Exploring different crypto trading styles and approaches

Trading
September 19, 2019

In this blog post, we will be discussing different crypto trading techniques and approaches used by traders across the globe. Traders usually specialise in a specific pattern or a method in order to maximise their strengths. Overall, we recognise two trading approaches: automatic and manual. 

Automatic

Automated trading algorithms are designed on a set of trading signals and indicators which help determine the price direction of the digital asset. For this reason, crypto traders focus on setting up the bot according to their preferences and then monitor the implementation of the set strategy. This trading approach is very popular with in the crypto trading world mainly due to its greatest advantage over manual trading -  the non-existence of the psychological aspect. 

The charting tool on Sparkdex allows you to browse through a large number of indicators and patterns and identify the best possible strategy that suits your trading style. As such, the Bitshares community created DEXBot - an open source crypto trading bot. 

Manual

Despite the emergence of trading bots, manual trading is still as popular as it was back in the day. Many traders still enjoy going through the trading process, from preparation to execution of the trade. In this aspect, there are different types of trading styles. In the context of time frame, we will briefly present below three different trading approaches - scalping, swing trading and long-term trading.

1. Scalping

Scalping is a popular trading strategy that is based on a higher number of quick traders, focused on smaller profits. Many of the traders that use this method believe that a trade should be closed as soon as it enters into a positive territory (excluding trade costs). Due to the small gains, scalpers aim to take as many small profits as possible. So, the focus is on the higher number of successful trades, which then sacrifices the size of the wins on the other hand. 

Scalping is usually applied on smaller time frames (1-min to 15-min). The trades are quite short in their lifespan as traders aim smaller gains. These types of traders also believe that a brief exposure to the market decreases the exposure to risk and volatile moves. Scalping is mostly used during ranging markets when the market is undecided. 

More technical traders use basic indicators e.g. trend lines, Fibonacci retracements and extensions and moving averages - to identify scalping opportunities.

2. Swing trading

Swing trading approach is focused on trading movements in price direction, with trades being open from a day to a few days/weeks. For this reason, swing trading is regarded as an intermediate-term approach. As such, the purpose of this trading approach is to take advantage of the volatile market.

Certain fundamental factors may push the price in a certain direction, which swing traders may use to “ride the trend” until the price reaches a certain point where they think reversal may start taking place.

Unlike scalpers, swing traders are much more exposed as they tend to keep their positions open until a certain move is completed. For instance, traders may use the key 61.8% Fibonacci retracement as their entry position to open a buy trade and ride it until the price returns to the previous Fibonacci level - 50%. The presence of technical analysis in this trading approach is higher than in scalping as traders aim to capitalise on certain patterns and formations, identified by technical analysis. 

3. Long-term trading

Long-term trading is a crypto trading style adopted mainly by financial institutions and banks that base their trades on long-term fundamental data. Positions are open for at least a few months, with some of these trade being active for years. Due to their nature, the number of opened trades is limited. Overall, most of the long-term trades can also be seen as an investment as the traders of this type look at fundamentals and the value of the underlying asset.

This type of trading is not so popular with everyday retail traders as the vast majority of them don’t have sufficient knowledge or experience to apply macroeconomic views to global markets. In the crypto world, investors may see the intrinsic value of the project behind the specific digital coin and decide to invest and hold. This type of traders is usually not bothered by daily swings in the cryptocurrency market as they tend to focus their sights on the multi-year outlook of the digital asset and their project. 

Finding your crypto trading style

In this blog post, we briefly presented three dominant trading styles, adopted by different types of investors trading different markets across the globe. Each investor should analyse different trading approaches and use the one that fits his personality the best. Scalping will require your presence in front of the screen almost the entire day as you need to identify multiple trading opportunities. 

On the other hand, long-term trading assumes a completely “hands-off” trading approach, due to its focus on the value of the underlying asset. Finally, swing trading is for traders looking to capture upcoming swings in the price direction, ranging from one day to a few weeks in duration. 

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