There is no denying that the cryptocurrency market has boomed in the past couple of years. Ever since Bitcoin became such a talking point, people have been looking for the next big thing in cryptocurrency. However, with this, there has been a lot of people who are trading without any background knowledge or research. To say this is a risk is a massive understatement.
Successful trading comes down to having a strategy in place. If you’re new to trading, some of the terms may be confusing. Here we look at five of the most common: the Bollinger Band Strategy, Moving Momentum Strategy, Pullback Strategy, Breakout Trade Strategy and Range Strategy.
Developed by John Bollinger, Bollinger Bands are a strategy employing three lines and can be used in crypto markets and others. The three lines (or bands) include:
You can use the Bollinger band technical tool for a lot of different currencies. It gives you a visual depiction of where a price is going to bounce. This tool is used for measuring and visualising price volatility within the market. As you might know, the cryptocurrency market can be very volatile (you find more information here).
This tool will automatically adjust based on the conditions in the market. A lot of traders use this approach to determine if a market is oversold or overbought, and when could be a good time to buy and sell.
There are several benefits of Bollinger Bands. They can help you spot and follow trends using the 20-day SMA, determine potential areas which have been overbought or oversold, spot breakouts to help you determine whether a market is cheap or expensive, and identify high probability reversal trades. Because Bollinger Bands contract during periods of low volatility and get bigger during high volatility, they are especially useful for newcomers who find it hard to spot such fluctuations.
Momentum is actually one of the most common indicators used to try and predict market sentiment. There are a number of different ways you can measure momentum. Here are some examples:
Momentum is something that should be used across all strategies. However, the moving momentum strategy is a specific momentum-based approach.
This is advisable for cryptocurrencies that are trending up or down. With this strategy, you let a trade run if it is profitable. The process is as follows…
This is similar to the former strategy. However, you put a profit level or price. That is why it works well with a set ratio, for example, 1:2. So, let’s take a look at this tried-and-tested approach in further detail.
What is a pullback? This simply represents any type of price movement that goes against the prevailing trend. This essentially means that you are going to be buying at a low price and selling at a high price, if you execute this trend properly, of course, which is where our software comes in.
Another reason why this strategy is so popular is that it is beneficial from a psychological point of view. This is because the trend is working out for you, which makes it a lot easier for manner traders in terms of self-control and seeing the strategy through.
This is a good strategy for anyone who is starting out because breaks have clear entry areas. Plus, there is no guessing when you should pull the trigger on entry and exit, which makes rich management a lot easier.
Let’s take a look at how a breakout trend occurs:
Trading breakouts can lead to big price moves. It is all about spotting breakouts that you believe are going to lead to a big price move and have a high level of profitability.
So, how do these breakout trends cause such large price moves? Why do they happen? Let’s explain:
Finally, we have the range strategy. This is the best choice for trading beginners, so it is definitely worth considering if you are just starting out. You will set a buying price and a stop below price, so it’s good for minimising risk. The most important part of this strategy is the first step, which is finding the right rage. You can use support and resistance zones to establish these.
Find a series of short-term lows and highs to create these zones, using horizontal lines to connect the areas. Support is the area whereby the price is held up by traders looking to buy into the market. Resistance is the overhead range where you will look to sell. The importance of a good trading platform and easy-to-use software cannot be undervalued when it comes to this approach.
Underpinning the Range Strategy is the idea that prices will swing back to the mean, helping traders time their entries. To use range trading, traders must spot areas of resistance and support, also known as overbought and oversold levels respectively.
The intention is to buy in a support market and sell during resistance. As such, Range Strategy is commonly employed (and most effective) when there is no clear direction and the market is moving up and down without signalling a longer-term pattern.
Range Strategy can help determine the levels for inner swings as ranges on a chart depict a stated high and low horizontal channel. This can point to a possible movement in price in the opposite direction. The strategy can also highlight potential trends so that traders can move early and benefit from an advantageous Reward to Risk ratio.
These are just two options in a vast sea of cryptocurrency trading strategies. You might find some strategies work better than others or at certain times of market activity. The best way is to try them for yourself and follow expert traders to see which you prefer.
As you can see, there are a number of different cryptocurrency trading strategies you can use today. You should never simply dive right in without doing your research and determining the best strategies for you. Here at nextmarkets, our aim is to help private investors to make better decisions so that they can be more successful. With the nextmarkets trading platform, you can use different strategies, including those mentioned in this post, to intuitively trade over 1,000 CFDs on commodities, currencies, bonds, and stocks.
Christina studied culture and linguistics at the Goethe-University in Frankfurt, Germany. After graduation, she began writing articles for online newspapers and magazines. She also continues working in SEO, digital marketing, content marketing and online cooperations. In her spare time Christina enjoys spending time with her family and friends in sunny Malta.