Best 16 Crypto Trading Strategies

Cryptocurrency trading has exploded in popularity in recent years. With over 10,000 different cryptocurrencies in existence as of 2023, digital assets and blockchain technology are fundamentally changing finance and investing. And so the importance of effective crypto trading strategies has become critical for traders looking to capitalize on this market.

Trading cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) can be highly lucrative, but also risky. Successful crypto trading requires an understanding of the different types of cryptocurrency trading and techniques. In these lines will explore the major methods for trading crypto.

Find Your Perfect Fit as a Trader: A Handy Guide to Start Trading

Below is a table that breaks down popular trading strategies. It will help you identify what will work best for you based on your risk tolerance, time commitment, and skill level.

Click the link for the full strategy resource:

In this article:

Why You Need Cryptocurrency Trading Strategies

Navigating the twisted maze of crypto trading without a solid game plan?

That’s like going into battle unarmed. Here’s why a strategy isn’t just your best friend—it’s a downright necessity.

Remove Emotions

• Emotional Stability: A strategy provides a predefined set of rules, helping you make decisions with clarity rather than being swayed by emotional highs and lows.

Reduce Risk

• Risk Management: Adopting a strategy often incorporates risk mitigation techniques. For example, setting a stop-loss limit can help you exit a trade if the market turns against you, minimizing potential losses.

Maximize Profits

• Profit Optimization: A strategy helps you identify entry and exit points for your trades, enabling you to buy low and sell high more consistently.

Time Management

• Efficient Use of Time: Depending on the strategy you choose, the time you need to spend monitoring the market can vary. Knowing this in advance helps you manage your commitments effectively.

Skill Building

• Continuous Improvement: Over time, as you gain more experience, you can refine your strategy to better meet your trading objectives.

Now let’s explore the major techniques and strategies used in crypto trading.

0. Paper Trading

Why we call this level 0 strategy?

Paper trading is your playground before diving into the deep end of the crypto market. Think of it as a “test drive” for trading strategies where you use virtual money to play around and make mistakes.

It’s the perfect way to tip your toes into crypto trading if you have zero experience. You can practice, make mistakes, and fine-tune your game plan, all without any financial risk. It’s your no-stakes arena for high-stakes trading.

Check this article to understand paper trading and get started.

1. Crypto Day Trading Strategy

Day trading involves opening and closing cryptocurrency positions within a single day to profit from short-term price movements. Day traders will hold assets for just a few minutes or hours, taking advantage of small price changes.

Key attributes of day trading crypto:

• Very short holding times: minutes to hours
• Frequent buying and selling
• Requires constant market monitoring
• More risky than long-term trading
• Potential for high profits in volatile markets

Day traders need to have an effective trading strategy and quick reaction times to capitalize on opportunities. They rely heavily on technical analysis using indicators like moving averages, support and resistance levels, Relative Strength Index (RSI) and volume.

Platforms like candlestick charts are used to recognize patterns and trading signals. Stop-loss orders are often used to limit potential losses on a trade.

Day trading is not for novice traders. It requires experience, skill, and access to trading tools and data.

More tips for day trading crypto.

2. Swing Trading Cryptocurrencies

Swing trading involves holding each trade for longer than a day but less than a few weeks or months. The strategy aims to profit from short-term price swings in the market.

Key attributes of swing trading:

• Holding periods from 2 days to 3 weeks typically
• Technical analysis with a mix of short and long-term indicators
• Lower risk than day trading, but still considered short-term trading

Swing traders will identify trading opportunities through trend lines, candlestick patterns, volume analysis and chart patterns like head and shoulders or cup and handle formations.

Traders will take a position when the price moves outside a recent trading range, following the new trend while it remains in force. The increased holding period allows trades to develop more compared to day trading.

Swing trading requires less constant monitoring of the markets compared to day trading, but still demands frequent attention. It also necessitates skill in technical analysis to identify trading opportunities.

3. Copy Trading: Your Gateway to Start Trading Cryptocurrency

Copy Trading has become a popular entry point for those eager to start trading cryptocurrency but may not have the time or expertise to navigate the complexities of the market.

Simply put, Copy Trading allows you to copy the actions of experienced traders automatically. When they make a trade, you make the same trade.

Why Opt for Copy Trading?

