Due to the significant level of risk involved, trading cryptocurrencies without a strategy in place can frequently result in the loss of invested money. There are three well-known strategies that are ideal for beginning traders, even though most analysts would concur there is no “perfect” trading technique.
1. Average cost per dollar (DCA)
Popular and tried-and-true trading approach dollar cost averaging performs best when used over extended time frames. The idea is basic. Divide your money up into smaller sums and only invest at specific periods of the day and week rather than putting all of your money in one cryptocurrency at once.
Example: Bob wants to buy bitcoin with $10,000. He chooses to apply the DCA technique and divide his $10,000 budget into 20 portions of $500 rather than using it all at once. He then decides to purchase bitcoin on a specific day and time, say Monday at 12:00 local time. Every Monday at noon for the following 20 weeks, Bob systematically purchases $500 worth of bitcoin, continuing until he has invested the full $10,000.
In general, Bob will likely obtain more bitcoin for his money if he purchases in this manner at regular intervals over a lengthy period of time. This helps to lessen the effects of market volatility, which occurs when prices sharply rise and decrease.
More information on this is provided by the DCA calculator DCABTC, which focuses on bitcoin.
Every Monday starting on January 1, 2018, you might have spent $150 to purchase one bitcoin, totaling $23,550 and 3.04 bitcoin. Whereas, on January 1, 2018, you would have received 1.69 bitcoin if you had spent $23,550 on bitcoin.
2. A death cross or golden cross
A trading strategy for cryptocurrencies known as the “golden cross/death cross” employs two moving averages (MAs), which are lines on charts that display the mean average price of an asset over a specified amount of time. For this approach, you are looking for crosses between the 200 MA and the 50 MA over lengthy chart time frames, such as the daily and weekly charts. The 50 MA is the average of the previous 50 days. This is another long-term trading method that performs best over a period of 18 months and beyond because it deals with analyzing price action over broad time spans.
Convergence is a buy signal because it indicates that short-term momentum is outpacing long-term momentum. When buyers hit the market again, prices rise as a result. Divergences are a symptom of the inverse, that is, a decline in the short-term momentum relative to the long-term momentum. The signal is to sell. Divergences occur when a lot of traders decide to sell their assets and leave the market.
3. The RSI divergence cryptocurrency trading method
Although it is a more technical strategy, the RSI divergence approach can be very effective for predicting trend reversals before they occur. When the price begins to move in the other direction—from a downtrend to an uptrend or vice versa—it is said to be in a reversal.
Relative Strength Index, or RSI for short, is a chart indicator that determines the typical amount of gains and losses over a 14-day period to determine momentum. When an asset is “overbought” or “oversold,” the indicator line, which oscillates between 0 and 100, can be utilized to indicate the situation. The channel most frequently used to display this is one between 30 and 70. The item is deemed “overbought” and the price is anticipated to drop again when the indicator line exits the channel above 70. In contrast, the asset is deemed “oversold” and the price is anticipated to increase when it crosses through the channel’s bottom below 30.
While this approach by itself can be utilized as a straightforward crypto trading strategy, it occasionally produces inaccurate results. When the RSI indicates an asset is overbought, which is normally a buy signal, for instance, the price may then continue to decline.