8 Best Crypto Trading Strategies: Maximize your Profits
Posted On June 9, 2023
Scalping crypto, swing trading crypto, crypto margin trading, derivatives trading, arbitrage trading, range trading and automated trading are all some of the best crypto trading strategies.
And we will break down each one of them for you today, explaining how they work, their pros and cons and if it’s right for you.
Choosing the Best Crypto Trading Strategy
Before we jump into the list, it’s essential to understand what makes a crypto trading strategy best for you. With so many options out there, some of which we will discuss today, choosing one that aligns with your goals, schedule and risk tolerance can get overwhelming.
So, let’s break down the four most important factors you need to consider when choosing the best crypto trading strategy:
Personal Goals: Your personal financial and investment goals will play a big role in determining the best trading strategy for you.
Why are you trading crypto? Are you doing it as a hobby, or is it your primary source of income? Asking these questions will help you narrow down the options that will best suit you.
If you have a day job and are trading crypto as a hobby, day trading may get too overwhelming. Instead, you need a strategy that allows for flexibility. Conversely, if you rely on trading as your primary source of income, strategies that require you to hold for long periods, like swing trading, may be too risky for you.
Time Allocation: Building upon the first point, choose a trading strategy that fits well with your schedule.
If you only have a limited amount of time every week, consider something like swing trading or automated trading. On the other hand, if you have more time to spare, consider strategies that may be time-consuming, but offer more consistent rewards.
Either way, it’s important to be realistic and conservative with the time you’re willing to invest in crypto trading. It’s better to be less active but consistent than overcommit and inconsistent.
Risk Tolerance: Some crypto trading strategies are inherently riskier than others but produce bigger potential results. Others are safer but produce smaller profits.
Choose one based on your risk tolerance and how much you can afford to lose. Since the crypto market is highly volatile compared to stocks, you may want to be more modest with your risk appetite.
Profitability: Some strategies require more investment, not just in relation to time but also money, such as paying for bots or transaction fees, that may eat at your profits. On the other hand, some strategies are more profitable in one scenario than others. For instance, high-frequency crypto trading may bring more profits than others when done at scale. But if not, it may be one of the least profitable strategies.
To determine if a crypto trading strategy is profitable for you, assess how much you’re spending and how much you’re gaining from it based on your circumstances and the resources you can invest.
Ideally, you would want a crypto trading strategy that aligns with all or most of the above criteria to see the best results. If a strategy aligns with your personal goals but not your schedule, or if it’s less risky but also less profitable, it’s probably not the one you should go with.
Take your time to assess the different crypto trading strategies shared in this list and select one that best aligns with your goals and resources.
1. Day Trading
Crypto day trading is one of the most popular and straightforward crypto trading strategies.
As a crypto day trader, you aim to make quick, consistent and frequent profits off the volatility of the crypto market by entering and exiting positions quickly, which could be hours, minutes, or even seconds.
Day trading requires serious effort and time commitment, making it next to impossible to pursue if you already have a job. Moreover, to be successful in day trading, you must be good with charts, graphs, and other technical analysis tools, and they have their own learning curve.
However, with enough time and practice, day trading can be a very lucrative and profitable endeavor. So, don’t treat it as a hobby or a side hustle.
Spending your entire day behind a computer screen analyzing graphs and charts can also get awfully boring and stressful. Bots and automation tools can make the job easier, but it still requires a considerable time investment.
Day trading can still be a relatively less risky strategy than others in this list, as you’re not dependent on a single trade and can spread your losses and profits in small portions throughout the day.
Lastly, keep in mind that most crypto trading strategies overlap with crypto day trading in some way or another anyway. Take scalping, for instance.
2. Scalping Crypto
Crypto scalping is a sub-category of crypto day trading, meaning that crypto day trading may include scalping practices, but scalping may not always include day trading practices.
In scalping, traders solely focus on holding positions for a few minutes, ideally less than 5 minutes, to make tiny but frequent and consistent profits.
Scalping is less risky than day trading since traders only hold positions for minutes, minimizing the risk of massive price fluctuations. But when holding positions for hours, the risk of unexpected price swings increases. However, the crypto market is highly volatile, and scalping doesn’t eliminate the risk entirely.
