You will no doubt have heard of cryptocurrencies by now after their rapid rise into the public eye during recent years. While Bitcoin is the headline grabber, there are many others within the sector from Ethereum to Litecoin. In fact, the number of individual currencies to invest in grows all the time as new ones are developed.
The latest count has it around the 2,000 mark with a total market value of almost $200bn. 2019 has seen the whole cryptocurrency sector in fine health, and many predict to see an upswing for the remainder of the year. If you are looking to pay off debt and earn some money to put into your savings, then it is worth thinking about investing here.
Such a robust market with a bright future ahead is perfect if you are thinking of trading cryptocurrencies. Whether you plan to deal in individual coins on a crypto exchange or invest in cryptocurrency CFDs, ETFs or even shares, there is a great potential to make a profit when done right. A key part of sensible investing is to settle on an effective trading strategy to use. If you are unsure as to the best ones to consider, then the below should help.
Fundamental trading strategy
Following the latest cryptocurrency trading news is one strategy to consider. This strategy is based on the fact that the financial markets move according to the latest new reports or rumours of what may happen in the future. To implement it, you would need to find a few trusted websites or news sources that would inform you of any breaking stories released around the cryptocurrency sector. You would then use this news in conjunction with what you see on the relevant chart to make trading decisions. If, for example, you read a story about Litecoin being praised by a well-known investor and saw confirmation of a potential rise in price on the chart, then you may think it wise to buy some yourself.
This type of strategy will already be familiar if you have traded forex or shares, but it is also effective with digital currency. If used correctly, it will win a lot more than it loses and so presents a limited downside. The basic idea is that you use chart analysis to jump in at the start of a new price trend to profit. The first step is to identify a precise resistance point on the chart you are looking at and wait for the price to break out past it, in an upward direction. The next step is where you make your money: do not jump right in but wait for the price to come back down to the original resistance level. As soon as the currency starts trading above that price again, you should invest and ride the breakout.
Dollar cost averaging strategy
This is a great strategy for beginners as it does not need a lot of expert knowledge to pull it off. In simple terms, you just buy a fixed amount of your selected cryptocurrency but at specified intervals. This is different from most people’s strategy of putting all their money into one initial trade. This way of trading allows you to average out the cost of buying the currency over months. Of course, it also gives the flexibility to only invest more money if the price goes your way, rather than wasting it all on a trade that did not.
The balanced approach
This is another great strategy that new traders and old alike can use. Instead of taking all your money and investing in only one cryptocurrency, this strategy sees you invest equal amounts in a few different ones. It allows you to spread your risk and avoid one losing trade wiping out your trading account. You may, for example, put £200 in Bitcoin, £200 in Litecoin and £200 in Ripple rather than all £600 in Bitcoin. As well as spreading risk, this allows you to see which coins make decent profits so that you can focus only on them in the future.
Pick the right strategy for you
As you can see, there are actually quite a few cryptocurrency trading strategies to think about using. The important thing is that you choose one that you fully understand and can confidently implement. This will allow you to analyse the trading charts easily and apply your strategy with no hassle. While no strategy will ever guarantee 100% winning trades, using an effective one and sticking to it will help you profit in the long term.