• Simplified Learning: Instead of diving head-first into market research, you can learn by watching the actions of seasoned traders.
• Reduced Risk: By copying proven strategies, you can mitigate some of the risks associated with trading.
• Time-saving: This strategy is ideal for those who can’t commit extensive time to market analysis.

In summary, Copy Trading offers a simplified, yet effective, approach to engage with cryptocurrency trading. It’s a convenient way for newcomers to start trading cryptocurrency without having to become overnight experts.

Need more details? Our comprehensive copy trading page has all you need to know.

4. Scalping Trading Strategy

Scalping is a high-speed trading strategy where profits are made through many very small price movements. Scalpers attempt to make many small wins that add up, while limiting losses on each trade.

Typical scalping attributes:

• Very short holding times: seconds to minutes
• High volume of trading and high turnover
• Profits from small price movements
• Advanced trading platforms and low-latency connections needed

Scalpers utilize sophisticated trading software and infrastructure that allow ultra-fast automated trading and order execution speeds.

Algorithmic trading programs can scan and detect trading opportunities faster than any human.

This type of trading demands specialized technology, as well as experience using the trading platforms. The speed of order execution is critical. Scalping is considered one of the most difficult and demanding trading techniques.

5. Trading Crypto with Leverage: A Double-Edged Sword

Trading crypto with leverage is like adding rocket fuel to your trades. It allows you to control a large position in a cryptocurrency without having to own the full amount. Sounds awesome, right? But be careful! This method also comes with higher risks.

In simple terms, leverage lets you borrow money from the trading platform. This borrowed money increases the size of your trade. So, if you’re using 10x leverage, a $100 trade becomes a $1,000 trade!

Why Use Leverage?

• Amplified Profits: A small price move can result in bigger profits.
• Capital Efficiency: You can open larger positions without tying up all your money.

But Watch Out!

• Higher Risk: You can also lose money quickly if the trade goes against you.
• Fees and Interest: You’ll have to pay fees for the privilege of borrowing money.

Choosing the Right Leverage Level

Leverage Level	Risk Level	Skill Level Needed
2x	Moderate	Beginner
10x	High	Intermediate
50x to 100x	Very High	Expert

Key Takeaway

Trading crypto with leverage can be an exciting way to maximize profits, but it’s not for the faint-hearted. You need to know what you’re doing and be prepared for both the ups and the downs. Always trade responsibly!

Want to master this strategy? See our complete resource on leverage trading.

6. CFD Trading

CFD stands for Contract for Difference. In simple terms, you’re making a bet on whether a particular asset will go up or down in price. Unlike traditional trading, you don’t actually own the asset. Instead, you’re entering into a contract with a broker.

Why CFDs Matter

• Flexibility: You can profit when prices are rising or falling.
• Access: Trade a wide range of markets from commodities to cryptocurrencies.

Key Points to Remember

1. Leverage: CFDs often allow you to control large positions with a small investment. You are already familiar of how this works from the paragraph above.
2. Costs: Watch out for fees like spreads and overnight costs.

Is CFD Trading Right for You?

CFD trading can be exciting, but it’s not for everyone. It’s high-risk and requires a good understanding of the market. If you’re new, start with a demo account to practice.

Want to explore further? Our detailed CFD trading page awaits you.

7. Position Trading Bitcoin, Ethereum and other types of cryptocurrency

Position trading involves taking longer-term positions that can last anywhere from weeks to months or even years. Position traders are not focused on short-term price movements.

Typical attributes of position trading:

• Holding periods of weeks, months or years
• Fundamental analysis of the crypto market and assets
• Lower frequency of trading and lower risk compared to other active trading styles

Position traders will open positions based on fundamental trends and close positions based on long-term changes in the market. These traders keep positions open for as long as the trend remains in effect.

Technical analysis is still used, but with techniques suited for longer time horizons. Position trading does not demand constant attention to the market. It requires patience to hold positions for extended periods of time.

Find it all about Position trading with cryptocurrencies.

8. Arbitrage Trading Across Multiple Cryptocurrency Exchanges

Cryptocurrency arbitrage involves exploiting price differences across crypto exchanges to make low-risk profits.

