What Are The Best Crypto Trading Strategies?

2 Dec 2023 by Rory Kejzerko 10 min read

Another way to describe robust crypto trading strategies is ‘proficient methods that balance the risks and rewards that come with crypto trading’.

Whilst also needing to be easily trackable, devising the best crypto trading strategies has never been so important, as with Spot Bitcoin ETF developments signalling the onset of the next crypto bull run, now more than ever is the time to get your portfolios in check.

That’s why in this article we’ll explore the different cryptocurrency options on the market, in order to explain how extracting maximum profits comes with intelligent diversification

Crypto Trading Strategies - Understanding Risk & Reward Dynamics

An in-depth understanding of each crypto’s respective risk and rewards requires hours of thorough research, however in a more general sense, risks and rewards can be understood through learning about the different coin categories.

Further, cryptocurrencies can be broken down into three categories depending on their market caps; large cap ($1+ billion), mid cap ($100 million - $1 billion), and small cap (less than $100 million).

Such figures are calculated by multiplying the amount of coins in circulation by their respective price.

As a general rule, large cap coins - such as Bitcoin ($BTC) and Ethereum ($ETH) - are seen as ‘low risk, low reward’ - as they’ve typically been around longer. As you move onto projects with lower and lower market caps, the associated risks and rewards typically increase.

As simple tokenomics suggests, this is because large projects require a lot of inflows/outflows in order for a price change to occur, whilst the value of smaller project tokens are far more sensitive to demand changes.

There’s also a fourth category…stablecoins. Such assets manifest as cryptos that are pegged to fiat currencies (such as USDT and USDC), as well as commodities such as gold.

Contrary to their name, stablecoins pose risks through instabilities that come with being pegged to sometimes-volatile assets, as well as the fact that their centralised nature means that they can be frozen at any time.

So what do you guys think on #Tether freezing transactions linked to criminal activity? ????

Who decides what's criminal? A move to show power? Or are they making sure we're safe? ????

Should @Tether_to be involved in stuff like this? I'm not sure how I feel about this.????#Crypto…
— CRYPTOPRESALE (@cryptopresalehq) November 21, 2023

Now that the four types of crypto projects have been outlined, it’s now time to explore how each can be leveraged as part of succinct crypto trading strategies.

Here, there’s often a pattern when it comes to different DeFi niches occupying different ‘cap’ tiers, meaning crypto trading strategies also often involve ‘niche diversification’ concerns, as well as concerns that focus on the projects themselves.

And as a general rule of thumb, it’s wise to hold a maximum of 12 different cryptos…as if you splurge on dozens, the likelihood of staying updated on each’s performance is low.

Large Cap Cryptos (Niches Rule)

As previously stated, large market caps offer stability as ‘low risk, low reward’ options.

The largest crypto - by market cap that is - is Bitcoin, which is widely considered as the only ’store of value’ available in the cryptosphere. Therefore, if ’storing value’ on the blockchain is something you’re after - with the high chance of reaping some sort of gains in the future - Bitcoin is a popular investment route to go down.

Away from Bitcoin there’s Ethereum… a blockchain that countless projects - from all corners of Web3 that is - are building on. With such demand in mind, Ethereum is not only the second largest crypto in existence, but it’s also crypto’s second best ‘store of value’.

That being said - and as the altcoin leader - Ethereum is constantly met with competition from other Layer-1 solutions that boast smaller market caps (and therefore bigger reward opportunities).

The likes of Cardano and Solana come to mind here…two projects which like Bitcoin and Ethereum, are smart contract-enabled cryptos. Further, with 3-4 being the optimal number of high market cap coins to invest in, Layer-1 solutions that adopt highly-touted smart contract fundamentals may be a productive route to go down.

Mid Cap (Use Cases Rule)

The majority of mid cap tokens fall under the remit of ‘utility tokens’ - that is, they’re used to power particular DeFi use cases, such as on-chain data collection, powering centralised exchanges (CEX), or being the governance token of a Web3 game.

Unlike large cap coins that are driven by the niche they’re in, mid cap crypto investment decisions should largely depend upon the use cases of the tokens in-question, in addition to their actual premises (i.e. factors such as founders and communities etc).

Additionally, tokenomics plays a big role within mid cap coins, as they largely manifest as ’tokens’ as opposed to ‘coins’. For context, ‘coins’ are often referred to as the native currencies of each blockchain - e.g. ETH for Ethereum - and they often face organic demand through being required for network fees. On the other hand, tokens receive demand through the explicit utilities they offer.

With this in mind, investing in a diverse range of mid cap ‘coins’ with different use cases and utilities could be a wise way to fill up your mid cap allocation spots. Also known as infrastructures, these fall in the realms of networks, marketplaces, tools, authentication, mining, node operation, and more.

Or in contrast, if you believe a particular blockchain use case is gearing-up to explode, investing in tokens from such domain could be a profitable - albeit risky - strategy.

Low Market Caps (Speculation Rules)

In short, speculation is the name of the game when it comes to ‘high risk, high reward’ low cap cryptocurrencies.

This is because nascent projects are often in development for a while, meaning demand for the token can’t come through organic means such as tangible use cases or utilities. Instead, demand - and therefore valuations - stem through speculation.

The most speculative of all altcoins are those that seek to disrupt the status quo…where despite toppling the likes of Ethereum and Bitcoin would be extremely difficult, the ambition alone can lead to massive price pumps.

