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A standout feature of the cryptocurrency space is the crypto market. The price action of digital assets such as Bitcoin regularly makes headlines as BTC swings upwards and downwards. These wild price swings are actually a traderās dream, as market volatility creates trading opportunities that can be capitalized on. However, successfully generating high returns from market volatility requires a strict trading strategy. There are various ways with which traders approach trading in the crypto market, letās take a look at some of these strategies.
1. Arbitrage
A staple trading strategy is arbitrage trading. This strategy is all about capitalizing off the price differences of an asset that can often exist in two separate markets. For example, it is possible to buy an asset at a lower price in one market, and then sell it at a higher price in another market. This is made possible because different levels of supply and demand will exist in different markets. Arbitrage trading is especially effective in the crypto market because buying and selling cryptos such as Bitcoin can be done on a number of different exchanges. It is often the case that there are slight variations in the price of digital assets across exchanges. For example, the price of Bitcoin could be $10,000 on Binance, but be slightly higher on Coinbase at $10,100. With arbitrage trading, traders are able to exploit these pockets of price differences that can exist between crypto exchanges.
2. Swing Trading
Swing trading is another trading strategy that is also very well-suited to the volatility of the crypto market. With swing trading, you are able to effectively profit from the wild price swings that often occur in the market. The key behind being a successful swing trader is being able to time these price swings. Also, having an automated capability to enter and exit trades quickly is also beneficial for a swing trader. Crypto trading bots and crypto signals (e.g. Binance signals) are tools that are often found in a swing traderās tool kit.
3. Fundamental Analysis
This strategy is unlike the other two trading strategies because there is much more focus on the underlying value of the asset being traded. Fundamental analysis is all about determining the intrinsic value of the asset in question. The hope is that, by buying undervalued assets when the market doesnāt recognize its true value, the asset will eventually see significant price appreciation as the asset gradually becomes recognized for its true worth by the wider market. Metrics such as the Price to Earnings Ratio and Earnings Per Share Ratio are often employed to determine the true value of an asset. However, these metrics are less effective in the context of cryptocurrencies given the fact that we are dealing with digital assets and not companies. Instead, indicators such as the idea of the cryptocurrency and the strength of the development team must be used to determine if a digital asset is undervalued.
In conclusion, trading in the cryptocurrency market can be extremely lucrative. However, consistently generating high returns in the market is only possible for those trades with a strategy and a strict trading plan. Figuring this out can take some time, however, this will vary from trader to trader, and itās worth putting in the effort at the beginning of oneās trading journey to figure out what works well.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.