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Different Types of Crypto Trading Explained

crypto trading types explained

When it comes to trading crypto, there is no one way to approach it. Some traders focus on short-term goals, while others prefer a long-term strategy. You can pick a style that fits you best or combine different styles depending on the asset or your objectives. It’s important to adapt your strategies to what works for you because different strategies suit different investors, time frames, and levels of market volatility. Moreover, not all strategies can be applied to all market conditions, nor are they suitable for all kinds of traders. In this article, we will explore some of the most popular crypto trading types and the types of traders that use them. Let’s take a look:

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Crypto Trading Types

The most common strategies used by crypto traders include:

  • Scalping
  • Day Trading
  • Intraday Trading
  • Range Trading
  • Swing Trading
  • Position Trading
Types of crypto trading

Scalping

Scalping in crypto trading revolves around quick transactions. The aim is to secure consistent profits, even if they’re modest. You’ll swiftly capitalize on gains and quickly minimize losses. This strategy involves frequent trades, possibly every few minutes or just a handful per day. Scalpers prioritize quality over quantity. Ideally, traders engage in both long and short positions even at low leverage, like 1x (so you could go short).

For example, a scalper might buy Bitcoin at $50,000, sell at $50,100, buy again at $50,150, and sell at $50,200. They might set a tight stop at, say, $49,950 or manually scale out of the position if it turns against them. Scalpers rarely hold positions for long because they are trying to hit their TPs quickly. However, this requires solid attention. Scalpers rely on effective risk management, skill, and a bit of luck in some cases as well. It’s a strategy that rewards risk management and quick thinking, offering small but steady gains that can add up over time.

Day Trading

Day trading is pretty easy to understand. It is basically scalping, but instead of making trades within minutes, you’re doing it over the course of a day. A day trader might engage in various strategies within that single day, like scalping, trading the range, or taking short-term position trades. The key is they’re not holding onto their positions overnight. You devise the strategy for the whole day, and as soon as the day ends, you wrap up your trades as well.

Compare to scalping, you still use stop losses and adjust your positions, but you’re aiming for slightly more profit on each trade. Plus, you’re usually more okay with market fluctuations and might let some trades ride longer. While scalping could be considered a form of day trading, they’re often seen as two different approaches.

Intraday Trading

Intraday trading is a type of day trading that allows traders to hold positions for more than one day. The difference is that simple. In the crypto world, where the market never sleeps, there’s no set end to a trading day like in traditional markets. Instead, we rely on daily candle closes for reference.

Traders often utilize automation software, aka bots, to manage positions, allowing them to keep short-term positions open beyond traditional market hours. There’s no strict rule dictating that positions must be closed just because the clock strikes 4 pm or any other arbitrary time. The crypto world is flexible which allows traders to approach it with this strategy.

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Range Trading

Range trading takes advantage of the periods when cryptocurrency markets move within specific price ranges. These are phases of consolidation during trends. Traders use this strategy to profit from the known price range.

The range is determined by key support and resistance levels, often identified through classic consolidation patterns like channels, flags, or symmetrical triangles. Traders aim to enter short positions or close long ones near the top of the range where resistance is found. Similarly, they may initiate long positions or close short ones near the bottom of the range around the support level.

To manage risk, range traders place stop-losses beyond the boundaries of the range. If trades move out of the established range, these stop-loss orders help close positions quickly to prevent any heavy losses.

Swing Trading

Swing trading revolves around identifying support and trading towards the next resistance level or simply setting an entry and target and holding the position until reaching your target or meeting exit conditions.

In swing trading, you open a position, sometimes in parts, at what you determine to be the local bottom or support level. Then, you aim to hold onto your position until you reach the local top or resistance level, often scaling out gradually to lock in profits. The logic is reversed for shorting, where you aim to sell at the top of the trend and buy back at the bottom.

Swing trading typically spans days or weeks. This means you’ll take a position, monitor it through its ups and downs, and ideally, remain calm without panicking. A good grasp of technical analysis is also important for a good swing trader. If you can analyze patterns and identify likely support and resistance levels, swing trading can be highly rewarding.

In simple words, swing trading capitalizes on the waves of price movement in the crypto market, aiming to catch the bottom and ride it to the top in long positions and vice versa during short positions. The move’s duration depends on the chart’s timeframe and the pattern being analyzed, but generally, it can take a while.

Successful swing traders who utilize both long and short positions often see significant gains with minimal effort. However, it requires courage to detect patterns, stay composed, and be willing to cut losses using stop-loss orders.

Position Trading

Position trading is quite similar to swing trading. In this approach, you aim to establish a long position at a low point or a short position at a high point, then hold onto that position for weeks, months, or even years. While it’s the simplest form of trading, it requires a lot of discipline. A disciplined position trader either stays invested through market fluctuations or strategically takes profits and re-enters the position at the same level.

Position trading shares similarities with investing as its long-term oriented. However, it’s not purely investing, as the goal is to execute a highly profitable longer-term trade based on overarching trends.

When it comes to trading crypto, position traders must endure the volatile ups and downs. They have to sit patiently during both bear and bull markets and not let the good or bad news get to them so they can maintain focus on their long-term objectives.

Conclusion:

In conclusion, crypto trading offers a variety of strategies to suit different preferences and timeframes. From the quick scalping transactions to the patient approach of position trading, traders have options to navigate the crypto market. Whether it’s seizing quick gains or riding long-term trends, success in crypto trading demands discipline, risk management, and a keen understanding of market dynamics. In order to succeed as a crypto trader, it is important to choose a strategy that pertains to your needs and goals. Happy trading!

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Founder of CryptoKid.com, 17 y/o Technical Analyst & Angel Investor