Description: A trading system is very important for people who want to trade because it is a decision-making model. If it’s wrong, you can lose all your savings. In this article, we will look at how to work out a strategy and which strategy to choose depending on your goals.
The most effective trading strategies
You can either follow strict financial analysis or predict changes in the market. The crypto market is dynamic and volatile (take Bitcoin, for example). Not using a strategy will not just lead to not making any income but could well result in big losses. You need to know the basics of the price movements as well as when to hold, invest, or take out your money. The right strategy makes all the difference between a profitable investment and losing money.
Strategy formation scheme
You need a basic overview plan for the strategy’s release. First, figure out the signals to enter the market, then decide what instruments to use. Finally, think over your capital or trade volume and conduct final strategic analysis such as SWOT (strengths, weaknesses, opportunities, threats).
This relies on swiftly noticing small price fluctuations and reselling as soon as the price increases. It is dynamic and needs attention to detail. It is a short-run strategy for adrenaline-lovers.
- Faster returns on investment
- Simple and easy to learn
- Suitable for larger short-run profits
- The market can be difficult to predict
- Have to win trades one after another to reach high profits
- Requires more start-up capital
It implies acting on global economic and news events. This method requires little time and is quite simple, as you follow the majority of other traders’ signals.
- Requires little effort other than following global events
- It’s cheap and easy
- You can diversify and have higher chances of winning, as you can invest in more coins at once
- It’s quite risky and dependent on the market and other traders
- It requires research and attention to details
End-of-day trading strategy
This strategy includes investing right at the end of the trading day. It requires responsiveness and the ability to follow patterns. There is both luck and risk involved as you don’t know what will happen to the price of the coin once the market re-opens. You need to know the price dynamic of the cryptocurrency. If it’s in a downturn, it would be clever to consider investing right before it starts to increase again.
- The market changes often and quickly, so overnight success is possible
- It’s simple and good for beginners
- You should stay alert
- It’s risky as the price may drastically change in the morning
- You need to know the market well to predict price movements
The idea behind this strategy is to catch swings that occur over certain trading periods. Just a few winning trades can bring about large returns, and this strategy is very passive. Traders can watch out less for smaller chart movements and more for day charts.
However this strategy is not made for someone seeking fast profits. Significant returns come with the cost of waiting longer and employing the strategy properly. However, this still accounts for 90% of trading success, with the other 10% reserved for luck.
- Foreseeable market and price patterns based on data from a few days/weeks
- You can diversify to scale your profits upwards
- Good for new traders as it’s simple
- Higher gains on fewer trades
- Less involvement is needed in the short run; it’s meant for long-run portfolios
- High trading cost over longer time periods, thus higher risk
- You have to wait longer to enjoy higher profits
- Requires researching and analysing price data of several days/weeks
With this strategy, traders buy and sell within one day, even multiple times per day. The process is dynamic and requires thorough monitoring of the market changes.
- If done correctly, one can benefit from small price fluctuations. There isn’t much start-up capital required
- You can take advantage of the volatile, still infant crypto market by trading on price patterns
- You ought to buy at the lowest point
- Requires a lot of patience and discipline
- Liquidity problems (can’t cash out)
- Closing a position can sometimes be tricky (you have to use automatic stop-loss margins)
Which strategy to choose?
In order to have profitable investments, many traders don’t rely on intuition but technical analysis. Awareness of news, companies, market sentiments, and the market’s stage in the economic cycle are all factors that can shift the price of stocks or cryptocurrencies. A well-rounded approach is needed to ensure profits will follow.
To become a successful trader, you should not rely on one strategy. Professionals also resort to special software that can automate the process and help monitor the market and analyse lots of data.
Choose one of the strategies explained in the article, start small, and see how it goes. Eventually, you may be able to come out with something that works best for you.
Always remember your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money.