader can always profit, even if the time to enter the market wasn’t prosperous.
However, such a light profit is very deceptive: when the boom ends with a recession and a long decline in the course, it turns out that newcomers who already considered themselves practically gurus cannot adapt to new conditions. As a result, their losses significantly overlap their income (this effect is most pronounced with pairs of altcoins, for example, ETH/BTC).
Therefore, it is best to arrange a test period of several months during which crisis periods will be replaced by boom periods. If, after numerous tests, you manage to maintain a positive trend, you can begin to invest more significant funds.
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