By Hassan Mehmood (Saudi Arabia)
Introduction
Crypto trading and any other type of investment can be a tough challenge. Both professional and amateur investors can struggle with picking the right cryptocurrencies and using the correct strategies. Even if cryptocurrency investors have found the best-performing digital assets, it does not guarantee that they are going to win.
In case cryptocurrency traders do not know about the perfect time to sell or purchase the best-performing picks, they can still face losses. Therefore, learning to pick the best cryptocurrency trading plan is crucial, and this article will help the reader figure out the best trading strategies to ensure growth and success for their portfolios.
What is a Crypto Trading Plan?
Cryptocurrencies are digitized forms of money that operate as peer-to-peer and decentralized currencies. Cryptocurrencies are meant to be used as a substitute for paper money, and they have gained popularity as an investment option over the last decade.
Cryptocurrency investors spend a lot of time finding the best-performing and viable cryptocurrencies to create a new trading portfolio. However, without the perfect cryptocurrency trading plan, investors would not be able to take advantage of their portfolios.
Therefore, cryptocurrency investors must have a well-balanced and solid trading plan. A cryptocurrency trading plan constitutes all the trading strategies and technical analysis options that will allow them to find the best options for purchasing and selling cryptocurrencies. Bitcoin is considered the top cryptocurrency in terms of performance and price momentum.
However, if a Bitcoin holder purchases the crypto when it is over-bought and sells it when it is over-sold, they are going to end up with losses. If cryptocurrency selection is like picking the best horse for a race, then cryptocurrency strategy is betting on the best jockey to navigate the horse to the finishing line.
Why is it Important to Pick the Best Crypto Trading Plan?
Imagine a person with a lot of capital and a massive cryptocurrency portfolio. There are so many cryptocurrency options available in the marketplace that a person can’t select the best options for adding to their portfolio. For professional investors, it is not a matter of luck to find the best trading pairs.
Furthermore, even the top cryptocurrency traders don’t keep placing bets on every cryptocurrency to find the best-performing options. The only viable way to get the best options for creating a new cryptocurrency portfolio is to understand technical analysis.
When it comes to trading, there is no right answer. Depending on time and macroeconomic factors, the profitability ratio for different cryptocurrencies can keep changing.
At one point, if one cryptocurrency is highly profitable, the same coin can become harrowingly bad performing based on the rotation of the business cycle.
Additionally, cryptocurrency brokers who have mastered the art of performing technical analysis can even make profits with the most challenging crypto options because they are aware of the correct time to sell or purchase the asset. Therefore, understanding cryptocurrency trading plans is very important for every cryptocurrency trader.
How to Build a Crypto Trading Plan?
Goals and Benchmarks
Defining goals and benchmarks before cryptocurrency trading is very important. If the investors do not have a set precedent before them, they are never going to be able to become successful. Setting goals entails how much percentage of profits the investors are opting for.
In this manner, cryptocurrency investors can have a clear picture of what they are aiming for. With goals in mind, cryptocurrency traders can work on adopting the best crypto trading plans, and they will be able to close and open new positions without getting distracted by the market’s speculative forces.
Trading Journal
Cryptocurrency traders who have managed to achieve real success are those who keep a journal. From day one, cryptocurrency traders should start jotting down all their observations, plans, failures, and successes in a dedicated journal.
Writing down about planning is one of the best ways to become more coherent about a given issue. At the same time, it is a great option to stop repeating mistakes in the future and fix the lags in the trading plan.
Technical Analysis
Technical Analysis often sends cryptocurrency investors down the confusion spiral. However, there are so many options available for every trader. Anyone with a little work experience and a college degree can learn to read technical analysis and use data arrays to find out the correct answers.
Starting from the most basic technical analysis tools, cryptocurrency investors can create a workable plan. It is best to define the source of data and data aggregators, such as the on-chain option. Furthermore, investors can keep updating their technical and analytical methods as they go along.
Trading Style
Several trading styles are used by professional investors. These professionals have made a profit from their techniques and have written books to share them with the world. Some investors are more comfortable with shorting, while others like to play with bullish positions.
