What Kind Of Trader Are You?
There are countless trading strategies and approaches. These are the most common crypto trading strategies, learn how traders make money out of them.
The 4-seasons trading strategy doesn’t exhist
The first and most important thing to underline is that no approach is per-se better than another one. All trading styles have their own pros and cons and each trader should design his own based on his personal needs and inclinations.
Day traders spend a lot of time staring at charts on the screens and very rarely keep a position open overnight. They use very short-term timeframes and very often trade with high leverage. Day trading is a full-time job and requires a robust trading method combined with rigorous discipline.
You should try it only if you feel comfortable with activities involving high levels of stress. Among all traders, day traders are those that sleep more comfortably as they tend to close the trades when they are sitting in front of a screen.
Scalpers push the concept of the day-trading strategy to its limits. A scalper seeks to make a profit out of very tiny price changes, focusing on extremely short-term time horizons. Recurring frequent small profits can turn out to be a very profitable activity. Nowadays, most of the scalping strategies are performed by automated trading bots that can easily handle dozens or even hundreds of trades daily.
If the trading plan is well designed, entering and quickly exiting the market can significantly limit the risks and can create a real cash-machine for traders.
Swing traders, on the other hand, try to take advantage of the natural “swing” of the price cycles. The main goal is to identify the beginning of a specific price movement and open a trade accordingly. Then they hold on until the movement stops and take profit or they plan an exit in case the trend of the price goes in the opposite direction.
Usually, swing traders adopt a top-down approach, analyzing the market from higher to lower time frames to get the big picture without constantly monitoring market conditions. Swing traders can open a trade and hold it open for weeks or months depending on the time frame of the trading idea.
So now that you know more about different trading styles, which one do you think fits you the most?
There are two main methodologies traders use to decide what and when to trade Bitcoin: Technical Analysis and Fundamental Analysis.
Day traders, Scalpers and Swing traders generally use the former.
What is Technical analysis?
Technical analysis tries to predict the price by studying what happened in the past through the analysis of past price movements and trading volumes. It seeks patterns and trends in the price which may occur again in the future.
Technical analysis implies that no matter what’s currently happening within the context of that specific asset, the price already incorporates all the information the trader needs to build his or her investment decisions.
What is Fundamental analysis?
Fundamental analysis looks at the big picture in the crypto business evaluating the news about the industry, about each coin, the technical developments of the Technology (e.g. ‘improvements in the Lightning network’), or the progression of regulations around the world.
Summarizing the main difference between Fundamental and Technical Analysis we can say that the first has a forward-looking approach, in the sense that the forecast how the market will evolve in the future and what will be the primary drivers or the price tendencies. Technical analysis has a backwards-looking approach and relies on constantly assessing conditions and variables.
So, which methodology is the best?
Probably no one is better than the other, and a blended approach is recommended. Also, it can make sense to use Technical Analysis mainly to explain short and medium-term moves and trying to forecast the long term direction of the trend with a more Fundamentals-based approach.
Let’s now dig deeper into the topic. One common constraint when approaching Crypto trading is the jargon.