With this logic in mind, the trick to successful crypto trading strategies when it comes to mid cap tokens is to follow the ‘narrative’ of a project…a sentiment that essentially encapsulates the entire memecoin space.

Low market cap coins often sell for abnormally small prices that are a fraction of a cent. Here, small prices indicate small market caps, which therefore indicate bigger gains to be had.

As a general rule, the small market cap projects that pump are often those that appeal to retail investors…meaning a proficient practice is to identify which projects may resonate with the masses.

Small cap projects are also always temporary in nature, meaning cashing-out as close to the top as possible is often an immediate concern. To conquer this, a general rule of thumb is to ‘get out’ once you observe retail investors pouring in.

Further - and after taking profits - you could then rotate funds into high and mid cap portfolios, and perhaps use your initial investment fund to fuel another degen trading endeavour.

Stablecoins

Decentralised stablecoin projects - a movement that’s still getting underway - is another interesting area to explore, as in essence, a decentralised stablecoin is what many consider as the holy grail of crypto.

This is because through being both decentralised and stable, they are the epitome of what a thriving and mass-adopted digital currency would look like.

In going back to mid cap investment choices, the native coins of decentralised stablecoin protocols - such as MakerDAO’s $MKR - may be an exciting area of investment, as with mass adoption for the project’s decentralised stablecoin $DAI, mass demand for MKR will come.

However, as of today, the decentralised stablecoin landscape is still plagued with regulatory uncertainty, meaning investments in this crypto genre need to be diversified.

On the more traditional end of stablecoin matters (such as USDC or USDT) these coins can gain interest through providing liquidity for stablecoin pairs on DEXs, or lending on borrowing protocols. In turn, there are multiple ways to earn a passive income using stablecoins, and in certain cases, even earn yields directly from the assets backing them.

You can visit this article to see which mainstream Ethereum-residing stablecoin is for you, as well as our article covering PayPal’s entrance into the space via its $PYUSD coin.

And when it comes to stablecoins that are backed by commodities, these are often infused with a whole host of transparency, support, and volatility concerns that you need to DYOR on. That being said, Paxos’ PAX Gold ($PAXG) is widely touted as the safest gold-backed stablecoin on the market.

The Best Crypto Trading Strategies - Conclusion

As a reminder, 12 is the maximum amount of projects you should be investing in at only one time. Here, large cap investments should relate to niches, mid cap investments should focus on use cases, and low cap investments should be based on the speculation at hand.

Of course, a huge caveat in devising the best crypto trading strategies is each trader’s personal risk tolerances. Here, those with free capital to spend - as well as without liabilities and/or debt - are able to venture into riskier strategies via low and mid cap options, whilst those with lower risk tolerances should venture into large cap tokens like Bitcoin (in order to reap smaller but more-certain gains).

Additionally, coins and tokens in the same niche/use case tend to rally together, meaning a diverse portfolio that’s comprised of different ‘crypto niche investments’ is a proficient method of mitigating risks.

And on a final note, there are thousands of mid and small cap projects out there, meaning by virtue, getting to grips with demand patterns and future projections is a massive DYOR task in of itself.

… and on a final (final note), always remember to seek cold storage options for any coins that you’re not actively trading!

The Best Crypto Trading Strategies - FAQ

How Do I Apply Strategies in My Crypto Trading?

Now that you have a grasp of the fundamentals of cryptocurrency trading strategies, the next step is getting started. Follow our simple guide for initiating your inaugural cryptocurrency trade:

1. Create an account or log in to your existing one. This will grant you access to the cryptocurrency market.

2. Gain an understanding of how the cryptocurrency market operates and select a specific coin to concentrate on. Given the multitude of options, keep in mind the significance of diversifying your crypto portfolio.

3. Formulate a trading plan based on the aforementioned strategies. Opt for a plan that resonates with your personality and aligns with your risk tolerance.

4. Initiate, monitor, and eventually close your initial position. Alternatively, consider opening a demo account to hone your cryptocurrency trading strategies using virtual funds.

Is Crypto Good For Daily Trading?

Bitcoin continues to be the preferred option for numerous day traders. It stands out with its high liquidity, substantial trading volumes, and a mature market infrastructure. The price of Bitcoin is known for its pronounced volatility, presenting abundant opportunities for day traders to capitalise on short-term price fluctuations

What Do Most Crypto Traders Use?

Numerous cryptocurrency traders employ support and resistance levels as strategic markers to speculate on price direction, adjusting their approach dynamically as the price breaches either the upper or lower limits. Once traders pinpoint the established floor and ceiling, it establishes a designated zone of activity wherein traders can strategically enter or exit their positions.

Can You Make $100 a Day With Crypto?

Given sufficient capital and a disciplined strategy, achieving an average daily profit of $100 through cryptocurrency trading is attainable. Day trading, characterised by its swift nature, offers a potentially lucrative avenue in the cryptocurrency market, with the prospect of realising gains of up to 8% within a span of just 16 hours.

What Is the 5 Minute Trading Strategy In Crypto?

Utilise a 5-minute timeframe and concentrate on intervals when the market is in a state of equilibrium. Recognise support levels, where the price commonly rebounds, and identify resistance levels, where the price tends to reverse its upward trend and move downward.

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