Trading the highly volatile assets can lead to substantial profits, especially when combined with superior trading tools such as 100x leverage, further amplifying their wealth-generating power. Find the right cryptocurrency trading strategy for you. Cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin, and EOS, are an emerging financial technology and digital asset class.
Much like stocks, commodities, or forex currencies, these digital assets can be traded in financial markets on cryptocurrency exchanges or professional trading platforms.
Bitcoin and many other cryptocurrencies are decentralized, digital assets that act as a transfer of value, store of wealth, or as a payment currency. They can be sent peer-to-peer across borders without the need for a central authority or third-party to validate transactions – it’s all through a self-sustaining process called proof-of-work. Not all cryptocurrency work through this mechanism and others provide additional utility such as smart contracts and more. The potential behind the technology is as promising as their ability to generate profits for investors and traders. Because the asset class is only ten years old, most of its earliest days were spent as a vehicle for investment.
But later, as Bitcoin and other cryptocurrencies matured into what they are today, they became highly traded assets standing alongside the likes of commodities, precious metals, or even equities. During Bitcoin’s meteoric rise into the public eye, the first-ever cryptocurrency rose from under $1,000 to an all-time high price of $20,000 before the asset fell into a bear market. The bear market is when Bitcoin and other cryptocurrencies truly became a trader’s asset class, rather than a more typical investment.
Falling prices led to extreme volatility, with plenty of peaks and troughs for traders to profit from as cryptocurrencies trended downward toward their bottom. At its bottom, Bitcoin fell to as low as $3,200, all the way from $20,000 – showing just how wild the price swings are across the futuristic asset class. Those who took the common cryptocurrency investment strategy to “hold on for dear life” watched their investments fall over 84%.
Meanwhile, traders who opened up a 100x leverage short at $20,000 and closed it at Bitcoin’s bottom would have earned over $1,680,000.
Those who recognized this early on in the bear market not only came out of it profitable in terms of USD value and total capital, but also grew their Bitcoin holdings significantly – holdings that could increase in value exponentially during the next bull market, providing yet even more incentive to consider cryptocurrency trading. Bitcoin price predictions reach as high as $100,000 to one million dollars per BTC, so there’s enormous upside potential. So the next time that you see a Bitcoin price drop, remember that the best way to prevent losses is to learn cryptocurrency day trading.
The following guide offers various tips and tricks to teach you how to day trade crypto using many proven successful cryptocurrency trading strategies, how to utilize the best crypto indicators, and how to spot crypto trading patterns that can make you money fast. In no time at all, you’ll learn how to make money trading Bitcoin, manage risk, and perform detailed technical analysis all without a trading course.
Fundamental Analysis vs Technical Analysis
Fundamental analysis deeply analyzes the underlying factors that give an asset value, making it a good investment or not. In traditional assets like stocks or commodities, company financials or manufacturing reports can be a barometer for fundamental analysis. But cryptocurrencies often lack utility or a centralized authority that gives the asset value. Instead, value is derived from things like scarcity, or the value being transacted across each cryptocurrency’s underlying blockchain network.
Some traditional fundamental analysis still applies, such as considering a project’s white paper or the team backing a product.
But fundamental analysis is more for investors who are considering which long term entries to take, while technical analysis is geared more for traders who seek to use the practice to gain a competitive edge in the market. Technical analysis is the study, practice, and analysis of chart patterns, indicators and oscillators, and the candlesticks themselves that make up price charts of assets like stocks, cryptocurrencies, forex and more. In the next area of the guide, we’ll outline which are the best indicators for cryptocurrency to gain an edge when trading potentially helping to minimize risk and bolster profitability.
Best Indicators for Cryptocurrency Trading
Scanning through the available indicator list on TradingView, and you will find hundreds upon hundreds of technical analysis indicators. PrimeXBT has narrowed this list down to over 50 of the most important and helpful indicators for trading cryptocurrencies. These include the Relative Strength Index, Moving Averages, TD Sequential, Stochastic, Ichimoku, Williams Alligator, and many more.
Here, we’ll highlight the very best, easiest to learn, and the most successful of the technical analysis indicators that work best for cryptocurrencies like Bitcoin, Ethereum Ripple, Litecoin, and EOS.
Once you’ve mastered how these tools work across the cryptocurrency market, these tools can also help traders get a competitive edge in forex, commodities, stocks, and more. That’s why it’s worth spending time sharpening your trading skills and learning all there is to know about risk management.
Relative Strength Index Crypto Trading Strategy
The Relative Strength Index is the first indicator we’ll explain due to how straightforward it is to use for an effective, profit-generating trading strategy that regularly yields positive results. In the Bitcoin daily price chart below, a long signal is issued by the RSI indicator when the indicator falls below 30 on the RSI. Traders can tweak this based on their comfort levels, for a more strict or loose approach, depending on their risk appetite. The most conservative entries prevent losses, but only the most extreme moves will be traded.
When the RSI rises above 70, a short signal is triggered. This also can be adjusted depending on risk tolerance.
Pros and Cons of Relative Strength Index
- The Relative Strength Index is a technical analysis indicator first developed by J. Welles Wilder that measures the strength, speed, and change of price movements.
- The RSI can top off traders when trends are running out of momentum and a reversal could follow, and also indicates when an asset is currently oversold or overbought.
- The RSI is easy to read, and even easier to use to build a successful trading strategy, especially when combined with chart patterns, candlesticks, and other formations.