Arbitrage works like this:

1. A trader identifies price discrepancies for a cryptocurrency on different platforms
2. They buy the asset on the exchange with the lower price
3. Then they immediately sell it on the exchange with the higher price
4. The difference in prices is the profit

Key aspects of arbitrage trading:

• Nearly risk-free profits by exploiting market inefficiencies
• Requires access to multiple platforms and very fast trade execution
• Profits are generally small, requiring high volumes for sizable returns

This trading technique relies extensively on software and algorithms to scan markets and execute trades faster than any human could. Speed is critical to take advantage of short-lived arbitrage windows before prices adjust.

Cryptocurrency arbitrage is very competitive and opportunities can disappear quickly as more traders participate. The strategies require sophisticated software as well as access to sufficient funds and liquidity across markets.

Check out these arbitrage crypto trading strategies.

9. Algorithmic Trading – Automate Buy and Sell Orders

Algorithmic trading uses advanced computer programs and algorithms to automate the buying and selling of assets. “Algo trading” removes human emotions and can react to opportunities faster than any trader.

Key aspects of algo trading:

• Automated trading based on strategies programmed into software
• No human intervention needed to generate buy/sell orders
• Hundreds or thousands of orders can be executed per second
• Can scan and react to multiple markets simultaneously

The algorithms employ technical indicators and mathematical models to decide when to trade. Strategies can range from scalping and arbitrage to complex machine learning algorithms.

Developing profitable algorithmic trading systems requires sophisticated programming skills and knowledge of the digital currencies. Algo trading can be extremely effective when fine-tuned and supported by sufficient infrastructure.

10. High-Frequency Trading (HFT)

High-frequency trading (HFT) is an extremely advanced form of algorithmic trading that profits from ultra-fast automatic executions. HFT systems analyze markets and execute orders in millionths of a second.

Attributes of HFT systems:

• Trade execution in microsecond time frames
• Uses co-located servers near exchanges for speed
• Employs advanced mathematics and systems
• Hundreds or thousands of trades per second
• Profits from small price discrepancies

HFT setups involve state-of-the-art hardware/software and low-latency connections to exchanges. Speed is the primary factor in profitable HFT, not complex trading strategies. Even the smallest advantage in trade speed can produce major profits due to high trading volumes.

Developing HFT systems requires expertise in computer science, mathematics, statistics, and quantitative analysis. Cryptocurrency markets are well-suited for HFT systems compared to traditional markets.

Need more details? Find them here: High-frequency Crypto Trading.

11. Spot Trading in Crypto: The Simplicity King

Spot Trading is a fundamental method in cryptocurrency trading. It involves the immediate settlement of transactions, providing a straightforward way to buy or sell cryptocurrencies.

Spot Trading is when you buy or sell a cryptocurrency and the transaction is settled instantly. Think of it as a cash-and-carry deal; you pay and get your goods, or in this case, digital coins, “on the spot.”

Key Benefits

• Simplicity: Spot Trading is easy to understand and execute, making it suitable for traders of varying levels of expertise.
• Lower Risk: Relative to other, more complex trading strategies, Spot Trading often involves less risk, provided you understand the basics of the market.
• Widespread Availability: This form of trading is commonly offered across most cryptocurrency exchanges.

Spot Trading offers an uncomplicated entry point into the field of cryptocurrency. It’s accessible, typically less risky, and a good fit for a wide range of traders.

Interested in going deeper? Check this thorough breakdown on spot trading.

12. Margin Trading

Margin trading involves borrowing funds or other cryptocurrency assets to increase buying power. This allows traders to take larger positions and increase potential profits.

Key aspects of margin trading crypto:

• Borrows funds from a broker or exchange to increase position size
• Can amplify potential profits but also increases risk of larger losses
• Interest is usually charged on borrowed amounts
• Leverage ratios range from 2x to as high as 100x on some platforms

Margin allows traders to take much larger positions without having to commit as much capital. If the trade moves in the trader’s favor, the gains are multiplied due to the larger position size. However, losses can be greater as well.

Margin trading is considered a high-risk strategy and requires careful risk management. Liquidations can occur if margin balances drop too low, forcing positions to automatically close at a loss. Margin trading is suited for experienced traders.

13. Short Selling

Short selling involves profiting when the price of the asset drops. Traders borrow an asset, immediately sell it, then repurchase it later at a lower price to pay back the loaned amount. The difference is the profit.

