Basic Trading Strategies

5. Basic Trading Strategies

Trading strategies are structured approaches to buying and selling assets in the market, designed to maximize profitability and minimize risk. Below, we will explore key trading strategies used in the crypto space and how they can be applied effectively.

1. Following the trend

Trend following is a strategy where traders enter positions in the direction of the market trend. The idea is to capture significant price movements and ride the trend until signs of reversal appear.

How it works:

Identify an uptrend (higher highs & higher lows) or downtrend (lower highs & lower lows).
Use indicators such as Moving Averages (50MA, 200MA), RSI, or MACD to confirm the trend.
Enter trades when price pulls back to support levels in an uptrend or resistance levels in a downtrend.
Use a trailing stop-loss to lock in profits as the trend continues.

2. Breakout Trading

Breakout trading involves entering trades when the price moves outside of a defined support or resistance level with increased volume.

How it works:

Identify key resistance and support levels on higher timeframes.
Wait for a high-volume breakout beyond these levels.
Enter long positions if price breaks above resistance or short if price breaks below support.
Place stop-loss orders above resistance (for longs) or below support (for shorts).

3. Support & Resistance Trading

Support and resistance trading is based on the idea that historical price levels act as barriers that influence future price movement.

How it works:

Identify strong support (demand zones) and resistance (supply zones) on the chart.
Look for price rejections or candlestick patterns (e.g., pin bars, engulfing candles) at these levels.
Enter long trades in support and short trades in resistance.
Exit trades before the price reaches the next key level.

4. Range Trading

Range trading is a strategy used when the market moves sideways, bouncing between support and resistance levels.

How it works:

Identify a range-bound market (price moving between two horizontal levels).
Buy at the bottom of the range (support) and sell at the top (resistance).
Confirm entries with oscillators like RSI (oversold at support, overbought at resistance).
Place stop-losses just outside the range to prevent getting caught in breakouts.

5. Scalping

Scalping is a high-frequency trading strategy where traders take advantage of small price movements over short periods.

How it works:

Focus on high-volume, liquid assets to ensure quick execution.
Trade small price fluctuations, entering and exiting trades within minutes.
Use tight stop-losses and low timeframes (1-minute or 5-minute charts).
Utilize momentum indicators like RSI, MACD, and VWAP.

6. Swing Trading

Swing traders hold trades for several days or weeks to capture medium-term price movements.

How it works:

Identify larger trends and enter trades at pullbacks.
Use technical indicators like Fibonacci retracements, moving averages, and trendlines.
Hold positions longer than a day but exit before the trend reverses.
Aim for higher risk-to-reward ratios (e.g., 1:3 or 1:5).

7. Trading the news

News-based trading involves taking positions based on fundamental events and market-moving news.

How it works:

Monitor crypto news sources, exchange listings, and economic reports.
Trade assets experiencing significant news-driven volatility.
Enter positions immediately after high-impact news is released.
Use tight stop-losses due to unpredictable price swings.

If a major exchange announces a new coin listing, traders may enter long positions before the hype drives prices higher. A good place to see upcoming news events is on Trading View as shown below.