12 October 2020
Bitcoin started a modern-day cryptocurrency “gold-rush” after it launched in 2009.
It took a few years for people to catch on to how big a deal it is. But between blockchain technology, decentralized currency, or even smart contracts, Bitcoin is the grand-daddy of all modern crypto.
That said, altcoins, or cryptocurrencies other than Bitcoin, can be a very profitable opportunity for investors and traders. It’s like commodity trading (gold, silver, oil) in many ways. This allows us to create an altcoin trading strategy despite an immature trading atmosphere.
Are you looking to start trading, and need help with your altcoin trading strategies?
Top Altcoin Trading Strategies
Top Short-Term Altcoin Trading Strategies
Short-term trading of crypto doesn’t involve knowing the ins and outs of how it works. It’s beneficial to know if what your trading has solid ground under it. Individual puts don’t always rely on tons of specific research like trading in company stocks, but rather on market movement.
The idea of “buy on a rumor, sell on news” doesn’t always apply, but can.
To see why let’s look at the different forms of short-term trading for crypto:
- Day trading
- Swing trading
- Automated trading
Each of these trading strategies has pros and cons, especially when it comes to scalping and automated trading. It can be very profitable to do short-term sales if you have your eye on a few select tokens or coins and keep up to date with related news. What do all those terms mean, though?
Day trading is very similar as it is in most other sectors like forex and commodity trading. Day trading is when you open and close positions in the span of a day, an hour, or even a minute to take advantage of market movement throughout the day.
Gains or losses in day trading are quick, but usually not high. Although, there are exceptions. Day traders tend to love volatile markets like cryptocurrency altcoins as big changes in price can span across hours, not weeks like in more traditional equities markets.
Swing trading is a longer-term strategy than day trading, but still quite short. While day trading traders try to enter and exist a position within less than a day, swing traders work with slightly longer timelines.
Swing trading timelines usually span anywhere from a day to a week. This strategy takes advantage of the mid-term market “swings” in price.
Swing traders often like to capitalize on expected movements to particular cryptocurrencies based on upcoming events such as the Ethereum 2.0 update that should be coming soon.
Scalping is a style of trading meant to exploit an inefficiency in the market’s ask and bid spread between two brokers, or with one single broker. Many brokers outlaw this practice, which we call arbitrage or spread scalping. Like day trading, it creates a lot of small gains but gives more control over the process.
It’s extremely complex and fast-paced, which means most scalp traders use some form of automated trading techniques. To scalp, you’ll have to be at least cursorily acquainted with how automated trading works. Novice traders should be cautious when dabbling with automated trading.
Top Altcoin Long-Term Trading Strategies
Long term holding (or “hodling” as it’s called in crypto circles) altcoins can be difficult when the market for altcoins, in general, is so volatile. That said, it can be a very profitable strategy that also requires much less time than more active strategies.
In a single day, there are heart-stopping plunges with heart-pounding increases in the case of nearly every crypto. That can be exhausting for long-term investors who monitor their portfolios frequently.
For this, you may want to decide whether a stop-loss is for you or not. If you are confident that a current dip that could take you below your stop-loss before shooting up, you may want to suspend it. Although, there’s never a sure-thing in markets like this.
There’s a huge benefit to being a long-term trader, which is closer to investing than trading. If you get in early on an ICO and then you sell several years later, you could have increased your initial investment by 1,000s or 10,000s of percent.
Friendly reminder: NEVER invest more than you are willing to lose.
Managing Risk When Trading Altcoins
DYOR (Do Your Own Research)
One way to manage your risk is research.
ICOs or Initial Coin Offerings can be very exciting and offer large returns in short periods of time but are usually incredibly speculative. Some things to research before putting your money into a new, speculative asset are:
- Who the team consists of
- What problem the team is addressing
- Does this problem seem realistically addressable?
- Is the team qualified to successfully launch and manage the company?
- Any potential red-flags like:
- Guaranteed returns on investment
- Fake advisors
- Unrealistic promises
- Unwillingness to answer questions about the project’s timeline or future plans
Researching your token purchases before you decide to trade on it is the best way to manage your risk. Going in blind will burn you.
The idea of diversifying your portfolio is an age-old practice that nearly all experienced investors believe to be valuable in managing risk. By purchasing small amounts of many altcoins rather than large amounts of just one or two, you increase the likelihood that at least one will significantly outperform the rest and lead to more positive net returns.
This is true with stocks, commodities, derivatives, and cryptocurrencies.
Considering Dominance and Ratios
At times, it could prove very useful to shift a majority of the value from one token to another, while not completely consolidating your portfolio of altcoins. Checking Bitcoin’s market dominance in comparison to altcoins is a useful tool that traders often look to for identifying trends.
For example, the ratio of gold and silver against each other has helped people manage market fluctuations and know in which they should invest for ages as they can be indicative of the future of each. It’s handy that gold and silver ratios can be traced back for a couple of thousand years, but that isn’t the case with crypto.
Still, learning how to read the dominance and ratios of crypto market shares in comparison to each other can help you retain value compared to fiat currency.
However, in moments of low dominance, altcoins can gain value more quickly relative to Bitcoin or to each other. It’s worth researching strategies of buying and selling on dominance, especially for short-term traders.
Choosing the Best Altcoin Trading Strategy for You
Hopefully, we’ve helped you to find a general direction in the world of altcoin trading strategy. Ultimately, there are as many strategies as there are traders. It’s best to find a strategy that matches your own trading style and be disciplined in following it.
Ultimately, it’s important to understand that any type of asset trading comes with risk and it’s unlikely you’ll make a perfect trade every time. You win some, you lose some. The proof of a good strategy comes only with the test of time and access to the best resources possible.
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