Cryptocurrency trading is a great way to make money in the financial market. The industry has grown rapidly, with all digital coins having a market cap of over $1.2 trillion. At their peak, these coins had a market value of more than $3 trillion.
In this article, we will look at some of the most popular trading strategies in the cryptocurrency industry and how they can be automated.
Trend following in cryptocurrency trading
One of the most popular trading strategies in cryptocurrencies is known as trend following. It is an all-weather approach that enables people to benefit whether asset prices are rising or falling. In case cryptocurrency prices are rising, people will make money by buying low and selling high. On the other hand, when prices are falling, traders benefit by shorting high and exiting low.
There are several approaches to becoming successful in trend-following. One of the most popular is that of using double Moving Averages. In this, a trader first identifies a cryptocurrency that is either moving upwards or downwards. After this, they apply fast and slow Moving Averages. Some traders use the 7-day and 14-day Moving Averages.
In this case, if the coin is in an upward trend, then the buyer will maintain a bullish trade as long as it has moved above the two MAs. Similarly, in case of a bearish trend, the trader will maintain a sell trade as long as it is below the fast and slow MAs. A good example of this is shown in the chart below.
There are other trend-following indicators that one can use. For example, some traders use indicators like Bollinger Bands, Donchian Channels, Ichimoku Kinko Hyo, and even Keltner Channels.
Automating this strategy isn’t sophisticated. For example, you can create a bot that executes a bullish trade as long as the price is above your preferred Moving Average. In this case, the exit trade will be executed when the price moves below the average.
Scalping
Scalping is another popular cryptocurrency trading strategy. It is a day trading approach where traders buy and sell assets within a short period. Unlike other forms of trading, extreme scalpers open hundreds of trades per day. Because the duration of their holdings is extremely short, these traders make a tiny profit per trade. But when you add the total profits, the approach becomes extremely profitable if used well.
Scalping differs from other trading and investing approaches in other ways. One of the most important differences is the length of the chart used. Since scalping is an intraday approach, traders use extremely short-term charts. It is not uncommon to see scalpers use a one-minute chart to execute trades.
There are several approaches to automate scalping. For example, some traders use the VWAP indicator to automate this process. For example, they can create an automated bot that will open a bullish trade when the price crosses the VWAP indicator.
Cryptocurrency reversals
Another popular trading strategy common among day traders is known as reversals. A reversal is a situation where a cryptocurrency that is moving in a bullish or bearish trend decides to turn around and start a new one.
The goal of identifying reversals is to capture a new trend early and then ride the wave for an extended period.
There are several approaches for identifying reversals. For example, many traders use chart and candlestick patterns to identify when a reversal is about to take place. Some of the most popular candlestick patterns that are used to identify reversals are doji, bullish and bearish engulfing, and evening and morning star. When these patterns form, it raises the possibility that a new trend could be on its way.
Meanwhile, there are other chart patterns that can be used to signal that a new trend is about to emerge. Examples of patterns that signal that a reversal is about to happen are falling and rising wedge, head, and shoulders, and double-top. The difficulty of these patterns is that it is extremely hard to automate them.
One of the easiest ways to automate the system is to use indicators like Moving Averages. When a fast and slow MA cross each other, it is usually a sign that a new trend is forming.
Copy trading in cryptocurrency trading
The next key trading approach in cryptocurrencies is known as copy trading. It involves copying other professionals and leveraging their experience and expertise.
First, identify a good broker or exchange that offers copy-trading solutions. A good example of them is eToro, which is one of the biggest brokers around. It was also the first one to introduce copy trading in the industry.
Second, use the research portal to find out more information about the professionals who are provided by the platform. Finally, enroll in their platforms and start earning money.
Swing trading in cryptocurrencies
The final strategy to use in trading cryptocurrencies is known as swing trading. It involves identifying a trend, executing a trade, and then holding it for a few days. Traders use a combination of strategies to implement this trade. The most popular one is known as momentum. It is the approach of buying a cryptocurrency whose price is rising and executing a trade.
There are several approaches for automating swing trades. For example, you can use the trend-following approach described above and then set a trailing stop loss to limit your losses.
Summary
There are many trading strategies in the cryptocurrency market. In this article, we have assessed the most popular approaches and how to automate them. While automation is a good approach, it also has its risks, which makes it important for a trader always to have risk management rules in place.
