CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.00% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Like trading forex, precious metals and stocks, cryptocurrency trading requires careful market analysis and access to resources that can help you enhance your trading skills. Digital currencies can be traded via cryptocurrency exchanges or trading platforms that offer CFD trading in cryptos. Both types of trading are popular, although beginners tend to favour CFDs. But we’ll come to that later.
After opening an account with a broker offering crypto trading, finalise an efficient trading strategy that aids in informed decision-making, preventing you from being impulsive or led by emotions. Let’s look at some of the popular trading strategies used for cryptocurrencies.
Cryptocurrencies differ from fiat currencies, whose values are controlled by central banks. Digital currencies derive their value from several factors, including their demand and rareness. This makes them highly volatile in nature and they often move contrary to traditional asset classes.
Traders use fundamental and technical analyses to take advantage of the volatility in crypto prices. This requires good research and education on using specific indicators and trading tools to manage the risks involved in crypto trading.
Some popular crypto trading styles are:
Whether you choose range trading, swing trading or scalping, you will need technical indicators to analyse market trends.
As the name suggests, this strategy uses moving averages to identify the current trend’s direction and support and resistance levels. The crossover strategy calls for looking for a change in the trend by checking whether the price of the asset crosses above or below a moving average trend line, and then deciding whether to go long or short.
Another way is to use two moving averages, one short-term (e.g 50 day) and another long-term (200 day), to check whether it is a divergence crossover or a convergence crossover.
When the shorter moving average crosses over the longer one, it is a convergence or gold cross and indicates that the trend is shifting up and a long position could be warranted.
Similarly, when the shorter moving average trend line crosses below the longer moving average, it is a divergence or death cross, indicating that the trend is likely to move downwards, and a short position could be opened.
Image Source: https://www.babypips.com/learn/forex/moving-average-crossover-trading
A highly popular crypto trading strategy is to use the stochastic oscillator to identify the best time to enter and exit a trade. The indicator, with a value range of 0 to 100, helps identify overbought and oversold market conditions for your chosen crypto. A reading above 80 indicates that the crypto is overbought and a reading below 20 is indicative of it being oversold.
This strategy involves using the Ichimoku Cloud candlestick pattern to identify potential trend reversals, support and resistance levels and market momentum. This indicator consists of five candlesticks, of which the first two, The Tenkan-Sen and Kijun Sen, are used to identify potential trend reversals. The middle two candles, the Senkou Span A and Senkou Span B, are used to identify potential support and resistance levels. And the last one, the Chikou Span, is used to confirm the strength of the trend. The parameters of this tool can be customised according to your trading style and preference.
Image Source: https://www.investopedia.com/terms/i/ichimoku-cloud.asp
The RSI is used to measure the short-term momentum of the market. It measures the pace and direction of recent price moves, thereby helping to identify the crypto’s trading strength. Some things to know about this indicator are:
Apart from using these technical tools, you can also check out event-driven trading, where traders enter positions based on the positive or negative news expected about a specific cryptocurrency. Regardless of the strategy you choose, it is essential to do your homework to make informed decisions.
Trading cryptos can happen directly by buying and selling the digital asset on a crypto exchange. This requires the trader to create an account and open a digital wallet to store the crypto tokens. This form of trading also requires traders to fund the full value of the positions taken.
An attractive alternative for traders who do not wish to take possession of the cryptocurrency and the hassle of ensuring safe storage is to trade leveraged derivatives. Contracts for Difference or CFDs allows traders to speculate on price movements without having to own the underlying asset. With the availability of leverage, you need only fund a fraction of the cost of opening a position. Plus, you get to trade both rising and falling prices.
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