- It’s generally considered among the safest strategies providing very few cons. However, traders should experiment with their sensitivity for what they consider oversold or overbought, or else positions may be taken early, leading to losses.
Moving Average Crypto Trading Strategy
Look at any chart – even the most basic charts on most cryptocurrency exchanges – and the Moving Average is included in some format, whether it is exponential, simple, or dynamic. Using these important lines can lead to profitable trading setups when price passes through the moving average.
In the chart below, a long or short signal is triggered when price passes through both the EMA 12 and EMA 26. However, it works across a variety of moving averages and timeframes. Experimenting can lead to substantial profits.
Pros and Cons of Moving Average Crypto Trading Strategy
- Moving Averages are simple mathematical formulas designed to better analyze individual data points across a series of time periods to produce a visual tool that traders can utilize to signal when or not to take a position or enter a trade.
- Moving Averages can also be used to plan exit points or set stop-loss levels, making them especially effective tools for traders. When combined with chart patterns for confirmations, they can make for a winning trading strategy.
- Moving averages can run across any time period, so ensuring the correct or most common time frames are set is critical to using the tool. The most commonly used moving averages are the 200, 100, and 50.
The MACD is a favorite among crypto traders, as it can often give an early indication of when a reversal may be coming as the lines begin to turn, later confirming the signal when a crossover occurs. In the daily Bitcoin price chart below, trading each major peak and trough thought the bear market could have been profitable with the MACD, taking a long or short trade depending on the crossover.
- Only in two areas did market chop cause the indicator to give poor or false signals, so waiting until the two lines begin to diverge can prevent getting chopped out in market volatility.
Pros and Cons of MACD Strategy
- The MACD is often referred to as a lagging indicator and is among the most widely used technical analysis indicators in existence. The tool can help traders predict when trend changes are about to take place.
- Short for the Moving Average Convergence Divergence indicator, it is a technical analysis indicator created by author and trader Gerald Appel in the late 1960s.
- The tool gives extremely easy to read signals and includes a histogram to further assist traders with providing a visual representation of the strength of a trend and so any crossovers are clearly defined.
- However, due to the MACD being a lagging indicator, it can give false readings that can impact traders by taking positions earlier than warranted.
Bollinger Bands Strategy
Using the midline simple moving average of the Bollinger Bands as a trigger for long or short signals, can prove to be a steady, successful strategy for crypto traders. In the below daily Bitcoin price charts, each time the price passed through and confirmed a candle close through the midline of the Bollinger Bands, it was either a short or long signal respectively.
Pros and Cons of Bollinger Bands Strategy
- Bollinger Bands were created by renowned financial analyst John Bollinger in the early 1980s but remain extremely popular even today. When used in conjunction with price chart patterns, candlesticks, and other technical indicators, it can be part of a successful and profitable cryptocurrency trading strategy.
- The technical analysis indicator consists of two plotted standard deviation lines and a simple moving average. The deviation lines widen or narrow depending on how significant the volatility in the corresponding price action is.
- When the bands tighten, volatility has dropped signaling that a surge in volatility is expected and a break of the range is likely.
- Traders often mistakenly trade breakouts of the band. 90% of all price action takes place within the bands, so any breakouts of the band are usually rejected back into the bands.
- “Riding the bands,” however, can be profitable, but only if the price breaks out of the band with a massive surge of volume.
Parabolic SAR Strategy
Parabolic SAR places a series of dots above or below the price action. It’s when price actually touches these dots do they appear on the opposite side of the price action, and a signal is issued. In the Bitcoin weekly price chart below, a long or short signal is issued when price passes through the dots, depending on the direction of the price action.
Traders miss out on some gains using this strategy, but it also allows for less risky, more conservative trades.
Pros and Cons of Parabolic SAR Strategy
- Parabolic SAR, also called the Parabolic Stop and Reverse indicator is yet another popular and commonly used technical analysis indicator designed to find potential reversals and gauge trend strength, and is considered a lagging indicator.
- Parabolic SAR not only focuses on on price but on time also, making it a unique and helpful tool for traders.
- Parabolic SAR is very easy to use, with simple to understand visual signals. The tool can be used to confirm other signals from other indicators, but also works great as a standalone technical analysis indicator for cryptocurrencies.
- Because it is a lagging indicator, like the MACD, it often gives false or late signals.
TD Sequential “9” Strategy
TD Sequential is as simple as it gets. Just wait for the 9 buy or sell signal to perfect, and take out a long or short trade. The tool has been used across all asset types with great accuracy. Take the below Bitcoin daily price chart for example, the TD 9 triggered at the bottom, then again at the top of the rally, ending the uptrend.
Pros and Cons of TD Sequential “9” Strategy
- The TD Sequential indicator is a technical analysis indicator made by market timing wizard Thomas Demark. It’s become increasingly popular in cryptocurrencies, accurately calling many of Bitcoin’s tops and bottoms.
- It signaled a 9 sell signal when the asset reached its all-time high at $20,000, then again recently when it was trading over $10,000. Buy signals also occurred when Bitcoin bottomed at $3,200, showing just how accurate the signal can be.
- However, 9 signals very commonly trigger, yet no follow up occurs and price fails to react. The tool, while accurate and helpful, isn’t a guarantee and unlike other visual indicators based on moving averages, there is more room for error.