In the same manner, cryptocurrency investors can also benefit from variations in holding periods. It is up to the trader to choose which trading style is closer to their comfort, and by perfecting this option, they can create the best trading results.
Trading Period
The trading period can have a significant impact on trading output. Some assets perform well if they are in possession for long durations. On the other hand, some assets only create good profits in the short run. Traders can go for options like scalping, day Trading, Turtle Trading, Swing Trading, and many others options.
Also read:Trading Strategy
There are several different types of technical metrics, such as RSI, Cost Averaging, Bollinger band, Double Top or Double Bottom, Moving Averages, ROE, and Fibonacci Retracements, etc. Depending on a singular technical metric is a bad idea.
The investors should pick a series of technical analyses to devise a working trading strategy. They must write it down and make sure to keep updating it by gaining more knowledge. Depending on a well-defined trading strategy is going to prevent investors from making emotional decisions.
Risk Management System
Without a viable contingency plan, the portfolio of the best traders in the world can linger under the threat of total annihilation. Technical analysis and trading strategies are ways to lessen the trading risks as much as possible.
However, markets are always subject to unprecedented turns. Therefore, smart investors have the plan to cut losses in case of an unwarranted market movement.
Top Cryptocurrency Trading Strategies
It has been established already that cryptocurrency trading without a viable plan is like placing bets and getting willingly into a financial scam. Here are some of the most popular cryptocurrency trading plans that investors can adopt for their benefit:
Short-term Trading
There are several short-term trading options for investors who are just getting started or those who wish to take profits without waiting for years. At first glance, it can seem like a greedy way that can lead to losses. However, some of the most successful investors and mathematicians have perfected short-term trading techniques over the years.
Therefore, cryptocurrency investors can follow these instructions to multiply their investment capital. Most popular short-term trading techniques include options like Day Trading, Turtle Trading, and Swing Trading, among others.
Investors must understand that all short-term trading techniques require them to follow technical analytics and logical reasoning and refrain from making emotional decisions at all costs.
HODL
HODL is a new term created by the internet and directed at instructing cryptocurrency investors to purchase and hold cryptocurrencies for a long duration. Professional investors treat cryptocurrencies closer to commodities rather than stocks.
Therefore, the idea of purchasing cryptocurrencies and retaining the portfolio for a long duration can increase the chances of maximizing profits for investors despite massive volatility.
Futures Trading
Futures are trading contracts that allow investors to purchase or sell cryptocurrencies at a predetermined price after the expiration of a given time. Cryptocurrency investors are placing a bet that a certain cryptocurrency is going to gain or lose a certain price after a given time.
Regardless of the market price, future holders can purchase or sell a cryptocurrency at a price mentioned in the contract. Futures holders can choose to pick put or call options depending on their decision to use a sell or purchase position.
Futures trading requires a strong grip on the fundamentals and technical, analytical evaluation. Therefore, it is best to use this option under the supervision of a broker or after getting some formal trading training.
Arbitrage
Arbitrage trading is the oldest form of investing. Investors purchase the trading asset from a market where it is lesser in price and sell it in a market where it can fetch a higher price. The same principle can be applied using the shorting technique.
There are also dedicated cryptocurrency Arbitrage platforms, such as FTX, that allow investors to make a profit by comparing prices for the same asset in different exchange markets.
High-Frequency Trading
High-Frequency Trading, or HFC, is a method of cryptocurrency trading that allows investors to make big profits using despite small profit margins. Cryptocurrency traders are often faced with massive market volatility.
Therefore, they prefer to create and dissolve positions on a short-term basis. However, in most short-term trading options, the investors are only able to earn a small percentage of profits.
Therefore, they can use the technique of increasing their investment capital and thereby increasing the size of their overall profits despite the small profit margins. One way to increase capital size is to work with leveraged trading.
However, it can also increase the trading risk significantly, and even fractional changes in the price movement can wipe out the investment potential and trigger a margin call. Therefore, this leveraged trading is ideal for experienced traders who have a big enough risk appetite.
Dollar Cost Averaging
Dollar Cost Averaging, or DCA, is a type of long-term trading option. This method entails that cryptocurrency investors not only determine their desired profit goals in advance but also set aside their trading capital.
