The cryptocurrency market is growing and more and more traders and investors are interested in it. However, it is a complex and volatile market where it is important to be well prepared and have a solid strategy. Here is a complete article that will tell you 3 important steps on how to define your crypto trading strategy.
Step 1: define your crypto investor profile
Evaluating your investor profile is a key element in the foundation of your investment strategy and, thus, your financial success.
Defining your investor profile is determine your tolerance for investment risk. In other words, before setting up your investment strategy, you need to ask yourself what level of risk you are willing to take.
As a general rule, when it comes to investing, the higher the return, the greater the risk.
Determine if you are comfortable with investments whose value can fluctuate quickly, or if you prefer investments whose capital is guaranteed.
It helps investors, like you, to choose suitable investments. For example, if you need to protect your money and your time horizon is short, you can follow a more conservative strategy.
An investor profile is therefore a summary of an investor’s financial objectives, financial situation, time horizon and risk tolerance.
To determine your investor profile, you can directly write down your goals (horizon, risk tolerance) and draw conclusions if you are familiar with financial investments.
Otherwise, you can find it on many sites (including those of the AMF or banks and management companies) standard questionnaires that will tell youdepending on your answers, your investor profile.
This will allow you easier sorting of investment products (stacking, farming, volatile altcoins or bitcoin) as well as the strategies to be favored (scalping, day trading, technical or fundamental analysis, etc.).
By knowing your investor profile, you are ready to take the next step in building your portfolio: the type of investment and the strategy.
Step 2: Learn the main crypto trading strategies
You need a proven strategy to profit consistently from the cryptocurrency market.
Having a strategy allows you to keep your focus amid the constant stream of newseconomic data and market events that may interfere with your analysis.
Intuition trading can be profitable occasionally, but it is difficult to be profitable on a regular basis and in the long term. Therefore, a strategic trading approach is required.
The cryptocurrency trading strategy is a built method to plan and carry out the transactions you follow.
Trading strategies usually define the details of the trades to be made, when they should be made, when they should be exited, and the amount of capital you should risk on each position.
Your crypto trading strategy is a specific plan that you design to achieve returns positive to buy or sell in the crypto markets.
There are many trading strategies, but we will focus on the most popular:
Scalping a popular trading strategy in the crypto market. This trading strategy allows traders to take advantage of small price movements at regular intervals (positions in seconds or minutes) using leverage and a tight stop loss to manage risk.
Day Trading is to enter and exit positions on the same day. As such, day traders seek to take advantage of intraday price movements, that is, price movements that occur within a single trading day.
Day traders trade on a longer time frame than scalpers but often close their positions on the same day. Day trading strategies are designed using technical analysis.
Transactions made on swing trading usually lasting more than a day, but not more than a few weeks or months. Therefore, some people refer to this strategy as a medium-term trading strategy because it sits between day trading and position trading strategies, giving traders more time to think. about their decisions.
Position trading allows traders to hold trading positions for a long time (hodler). It could be months or even years. Traders using this strategy generally ignore short-term price movements and focus more on long-term trends.
Position traders also use fundamental analysis to assess potential market price trends and consider other factors such as market trends and historical patterns.
The practice of buying cryptocurrencies in one market and selling them in another market to take advantage of price differences is known as arbitrage trading. The trader can profit by taking advantage of the quote difference between several exchanges.
The cryptocurrency market has become more professional (robots) but arbitrage opportunities persist.
Apart from trading strategies, cryptocurrency investors can also turn to stacking and farming platforms to earn passive income (which is not without risk, the money placed in a crypto-currency that may collapse and cause a loss greater than the interest received).
Step 3: define your crypto strategy and manage your money
Your personality and the time frame in which you choose to trade will determine your trading style. When developing a trading strategy, the amount of time you plan to spend trading is an important consideration to make.
There is no “best” trading strategy that can be generalized and used for everyone, because it is very dependent on each trader. Instead, the “best” trading style is the one that works for you.
Creating a cryptocurrency trading strategy that fits your financial goals and your personality is not an easy task.
After checking the construction of your investor profile and some of the most popular crypto trading techniquesyou need to know which one is right for you.
Keep a journal where you record the results of your trades so you can easily determine which ones are really successful and which ones are not. To do this, pay close attention to your predetermined rules and write down the consequences of each of your strategies.
Cryptocurrency trading is very profitable if done right. However, if done incorrectly, you can suffer many losses, some of which will never be recovered. So, there are good trading habits that every trader should follow.
One of those habits is having a money management plan. Money in cryptocurrencies, like any profit-oriented business, is a valuable asset that must be managed critically using a money management strategy.
Money management is a financial strategy that determines how a trader invests their money in different crypto-assets. Money management determines when a trader enters a trade, how much volume they buy, and when he had to finish his day.
Money management helps you smoothly navigate the pressure of trading in the financial markets. It teaches you patience and tolerance and above all, it aims to protect your main working tool: your trading capital.
With these 3 simple steps, you can start developing a strategy that suits you in terms of profile risk and investor with strict money management.
You can now write a trading plan that you will refine as you test according to the most effective strategies that suit your profile. In the end, all you have to do is follow it!
Want to learn the strategies and basics of cryptocurrency investing and trading? Do not hesitate to follow the complete Crypto Rider training to learn all the keys to success in your crypto trading: