It is always hard to dive into trading when you are a beginner. New phrases, charts, analyses, influencers. You cannot really decide what to buy & when to buy, what to sell & when to sell. In other words, you just simply cannot figure out what strategy would be optimal for you. This is why we created this guide to help you adapt those strategies as a beginner and help you become a better trader.
In this article, we will discuss some of the most common strategies that people use to invest and trade with crypto or stocks. Which one works will depend on a few factors, including your tolerance for risk, the time you want to commit, and so on. It all comes down to individual circumstances in the end. There are no size fits. Please remember, always do your research and never invest more money than you can afford to lose.
As we said, we will cover five commonly used trading strategies:
- Hodling
- Dollar-cost averaging
- Day trading
- Swing trading
- Scalp trading
1. HODLing
This strategy is a very popular one. Originally, Hodl was a misspelling of 'hold', in a drunken run on the Bitcoin Talks online forum. It is also sometimes used as an acronym for 'Hold on for Dear Life. To hold means to buy a lump sum of crypto, and store it securely and safely for potential long-term, long-range, and long-odds growth. We are talking about keeping your crypto until it moons.
Holding is a basic strategy. Essentially, you buy an asset, and you keep it safe for the long term. It has been effective for many, when you consider Bitcoin's meteoric rise in value, since its inception. For example, if you bought one Bitcoin for $250 in March 2015, and hold it until June 2021, you would have a return of almost 13900%, because the price rose to $35,000.
However, holding also has risks. If you do not time your market entry point, and the market drops, you can only really cut your losses or wait and watch. This can be pretty scary. This is why you should never invest more than you can afford to lose.
2. Dollar-cost averaging
DCA may sound complicated at first, but actually, it is quite simple. It is a variation of holding that mitigates some of the risks we discussed in the previous section. The goal with dollar-cost averaging is to make regular investments of the same amount at repeated intervals. Regardless of the day-to-day price, giving you an average overrule price.
To give you an example, let us just say you make a plan to buy $50 each month from the first day of the month, and stick to that no matter what happens to the price, it does not matter if the date that you choose falls on a weekend or a bank holiday because unlike the stock market, crypto markets are open 24/7. This strategy hedges against major market movements and takes a long-term position over several months or even years, thereby helping you to avoid mistiming the market. And it is arguably one of the best strategies available.
3. Day trading
The strategy of short-term gains is called day trading. It requires a lot of working hours if you want to do it the right way. Day trading offers a great deal, could be riskier than holding, but also requires a far greater time investment. It is focused on buying stocks or crypto or what you believe will prove to be a lower or higher price.
Anticipation of short-term movements, and making a profit relies on the price moving in your Favour. At which point would you sell your investment for a profit? The risk here is that sometimes the price will be the opposite of what you were expecting. The daily aspects of day trading relate to the short-term nature of the position you take. Day trading is just about taking trading positions for a few hours or days, rather than months or even years. As we said, the crypto markets are open 24/7, so it is easy to adapt to day trading on those markets. The case is different with stocks, as they are closed on the weekends and holidays.
Example
So, to understand day trading, let us see an example. Let us say that a big financial institution from the U.S. is going to be using XRP for its international payments. John thinks that this means the price of XRP will increase in the next few minutes. He buys 1000 XRP at a price of $0.2 for a total of $200.
Other people see the news and also try to buy XRP, causing the price to go up. An hour later, the price of XRP had risen to $0.25, and John had decided he wanted to sell to make a quick profit. John sells all 1000 of his XRP for $250, totalling $50 in profit. In this example, the price moves in the direction Jimmy expected, and he was able to make a profit.
However, it could have dropped instead, or it could have waited too long before selling, and instead had losses.
4. Swing trading
Another strategy that many people use is called swing trading. This is where you hold your positions until the market trend or swing you are predicting runs its course or shows signs that it's reversing.
A swing trading strategy requires less time and attention than day trading, but you still also need to catch the trends, the moment they form. The extra time you are holding your position may allow for a greater price shift and therefore may result in higher profits than with day trading. Be careful though, as the price may swing the other way, or against you, resulting in losses.
5. Scalp trading
The opposite of the swing trading strategy is called scalp trading. This is where you take a position for much shorter periods of time, like seconds or minutes. The gains you can make here are much smaller and require more focused attention, but your profits can pile up because you can make so many of these types of trades per day. It has the potential to be more profitable in the short term than in the longer-term strategies.
Conclusion
It is hard to begin trading with cryptos or stocks. You get so much new information you do not even know where to look. You have to go step-by-step and be aware of every trading-related thing on the internet. It doesn't matter which strategy you choose until you know the risks that come with it. This is why you have to remember that none of these tactics is foolproof and there is a certain amount of risk associated with any kind of trading.
This post cannot be considered financial advice.
Before deciding to trade, you should carefully consider your investment objectives, level of experience, and risks. You alone are responsible for your actions in any trading or investing activities.
Happy Investing!
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