Scalping requires just as much time, dedication, and skill as day trading. In fact, it may even require more expertise since you’re tracking price movements and trends in minutes compared to hours. Therefore, to be successful at crypto scalping, traders must have a deep understanding of technical analysis and market trends.
Read our complete guide on scalping for more information and insights.
3. Swing Trading Crypto
Unlike day traders and scalpers that are looking to make quick small profits, swing traders are in it for the long haul (or relatively long haul). They hold their positions for days, weeks and even months sometimes, waiting for the market to swing in their favor.
But don’t confuse swing traders with HODLers or long-term investors. They are not holding their Bitcoins, waiting for the day it takes over the world. Instead, they are actively seeking market swings that can bring in sizable profits over a relatively shorter period in relation to HODLing.
While swing trading is relatively low-risk and offers greater flexibility to traders, it may not bring profits as consistently and frequently as some of the other strategies, making it a perfect fit for a hobby or a side hustle.
It also requires a unique blend of technical and fundamental analysis skills to succeed. Check out our in-depth guide to learn more about the art of swing trading crypto.
4. Arbitrage Trading
In crypto arbitrage trading, traders buy a coin on one exchange where it’s cheaper and sell it on another where it’s more expensive, pocketing the price difference as profit. For example, imagine buying an Ethereum coin from Kraken at $4850 and selling it on Coinbase at $5000, making a profit of $150.
This strategy has become popular in the crypto space compared to stocks, bonds, securities, etc., due to high volatility and the large number of exchanges available in the crypto space.
It’s similar to scalping in that it allows you to make small, frequent gains, also making it low-risk. However, it may not always be the most profitable due to the costs and fees associated with constantly buying and selling coins from different exchanges. Moreover, it’s a time-consuming process if you’re not using bots and automation tools.
There are various ways to execute an arbitrage trade, such as cross-exchange arbitrage, Spatial Arbitrage, DEX Arbitrage and triangular Arbitrage. We go over them all in our complete guide on crypto arbitrage trading.
5. Automated Trading
Automated trading involves using bots, algorithms, and stop-losses to execute trades on your behalf. That means you can focus on other things, whether that be honing your trading skills, studying trends and patterns, or simply enjoying life outside of trading.
The beauty of automated trading is that you can use it in conjunction with any other trading strategy, making your trades more efficient and potentially doubling your profits.
However, setting up these trading bots and stop-losses may come with a cost, which may reduce your profits. So, it’s only worth it if you’re already an experienced trader with a solid foundation of trading skills and technical analysis knowledge to program the bots effectively. Otherwise, it’s not only less profitable but also high risk.
Check out our list of best crypto trading bots for more insights.
Also worth mentioning is high-frequency crypto trading, where traders use extremely sophisticated bots and algorithms that automatically execute trades within seconds and even milliseconds, resulting in small but highly frequent profits. However, HFT is more suitable for advanced traders with extensive knowledge of technical analysis and computer programming.
6. Range Trading
Range trading involves identifying a specific price range in which a particular coin is trading, using technical analysis tools, such as support and resistance levels. The idea is to buy at the lower end of the range and sell at the upper end of the range, repeating the process until it’s no longer trading within that range.
For example, let’s say Bitcoin is trading between $800 and $870 for an hour timescale. The trader will buy every time the price hits the support level of $800 and then sell every time it hits the resistance level of $870 until the range changes.
Unlike other trading strategies like day trading or scalping, range trading allows traders to narrow their focus on price ranges instead of analyzing trends and patterns to buy low and sell high, or vice versa if shorting.
But don’t let this laid-back approach fool you. Range trading can be time-consuming if you don’t use bots or automation tools. Moreover, it can be relatively risky and less profitable if not done correctly.
7. Margin Trading
Crypto margin trading allows traders to open positions for more than the capital they have.
By borrowing money from an exchange. Essentially, you’re borrowing leverage, and with that comes the potential for significantly higher rewards than your existing capital would allow.
Margin trading is a strategy you can implement on top of other crypto trading strategies to earn higher rewards. But approach it with caution, as it can also lead to equally significant losses, making it probably the most risky trading strategy on this list.
If you’re new to trading, it’s better to gain some experience first before diving into this crypto trading strategy. But for seasoned traders looking to take their profits to the next level, margin trading can be a game-changer.
