Trading cryptocurrency can be high-risk and high-reward. While it can bring you more money than you would ever need in a lifetime, it can also cause you some serious financial strain.
Truth be told, trading cryptocurrency can be very hard—and very risky.
So, if you are just starting out in crypto trading, it’s vital to arm yourself with the right strategies. By doing so, you will greatly improve your chances of success.
Beginner Crypto Trading Strategies
Here are three battle-tested, crypto trading beginner-friendly strategies for beginner traders.
Strategy 1: Dollar Cost Averaging (DCA)
If you are in it for the long haul and want to mitigate investment risks as much as you can, DCA may work for you. DCA works on the principle of breaking your initial investment capital into smaller bits and then spreading them over time.
For example, let’s say you want to buy $1,000 worth of Bitcoin. Rather than investing the whole sum at once, you can split it into five units of $200.
Then, you invest each $200 unit once a week at regular intervals—say, every Wednesday. In five weeks, you would have invested the entire $1,000.
This strategy will help to cushion your investment against market volatility.
The best part is that in the end, you will have more Bitcoins than if you had invested the whole sum in one go.
What’s more, you can automate your trading by using software like Coinrule.
But if you prefer the manual approach, try to use a spreadsheet to track cryptocurrency trading. Apply discretion when placing a trade. Only buy a coin when its price dips to red. That is to say, the right time to buy a crypto asset is when its price has dropped below where it was 24 hours ago.
Strategy 2: The Golden Cross and Death Cross
The Golden Cross/Death Cross is another trading strategy that works well for long-term traders.
To follow this strategy, observe the mean average price of a coin over a long period of time on a trading chart. Technically, this is known as a Moving Average (MA).
Now, there are two MAs to pay attention to when employing the Golden Cross or Death Cross strategy: the 50-day MA and the 200-day MA.
The 50-day MA is the average price of a coin over a 50-day period. The same applies to the 200-day MA.
The golden cross occurs when the 50 and 200 MA converge. That is when the 50 MA crosses above the 200 MA on the trading chart.
When these two MAs converge, it’s an indication that a lot of crypto investors are bringing money into the market. This is the best time to buy.
Conversely, the death cross happens when the reverse occurs: 50 MA crosses below 200 MA. When this happens, we say that there’s a divergence. A divergence is indicative of investors exiting the market. At such a point, it’s probably a good time to bail and close out your position.
As you will have noticed, the Golden and Death Cross strategies all work based on moving averages.
Once you get comfortable with the concept of MA, consider looking into the EMA trading strategy for cryptocurrency. EMA stands for Exponential Moving Average.
Strategy 3: RSI Divergence Crypto Trading Strategy
One of the skills you need to develop as a crypto trader is the ability to time and predict a trend reversal. This is where the Relative Strength Index—or RSI for short—divergence trading strategy comes in handy.
RSI looks at the average losses and gains a particular coin has made over a 14-day period. They are then plotted on a scale of 0 to 100, with an indicator line oscillating between both extremes.
However, 30 and 70 are the two extremes that are usually observed.
Whenever the indicator line rises above 70, it’s a signal that the price of a coin will soon drop. The reason is that it’s been overbought and has lost some value.
But when the line drops below 30, it’s indicative of an imminent rise in price. This happens when a coin has been oversold.
While the RSI is to a large extent efficient, it’s always advisable to apply caution when using it. This is because it can sometimes show misleading signals.
With all that said, RSI divergence is a trading strategy that takes account of the difference between the price of an asset and the RSI indicator.
Whenever a significant change is registered, it’s a sign that buying or selling volume is about to reverse.
How to Find Undervalued Cryptocurrency
Finding an undervalued cryptocurrency is fairly easy and not so different from finding an undervalued stock.
First, do a background check on the creators of the coin. If they are known names in the crypto sphere, the coin will most likely sell well.
After that, check the marketplaces where they are traded. Usually, a coin with great potential starts off on platforms like Binance, Coinbase, Bittrex, etc.
Then check the price stability of the coin. If it has been stable for a reasonable long period of time, go for it.
You can also take a step further by finding out if any popular company has partnered with the coin. If so, it means the coin has some credibility.
When looking for undervalued coins to buy, also keep an eye out for cryptocurrency penny stocks to buy.
7 Cryptocurrency Penny Stocks to Buy
The upsurge in the prices of big cryptos like Bitcoin, Dogecoin, and Ethereum has created once-in-a-lifetime opportunities for investors: crypto penny stocks.
To this end, investing in crypto penny stocks is one wise step you will want to take.
Following Cryptocurrency ETF news can help you find these stocks. Here are seven cryptos you should keep your eyes on:
- HIVE Blockchain Technologies
- Life Clips
- Defi Technologies
- Sphere 3D
- Ebang International
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