Key attributes of short selling crypto:

• Profits from falling crypto prices
• Very risky if prices rise dramatically
• Interest is usually charged on borrowed assets
• Requires ability to borrow the cryptocurrency

Shorting cryptocurrencies can generate substantial profits during major market selloffs or crashes. However, losses can multiply quickly as well if prices suddenly surge. Discipline and risk management are crucial when shorting crypto.

Some exchanges offer crypto margin trading that allows short positions. There are also decentralized exchanges where users can lend and borrow assets from liquidity pools to short coins.

14. Futures Trading

Cryptocurrency futures contracts allow traders to speculate on the future price of crypto asset class like Bitcoin. Traders can take long or short positions and settle in cash without needing to own the underlying asset.

Key aspects of crypto futures trading:

• Contracts to buy/sell crypto at a predetermined price on a future date
• Can profit from increasing or decreasing prices without owning asset
• Due to cash settlement, no need to hold/store actual cryptocurrency
• Available on major exchanges with margin trading/leverage

Futures are commonly used to hedge spot positions in a portfolio or speculate on the price based on fundamental or technical analysis. Futures are a derivative product that can provide leveraged exposure to crypto prices.

Find out all the details.

15. Options Trading

A cryptocurrency options contract gives the owner the right, but not the obligation, to buy or sell the underlying asset at a specific strike price on the expiration date. Calls allow buying, puts allow selling.

Key attributes to best crypto options trading:

• Contract for right to buy/sell asset at specified price on expiry date
• Allows benefiting from price movements without owning asset
• Buyers pay a premium upfront to purchase the options contract
• Can be used to hedge spot positions or speculate on price

Options buyers pay a premium for the contract. Sellers of the contract receive the premium upfront, but risk being forced to sell/buy the asset if the option is exercised. Options strategies can limit risks while profiting from crypto price moves.

Exchanges like Deribit and Bybit offer cryptocurrency options trading. Options are a complex derivative product that require specialized knowledge to trade profitably. They allow sophisticated traders to implement advanced strategies.

16. DeFi Trading Without an Exchange

Decentralized Finance (DeFi) applications provide opportunities for crypto trading without centralized intermediaries. DeFi platforms are built on public blockchains like Ethereum.

Types of DeFi trading:

• Decentralized exchanges (DEXs): Trade cryptocurrency in a peer-to-peer manner with automated liquidity pools rather than order books. Uniswap is a popular example.
• Yield Farming: Earn interest and trading fees by providing liquidity to DEX pools and lending protocols.
• Liquidity Pools: Users provide crypto assets to pools to facilitate swapping between the assets and earn trading fees.
• Token Trading: Some DeFi governance tokens like Uniswap’s UNI can be actively traded.

DeFi removes intermediaries in trading, but has risks like contract vulnerabilities. Yield farming allows earning income on crypto assets through lending and market making.

Explore the full story.

Choosing the Right Crypto Trading Strategy

There is no one-size-fits-all approach to trading cryptocurrency. Day trading, swing trading, scalping, position trading, arbitrage, algorithmic trading, margin trading, short selling, futures, options, and DeFi trading represent some of the major strategies.

Here are some key factors to consider:

• Trading Style: Active, short-term trading or patient long-term trading? Intraday or multi-day holder?
• Risk Tolerance: High-risk trading or lower-risk investing? Margin trading or spot trading?
• Time Commitment: Full-time trading or part-time? Need for constant market monitoring?
• Capital Available: How much can you fund trading with? Can dictate position sizing and strategies.
• Technology Needs: Standard platform or low-latency/high-speed infrastructure? Coding skills?
• Experience Level: Experience with charting, order types, risk management, crypto markets?

A combination of strategies is often used. It’s essential to match your trading style, skill level, risk tolerance, available time and capital with the opportunities in the perpetually changing crypto markets.

This article covered the major cryptocurrency trading techniques. The key is finding strategies that fit your experience level, available resources and risk management practices. Proper training, knowledge and risk reduction are key to trading profitably in the exciting but unpredictable crypto currency markets.

Before you go…

Finding the right crypto trading strategies is just the first step. Make sure you have the right platform to put these strategies into practice. For more information, consider exploring:

• Best Online Trading Platforms
• Best Platforms for Copy Trading
• Best Cryptocurrency Exchanges

Each of these resources offers further insights to help you succeed in your crypto trading journey.