Technical Analysis 101 | Crypto Trading 101

There are a variety of different styles that alter your decisions when trading. Which one suits you best?

Making trades without choosing a consistent style that matches with your expectations and trading temperament is a common mistake made by new investors. It often adds to their frustration and disillusionment with investing in cryptocurrencies. But it doesn’t have to be this way - at least not until the end of this article!

By figuring out how much time you want to attribute to your trades when you want to see returns and what margins you are aiming for, you can establish a coherent way of managing risks that yields far more successful investments.

Over time you will master your style and avoid getting caught off guard. Better yet, with Cryptohopper, you can set up and automate these processes. In this blog post, we are going to briefly review some of the most popular crypto-trading strategies so that you can really hit the ground running with our automated bot!

Scalping

Scalping is a form of intra-day trading, meaning investors (known as “scalpers”) execute trades in the very short-term, typically never leaving any positions open at the end of the day. Timeframes for trades can be from as short as 1 to 5 minutes to 2 hours.

With an impatient hand, scalpers are therefore on the lookout for frequent entry and exit opportunities reacting to slight price movements. This requires constant monitoring of the market and a deep understanding of technical analysis. It is not for the faint-hearted and will keep you on your toes every day.

When scalping, traders can make hundreds of buys and sells in a single day. They share the strongly-held belief that acting on minor price changes is more fruitful than interpreting weekly or monthly market trends. By making small gains on each position, their ultimate goal is to benefit from racking in and building up compounding earnings.

One of the main upsides of this style is that due to the small margin targets you can fight your greed instincts and never get emotionally attached to your trades before moving on. This can give you a real edge in crypto investing.

Scalp traders rely religiously on careful risk management, as they have to uphold a win/loss trading ratio significantly over 50%. Given the high number of trades with comparable short-term profits or losses, overall earnings would otherwise equalize and leave scalpers empty-handed. They, therefore, have to be right the majority of the time.

An extra complicating factor to the scalping equation is transaction fees on the exchange. With hundreds of fast-paced trades every day, aggregated fees quickly stack up and diminish returns. After ushering in these commissions and taxes, it becomes prohibitively difficult to turn a profit and grow a small portfolio. In the stock market, scalping, therefore, necessitates considerable starting capital, so that profit per trade comfortably offsets commissions.

This is where crypto exchanges have the upper hand! Most exchanges charge transaction fees as a percentage of the trade.

For beginner scalp traders, this means they are not disadvantaged by making a high number of small-sized trades. Nevertheless, they will still need to get on a winning streak to make it worth their while.

Should you still feel like adopting the scalping lifestyle, one handy tool for technical analysis is oscillators. These indicators lend themselves well for analyzing non-trending or choppy markets. On a scale from 0 to 100, oscillators are used to evaluate trends, volatility, momentum, and money flow.

They can give you short-term insight into upper levels pointing to an “overbought” coin and lower levels signifying when a coin is momentarily “oversold”. Examples of suitable oscillators are moving average indicators, RSI ( Relative Strength Index) and stochastics.

Luckily, you can customize and even combine multiple oscillators in the Cryptohopper configuration to optimize your scalping strategy. And, if you do not have the time to check your trades all day long your trading bot can take care of everything.

Day trading

In many regards, day trading is similar to scalping. The main difference typically lies with higher targeted profit margins and longer periods for keeping positions open. While scalpers will try to buy and sell within minutes, day traders may wait for several hours over the course of a day.

As the name suggests, you would generally not keep any positions open longer than 24 hours when using this trading strategy. 
Day traders likewise work consistently with technical analysis and stop-losses to scale in and out of positions.

However, depending on the trader he or she may pay some weight to intra-day market trends or other external factors.

Swing Trading

Swing trading involves trying to identify market trends. You would usually do this by opening positions for a couple of days to weeks or even months. Unlike scalping it requires patience.

Swing traders attempt to follow intermediate-term market developments. They benefit from volatile conditions since they look for higher potential profits margins.

The crypto market is, therefore, a fruitful environment for swing trading since it creates a high number of these investment opportunities.

The benefits of swing trading are that is has a comparatively low stress-level, can be done in your part-time and has low brokerage costs since only a few trades are executed. This makes it a suitable place to start for beginners in trading.

Naturally, swing traders also have a repertoire of technical analysis tools and diligently study charts. The core idea here is to utilize the technical analysis for finding local bottoms (entry point) and local tops (exit points).

Even though you may have a longer time-orientation than scalp traders and day traders, examining the aforementioned oscillators such as the Relative Strength Index will also be key.

Alternatively, you could keep an eye on “Moving Average” indicators. These can allow you to sense trends by analyzing market conditions based a moving mean. One widely used example is the Exponential Moving Average (EMA). The EMA predominantly focuses on recent data points and is, therefore, said to be more useful than other moving averages for identifying entry and exit points.

Position Trading

Position trading is the strategy with the longest outlook for investing. It is like a bird’s eye view of swing trading and may imply a great deal of HODLing. You would usually sell positions only after several months or even years, convinced that the real profits come in the long haul.

It requires a solid basis of preliminary research to perfect your fundamental analysis. When done correctly and combined effectively with technical analysis, you can take home the chunkiest one-off margins.

As a position trader, you should keep a cold head and ignore intraday fluctuations, trusting fully in your evaluation of weekly and monthly price charts.

Advice moving forward

We hope that after reading about these strategies and their considerations, you can now log into your Cryptohopper dashboard and implement the trading strategy that you find most appealing.

The key takeaway is that the style of risk management is at the heart of the distinction. This means that if you aim to make a high number of trades, your positions will become smaller and your stops tighter.

Continuity is something many new traders struggle with, as they find themselves distracted by herd mentality and the omnipresent media noise. If you can avoid letting this interfere with your chosen style, you are on the road for long-term success.

To get a closer look at the indicators you should use to pursue these venues, stay tuned for our upcoming blog posts! These will provide you with a clear overview of how to conduct technical analysis and how you can implement this knowledge into the different strategic trading options.