DCA is a method of investing where investors can keep accumulating new assets at regular intervals. The first option is to generate a baseline portfolio. After that, traders have to purchase a set amount of said crypto regardless of market performance. DCA diminishes the risk of sustaining losses from the market on a long-term basis.
At the same time, it also saves the investors from starting with a massive trade capital or relying too much on technical analysis.
Scalping
Scalping is a popular short-term trading technique. Investors use historical analysis and other technical indicators to find out the inefficiencies of the market. In this manner, investors can make a massive profit while others are impervious to these small windows of opportunity.
However, scalpers have to make their profits using big margins to increase the bracket of their profit percentage.
At the same time, the duration of scalp trading is very small that can last from a few minutes to a day. Whale investors usually adopt this technique by identifying the inconsistencies of a trading pattern.
Ranges
There are several types of order placement options available for cryptocurrency investors. Based on the order type, traders have started to use it as an opportunity to ensure profits. Range trading refers to the method where the investors mitigate trading risk by using cover orders or the type of orders where selling and purchasing prices are determined in advance.
In this manner, investors have great control over their trading and profit margins. It is a good way for traders who are only getting started.
Crypto Index
Index trading is a very popular option with stock traders. All the major stock exchange markets in the world have an index that tracks the performance of the 10, 50, or 500 best companies in the region. Some examples of popular indexes around the world are S&P, Dow Jones, NASDAQ, Bovespa, DAX, Euro Stoxx 50, IBEX, BIST, and Nikkei 225, etc.
The same rule can be applied to the cryptocurrency market, and investors can place safe bets on cryptocurrency indexes rather than taking the risk of investing in individual cryptocurrencies. Some of the most popular indexes in cryptocurrency markets are ETFs such as Spot Bitcoin ETF and decentralized options such as Pulse Index.
These indexes track the performance of the top cryptocurrencies and generate profits for investors by removing the chances of losses.
Trend Trading
Trend Trading is a peculiar type of cryptocurrency trading. This option grants investors the power to purchase and hold a given cryptocurrency for a few months. The main tracker for performance for the said trading plan is the market sentiment, the impression among the investors, and trend reversals.
As long as a cryptocurrency is gaining traction among investors, it is going to keep gaining price momentum. The same is true for a bear run for a cryptocurrency which can become profitable by using shorting techniques.
However, this type of trading can increase the risk potential of losses by a massive fold; therefore, investors should hone the ability to read market signals and not get swayed by market manipulation factors.
Advantages of Cryptocurrency Trading Plan
Here are some of the most important pros of adopting a cryptocurrency trading plan:
Risk Mitigation
When cryptocurrency investors follow a proper trading plan, they are working on reducing the risk of losses. Rather than using the cryptocurrency market as a bet-placing platform, cryptocurrency traders can understand the market dynamics and make informed decisions.
Therefore, they do not depend on their luck to become richer, but they use their mental prowess to grow as an investor and improve their trading skills.
Decision Making
Under the pretenses of cryptocurrency trading plans, investors can find it very easy to make decisions. They will not feel confused or lost before selling or purchasing a new cryptocurrency product. At the same time, they would not be manipulated by the speculative news spreading in the market and have a clear picture of what to do and what to refrain from.
Learning Curve
A cryptocurrency trading plan can improve the net worth of an individual in terms of their skill level. Even if an investor ends up with losses, the experience is going to help them grow as an investor and gain more experience. In this manner, these investors can benefit on a personal level, and they can find the motivation to utilize their time and skills constructively.
Profitability
Profitability or the ratio of profit percentage is directly proportional to the trading experience and dexterity of an individual investor. Rather than letting the swing the fortune and chance control their fate, the cryptocurrency investors using a trading plan are taking control of their future.
Therefore, they can gain more and more control over their profit percentage and make sure that their chances of becoming successful keep increasing.
Conclusion
There is no tailor-made recipe for success when it comes to using a cryptocurrency trading plan. However, rather than shooting the dart in the dark, cryptocurrency trading plans allow the investors to hone their senses to gauge depth perception and wind velocity, etc. Therefore, their chances of hitting the bull’s eye become more likely as they develop and improve their cryptocurrency trading plan over time.
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