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Types of cryptocurrency trading and their benefits What types of cryptocurrency trading are there? In cryptocurrency, as in other financial assets, there are many trading options. They generally differ in terms of duration: there are trades that end up targeting the short term, while others may be designed for a longer period. So, let's take a look at the different types of cryptocurrency trading available to you. We will also look at their advantages and disadvantages. We will also comment on the complexity of each option to guide you towards the most suitable alternative.
Although cryptocurrencies are considered decentralised assets, they are not exempt from the problems affecting more traditional assets. After all, many external factors can affect the cryptocurrency market: international economic events, political factors, and decisions that can be directly related to the cryptocurrency world. In addition, cryptocurrencies are characterised by increased volatility, which also requires special caution when trading this asset. In sum, all these aspects will affect not only price fluctuations, but also your trading strategy.
Due to the many factors that can affect the cryptocurrency market, it is extremely important to choose the optimal trading strategy that best suits each individual trader. Therefore, we strongly recommend that you only enter the cryptocurrency market once you have developed your trading approach.
Scalping is a rather popular type of cryptocurrency trading that focuses on very short periods between the opening and closing of a trade. The main idea of this type is to enter and exit the market very quickly, profiting from small changes in the price of assets. Traders who stick to this type of trading are called scalpers and can make up to several hundred trades per day.
It is important to note that scalping is an extremely risky trading strategy, as it is oriented on time frames from several seconds to several minutes. As a rule, it is followed by the most experienced traders on the market, who also do not mind taking risks. This strategy is especially popular when the cryptocurrency market is highly volatile. Even if traders wait for a small movement before making a decision, they do not wait for a real trend to form. By then, it may be too late to enter or exit the market.
In the case of day trading, the name already says a lot about the method and its features. In intraday trading of cryptocurrencies, the trading period cannot exceed one day, and the position can be closed much earlier. Even if the position remains open longer than in scalping, this strategy is still considered short-term.
Proponents of this strategy usually make about ten trades per day. Intraday trading is also an elaborate trading method based on technical analysis by traders. After opening and closing their trades, traders can safely go home at the end of the day without worrying about any more trades.
This is a much more established strategy among short-term traders, as they rely on market analysis and certain warnings. Nevertheless, to be effective in this field, you need to have a good knowledge of technical analysis as well as a pretty good grasp of the financial market and its trends.
When using this trading method, cryptocurrency market specialists focus on longer-term operations. As a rule, their duration exceeds several days or even several weeks. For those interested in trading and cryptocurrencies, this strategy is good because it can be used in parallel with other work, as the emphasis is on a more spaced out time frame.
This means that you don't have to constantly sit in front of a screen and watch the curves of your favourite cryptocurrencies. Of course, this method of cryptocurrency trading has both advantages and disadvantages. A trader can potentially make more profit by leaving a trade open longer. Conversely, he could see his cryptocurrency drop overnight and accumulate more losses.
This trading option remains a softer option and is more suitable for less experienced traders, but requires a basic understanding of the market and an awareness of external factors that can affect the price of an asset.
This cryptocurrency trading strategy involves much less risk. Volatility and market fluctuations are less important to monitor. Moreover, this method is open to everyone as it does not depend on indicators or market trends. Unlike scalping, which is very short-term, DCA is based on a long-term strategy. The method is based on regular investments, so it can be compared to an investment rather than a trading operation.
The basic idea is to allocate your investments in such a way that you are not dependent on the vagaries and unpredictability of the cryptocurrency market. The premise of this strategy is that this regular entry into the market allows you to reduce the volatility of the asset, compared to a lump sum payment. Why is this so? Buying at regular intervals allows you to smooth out the average price.
Depending on your investment profile and the capital at your disposal, you can invest independently of market fluctuations on a regular time scale. These can be weekly or monthly investments. In the end, you will usually end up with more of the cryptocurrency you invested in than if you had bought it outright. While this cryptocurrency trading strategy is suitable for beginners, it is often followed by experienced traders as well. Sometimes they use this method along with short-term trading to maximise profits on at least a portion of their investment. Sometimes they can even make up for losses on other strategies, as DCA is often a winning strategy.
As the name suggests, this method of cryptocurrency trading is entirely event-driven. As a result, trading activity can be centred around a specific cryptocurrency or the entire cryptocurrency market. This will depend on the type of event and its impact (good or bad news). Indeed, a more international or important event, such as the SEC attack on Binance, could potentially affect the entire cryptocurrency market. Even more so if the regulator starts compiling a list of assets that will be affected, such as securities.
Cryptocurrency trading offers a wide range of opportunities for different types of traders, from those who like short trades to those who prefer longer-term strategies. Each form of trading, be it scalping, swing trading or the DCA method, has its own advantages and risks. Success in this market depends not only on the strategy you choose, but also on your understanding of its volatility, the influence of external factors and your ability to adapt your approach to changing conditions. Regardless of your experience, the key to successful cryptocurrency trading is a conscious choice of strategy and constant learning.
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