Check out our in-depth guide on crypto margin trading to see how it works, the pros and cons, and best practices to maximize results.
8. Derivatives Trading
Crypto derivatives work like traditional derivatives, where buyers and sellers enter into a contract to sell an underlying asset at a predetermined price and date. The main difference between crypto derivatives trading and spot trading is that instead of trading the actual underlying asset, you’re trading contracts, such as Bitcoin futures, Bitcoin options, perpetual swaps, and more.
For instance, let’s say you’re a trader who believes that Bitcoin will rise from $50,000 to $60,000 in 3 months. You could enter into a Bitcoin futures contract to buy one Bitcoin at $50,000 with a settlement date in 3 months.
If your speculation is correct and Bitcoin rises to $60,000 by settlement, you will make a profit of $10,000 per Bitcoin. But if you’re wrong and Bitcoin instead falls to $40,000 by settlement, you will incur a loss of $10,000 per Bitcoin.
Crypto derivatives trading can be highly profitable, as traders can make money based on their speculations regardless of whether the market is going up or down.
However, it’s also far more risky than spot trading since the crypto market is vulnerable to many elements that can quickly change the price trajectory against you. On the other hand, some might argue that crypto derivatives trading can actually prove to be a safer bet than spot trading in a highly volatile environment.
Ultimately, it all depends on your situation and level of expertise and trading skills.
Why Technical Analysis is Crucial for Crypto Trading Strategies
Throughout this article, we’ve mentioned how important technical analysis is when implementing these crypto trading strategies. But why?
To understand why, first, we must understand what technical analysis is:
Technical analysis involves analyzing trends and patterns based on the coin you’re trading, the timescale, trading volume, and more. This helps traders identify market indicators and signals like support and resistance levels, moving averages, and more, allowing them to make smarter trades with a higher probability of profits.
Check our in-depth guide on how to read crypto charts and patterns as a beginner trader.
The fundamental idea behind technical analysis basically is that past price trends and patterns are valuable indicators in predicting future prices.
Price movements in cryptocurrencies are less volatile throughout the day when compared to price movements throughout weeks and months when external factors, like regulatory developments, news and global events, may influence the market (this is where fundamental analysis comes in).
That is why it becomes crucial to identify even the smallest trends and patterns to make profitable bets in short-term trading strategies, such as crypto day trading or scalping. And that is what technical analysis helps with.
Some trading strategies, like swing trading crypto, involving relatively larger timescales for trades require you to utilize both fundamental and technical analysis.
What is the most profitable crypto trading strategy?
The most profitable crypto trading strategy has to be crypto margin trading since it provides you with leverage that can potentially multiply your rewards by many folds. However, if you only consider strategies where you can trade with your own capital, arbitrage trading and scalping are probably your best bet, considering you’re executing a high volume of trades.
What is the best crypto trading strategy for beginners?
While almost all strategies in this list are beginner-friendly, crypto range trading is probably the best crypto trading strategy for beginners since it allows novice traders to trade using a tried-and-test framework and structure. Plus, support and resistance levels, one of the tools you can use to range trade, are relatively easy to learn and master.
What are the best advanced crypto trading strategies?
Crypto margin trading, derivatives trading, high-frequency trading and scalping are all among some of the best advanced crypto trading strategies.
Which cryptocurrencies are best for day trading?
Since the coins with high liquidity, volatility, and trading volume are usually the ideal ones to trade, you should stick to the blue-chip cryptocurrencies, such as Bitcoin, Ethereum, Binance Coin, Ripple, etc., when choosing the best cryptocurrencies to trade.
What are the tax implications of crypto trading?
In most countries, including the US, selling, spending, swapping or disposing of your crypto is a taxable event, and you’re liable to pay capital gains taxes on any profits you incur. You must also report all your transactions, gains and losses to your tax authority.
However, when you’re trading crypto daily or weekly, these transactions can quickly add up, making it impossible to keep track of your trades come tax season.
So, if you’re a crypto trader or an active investor, use a crypto tax tool like Bitcoin.Tax, which will automatically collect all your transaction data from different exchanges and wallets, calculate gains and losses and prepare a tax report for you.
Check out our crypto tax guides for different countries.