With crypto trading, it’s essential to understand that many strategies that worked in the past still work today.
This is because there are so many similarities between old and new-school markets: both markets move quickly and unpredictably, they’re heavily leveraged, and traders often “chase performance” — meaning they buy high and sell low. With this post, we will introduce you to a few of the most famous old-school trading strategies and how they compare to new-school trading techniques.
The first strategy we’re going to cover is “buying dips,” or buying into a market when it’s been falling for an extended period. For example, if you notice that BTC is rising, you may decide to buy a small amount of BTC (say $100) and then wait until the price falls. When the price finally does fall, you can quickly buy more BTC for a better return on your investment. With INX cryptocurrency trading, it’s straightforward to get started: you can make your first deposit on the platform simply with Bitcoin and then conduct trades via USD, EUR, or GBP.
Pretending to sell low, but then buying high
The second strategy we’re going to explain is “pretending to sell low, but then buying high” or “pretending to sell high, but then buying low.” For example, you may notice that BTC is now trading for $10,000 and decide that the price is just too high. As you let out a sigh of relief and think that this crypto market is nuts — a coin you’re bullish on suddenly drops in price from $11,000 down to $9,000. You then decide to short (bet on a coin falling in price) your long BTC position by selling your coins at $9,000. While the BTC price continues to fall, you may decide to buy back your coins at $8,000 and have your position return to where it was before — in other words; you’ve made a profit.
If you’re thinking how easy it would be just to buy that coin on the way down and sell it on the way up yourself, then you’re correct. Doing so is called scalping, and although it sounds simple enough — it’s not a viable strategy for most people. Scalping requires fast reflexes and lots of market experience to open and close positions as quickly as possible. As a general rule of thumb, if you’re going to the scalp, use a small amount at first — this way, if the coin does not hit your desired price, you’re not risking too much money.
Buying high and selling low
The third strategy we will explain is “buying high and selling low” or “bouncing from coin to coin.” This strategy will be used in the next section of this post. It is based on the old-school pattern recognition method known as technical analysis. Technical analysis is the study of price patterns for various coins and market indicators that can be used to predict future price movements. One popular set of indicators used by technical analysts is the Relative Strength Index (RSI). As you may already know, this indicator uses five different moving averages to demonstrate how solid or weak a particular crypto coin is. Generally, the price movement within a cryptocurrency’s price range will fluctuate between one of these moving averages. For example, if you have a coin that’s currently trading for $10 and its RSI plot looks like this:
It can be seen that BTC has been staying within the confines of its lower and higher ranges for quite some time now — which means it isn’t likely to break out of its current ranges anytime soon. These price ranges, or “bands,” can be used to form trading signals. To put it simply, we will buy a coin when it begins to break out of its range and sell a coin when it falls back into its range shortly after that.
Buying low and selling high
The fourth strategy is known as “buy low and sell high” or “capital appreciation” and is the same as the previous strategy, but instead of selling your coins to buy back in at a lower price, you hold on to them until they rise again — then sell them.
Bouncing from coin to coin
We’ve covered most of the strategies traders used during their heyday. We haven’t mentioned “bouncing from coin to coin.” This strategy works exceptionally well in volatile markets, as it allows traders to make money by playing a game of “follow the leader.” How it works is simple: to minimize your losses, you must have several coins of similar value.
- First, you purchase many low-cap coins with very similar risks and opportunities. Of course, this will require more significant sums of capital than most traders will typically be able to raise — but it can still be done.
- Once you’ve bought your coins, you then monitor their performance. As the market begins to rise, you should see the price of your coins increase as well.
- Sell off your coins slowly and purchase a new batch of low-cap coins when this happens.
- You can then repeat this process repeatedly — as long as the market is volatile enough to justify it.
With volatility being a critical factor in determining whether or not this strategy will work for you, it’s vital that you understand crypto volatility and how it works:
- A volatile market experiences sudden changes in price over a short period (usually less than 24 hours).
- If a market is known to be volatile, then it can be assumed that the price of coins will fluctuate significantly. This is because a volatile market usually experiences “breakouts,” meaning that once the price breaks out of its current range, it will head in whatever direction it was predicted to move in by technical analysis methods.
- A non-volatile market, on the other hand, experiences gradual changes to its price over an extended period (usually 24 hours or more).
- If a coin’s price ranges are expected to remain stable for an extended period, then there is less room for volatility — which means that you won’t see as big of price swings within 24 hours or even a week.
Most traders will often try to trade against the trend rather than join it — and this is a common mistake. After reading this article, you should better understand the strategies that worked for traders during the crypto boom. By analysing the techniques commonly used by traders during the boom and comparing them to traditional technical analysis methods, you can determine which type of trading method will work best for you.
Remember that volatility is the biggest factor when determining if this strategy will be profitable for you. If you are new to crypto trading, you should probably stick to trading against the trend until you better understand how your favourite coins function and what kinds of patterns they tend to form over time.
We hope that the strategies presented in this article will help you achieve your goals and encourage you to test them out for yourself. Happy trading!