The Best Trading Strategies for Beginners
It is no secret that there are thousands of cryptocurrencies. There are, similarly, multiple ways to trade them. For a beginner, the sheer number of possibilities can be quite overwhelming. As a beginner, your focus should be risk management and capital preservation. This is really important because cryptocurrencies tend to be quite volatile. Trading without a strategy can end up feeling like shooting darts in the dark. You need to know where you are going and have a plan to get there. By plan, we mean having a trading plan in terms of profit expectations, maximum loss-taking ability, and a few strategies for specific market situations.
There are many strategies that a trader can deploy to earn a profit. Some strategies are more complex than others. So, as a beginner, you may want to focus on simplicity and risk management. New crypto coins will enter the market and some old ones will exit. However, once you learn a few strategies, you can apply them to any coin (new or old) as long as the conditions for a particular trading strategy are right.
Before we talk about specific strategies, first let’s look at the different styles of trading.
Different Trading Approaches
One can trade a CFD or crypto for a few seconds, a few hours, a few days, or even a few months. Different trading approaches can be differentiated based on how long you intend to be in the trade and how much profit you hope to earn from each trade.
Scalping: The shortest trading style is scalping where a trader holds a position for just a few seconds. The profits are not large but rather more frequent. It is quite possible that for an uptrend (or downtrend) move, a scalper makes several entries and exits to capture some part of the move.
Intraday: As the name suggests, intraday trading involves taking a trade that does not last beyond a day. The trader enters a position sometime during the day and exits before the market closes on the same day. No position is carried overnight. Cryptocurrency markets are open 24/7. So, an intraday trade would mean a trade held for less than 24 hours.
Swing: Swing trading generally means making profits from price swings. Usually, when the price moves up or down, or even when it stays sideways, it does not go in one direction linearly. There are rallies and dips, ups and downs. Swing traders attempt to find support and resistance levels and go long or short accordingly. Swing trades can last a few days or weeks.
Positional: A positional trade can last a few days, weeks, or even months. Traders take a positional trade when they have a directional view of the market. They take a position and then stick to it. This is a long-duration trading approach.
Usually, the shorter the duration of a trading style, the smaller the profits per trade. The word “per trade” is important because a scalper could make only a few dollars per trade while making hundreds of such trades to earn thousands in total. A positional trader, on the other hand, could only take one trade in a quarter or a month and target a larger profit. However, the longer the trade duration, the greater the possibility of facing a larger loss if the price moves against you. So, higher rewards come with higher risks while lower risks usually limit the rewards. Short-duration trades (like scalping or intraday) don’t have overnight risks and the loss limits tend to be smaller there. However, making lots of small losses can also add up to a large loss in total. So, having a trading plan is still a must.
Different Trading Strategies for Beginners
There are various trading indicators that you can use to create strategies. Such strategies are simple and can be executed by beginners because there is almost no subjectivity. One simply has to create rules and follow them to stop losses.
Moving Average Crossover: Moving averages take the average of the price over a particular lookback period. A 50-day moving average looks back at the previous 50 days and plots an average while the 200-day moving average looks back at the previous 200 days to plot an average. The moving averages are not static because every day, the lookback window also moves one day ahead.
Usually, shorter time moving averages are noisier but more sensitive as well. They may pick a trend earlier than a long-time moving average. A very popular trading strategy is when the 50-day moving average crosses over the 200-day average to give a bullish signal. A trader can go long when such a crossover happens and then go short if the 50-day moving average falls below the 200-day average.
Try this strategy with different period averages like 9 days, 18 days, and so on. Some combinations may work better than others with certain cryptocurrencies.
Channel Formation: Certain cryptocurrencies go into a phase where prices move within a clear channel. If you spot such a channel where the price is consistently getting rejected at a certain upper limit and finding support at a certain lower limit, then such a setup is great for a swing trade. You can go long as soon as you see a reversal at the lower support level and cash out when the price is approaching the upper resistance level of the channel. Then, you can go short when the price gets rejected from the resistance level and begins to move down.
Make sure you place a stop loss. Sometimes if the price breaks out of the channel or breaks down, the move up or move down can be very fast and the losses can be large. So, having a stop loss somewhere below the lower level of the channel (if you are taking a long position) or above the upper level (if you are going short) is important. You can use the ATR indicator to set these stop losses.
Fibonacci Retracement and Extension: A trader can use Cerus Markets’ Fibonacci indicator tool to find points where the price is likely to find support and resistance. The Fibonacci extension tool can be used to find likely levels where an exit can be made. This strategy can work well with positional and longer-term trades. Simply go long at a support level, once you get a confirmation, and go short at a resistance level when you see a confirmation. The confirmation could be a candlestick pattern signaling a reversal or a price trend.
Dow Theory: Charles Dow was the founder of Dow Jones & Co and The Wall Street Journal. He also formulated a theory that is widely followed by traders. One aspect of the Dow Theory posits that an upward trend will continue until the price makes higher tops and higher bottoms while a downtrend will continue until the price makes lower tops and lower bottoms.
As a trading strategy, a long position can be held in an upward trending phase and an exit can be made if the price breaks the most recent low. Similarly, a short position can be held in a downtrend till the price goes above the most recent high.
Cerus Markets offers a wide range of crypto CFDs that you can trade using different strategies. Our platform has useful tools like stop loss and alerts that can help you with risk management and capital preservation. If you are ready to start trading then open a new account. Currently, we are running a 100% welcome bonus offer for new sign-ups.