Cryptocurrency is perhaps one of the investments that has the most risks for an investor. It hasn't been that long since the first cryptocurrency was created, so you can expect that volatility is quite high.
That's precisely why a lot of people think that trading this digital asset is no different from giving away money. Unfortunately, it takes time to figure out how crypto investments work. If you're a beginner, it would certainly take years to get the hang of an advanced strategy.
Nonetheless, profitable crypto trading strategies nowadays don't require in-depth knowledge of the market, or cryptocurrency in general, making it ideal for beginners. Below are four of these strategies:
The name might sound a bit intimidating, but this is simpler than you may think.
Arbitrage is a strategy where the investor buys cryptocurrency on one platform, also known as an exchange, and sells it on another exchange, typically at a higher price. It may seem like a stretch, but countless platforms buy and sell various crypto assets every day.
Finding a scenario where this strategy can take place isn't at all possible. It's pretty common, even. Take Bitcoin, for example.
At one point, Bitcoin had a higher price in South Korea than those in the United States. By simply buying Bitcoin in the US and selling it in the South Korean exchanges, traders could make quite a lot of profit. While the disparity between the prices wasn't anything considerable, it's still enough to profit.
Furthermore, since the wash sale rule doesn't apply to cryptocurrencies, there aren't any limitations to this crypto trading strategy. Perhaps the only problem is that exchanges have fees that can eliminate your profits, so you should take note of that, too.
Just like any other market, there are times when the crypto market is highly volatile. During these times of the year, traders can profit greatly by scalping, which is another profitable strategy for beginners.
Scalping is a trading strategy where the trader buys an asset if its price is low and sells the moment the price rises. It can also be the other way around.
Either way, it's a strategy that makes a profit out of small price movements, hence the name. While it might not look that profitable as the previous two strategies, traders believe that their earnings would pile up by doing this over a long period of time.
3. Dollar-Cost Averaging
Dollar-cost averaging is one of the most popular trading strategies out there. The process is fairly simple. Instead of investing your money into a cryptocurrency within a single day, you divide your investment into several trades and make each trade systematically. You can choose to invest the money weekly every Monday, or you can do it monthly, say every 6th. Either way, the choice is up to you.
For example, you may currently have USD$20,000 in 2015. Normally, you'd invest all this money in Bitcoin. But with dollar-cost averaging, you can split this USD$20,000 into 20 trades, which is USD$1,000 per trade. You then pick a day to invest this money, like Monday, for example.
Doing this allows you to minimize the impact of Bitcoin's volatility. When prices fall, your first few trades might've been a loss, but your next trades don't necessarily have to be a loss.
This is mainly because the trades were made at different times. Simply put, you're more likely to gain money and less likely to lose money on average rather than when you spend all your money at once, hence the name.
As you can see, it's simple, and it doesn't require much technical knowledge. Of course, you'll also have to figure out the best time to start investing. But another reason it's ideal among beginners is that you can automate it. There are numerous tools out there that can fully automate dollar-cost averaging.
4. Buy And Hold
You might already be aware of the buy-and-hold strategy. It's the complete opposite of scalping, where instead of buying or selling rapidly, you wait until a considerable amount of time has passed before selling your bought assets. Once your profit goal has been reached, you then proceed to sell the crypto.
It's the simplest strategy there is since you normally don't have to consider the timing. Of course, you have to monitor the performance of the asset once in a while, but that's pretty much it.
Crypto traders often believe that strategies with complex mechanics are the most profitable, but that's not true in the slightest. You'll find that some of the most commonly-used and profitable strategies are actually those with a simple concept.
That's precisely why the trading market is booming; it's open to all, including beginners. If you're one of these beginners, these strategies will go a long way in helping you establish yourself in the market.