After the previous lessons, we explained the basic concepts related to exchanges, spot trading, and derivatives trading in the cryptocurrency market, and have also learned how to do spot trading and perpetual futures trading on centralized exchanges. Next, we will help you initially build your own trading investment strategy in terms of analysis and start your own cryptocurrency trading journey.
What is a Trading and Investment Strategy
A trading strategy is a comprehensive framework plan that covers all of a trader's trading activities. This plan is created by the trader to guide him or her in all his or her trading activities. Although specifying a trading strategy is not a necessary part of trading, nor will a trader become rich in a short period of time just because he or she has constructed and used a trading strategy. However, an effective trading strategy can guide a trader to take appropriate measures for different situations and avoid being overwhelmed by personal emotions that can affect buying and selling operations in the heat of the moment.
A trading strategy usually includes the following: asset classes to be traded, instruments and indicators to be used, buy and sell target prices (stop-loss prices), position sizes, and a way to record measurements of the performance of the trading portfolio. In addition to this, traders can also set up a trading schedule, setting up only the days of the week to trade, etc., to avoid spending too much time and energy watching prices closely and creating a physically and mentally exhausting situation.
Types of Trading and Investment Strategies
There are usually two types of active trading strategies and passive investment strategies, depending on whether the trader is actively trading frequently or not.
Active Trading Strategies
Active trading strategies typically require traders to be more proactive, devote more time and effort, continuously monitor and track market dynamics, and frequently adjust their trading portfolios, including day trading, swing trading, trend trading, and ultra-short term trading. Of these, day trading is probably the best known active trading strategy, which involves buying and selling on the same day, with the trader's goal being to take advantage of intraday price fluctuations for gains during the day.
Passive Investment Strategies
Compared to active trading strategies, passive investment strategies take significantly less time and effort. Common passive investment strategies include buy-and-hold (HODL), index investing, and others. Among them, buy-and-hold as a passive investment strategy encourages traders to buy and hold assets for a long period of time without buying and selling regardless of the market fluctuations in a short period of time. Dollar cost averaging (DCA) is a common passive investment strategy approach that reduces the impact of the price and timing of market entry by lengthening the investment cycle.
How to build a trading investment strategy
Fundamental Analysis
Fundamental analysis is a comprehensive approach to evaluating a project, analyzing the intrinsic value of a particular cryptocurrency by analyzing relevant financial, economic and other qualitative and quantitative factors. Fundamental analysis is often used to analyze the overall development of a project, including its financial position and future prospects.
Fundamental analysis can help traders improve their decisions and help investors make more informed decisions by gaining a more comprehensive understanding of a project's current financial situation and development prospects. In addition, fundamental analysis helps to identify projects with strong fundamentals and avoid projects with weak fundamentals. By needing to choose projects with strong fundamentals for investment trading, traders can reduce the risk of losses due to unexpected events or dramatic market fluctuations.
Technical analysis
Technical analysis is a method of predicting the future movement of an asset by analyzing historical trends in trading activity, such as price movements and trading volume, among other factors. Traders who use technical analysis often believe that the historical performance of the market can be used to predict its future performance and trends. Technical analysis is often combined with the use of tools such as charts to identify and predict trends in future activity, such as K-line charts.
Technical scores can be used to identify market trends, identify price support and resistance levels, and determine the best times to enter and exit the market, which in turn helps traders make more informed investment decisions. Other reference points include reversal trends, breakout points, entry points, exit points, etc.
Summary
After studying the content of this course, you should already have an understanding of the common types of trading and operational processes in the cryptocurrency market and be eager to start your first trade. However, it is important to remember that trading and investing should be done according to your current situation, develop your own trading and investment strategy, use leverage wisely and do not get carried away by emotions.
Trading investment strategies are also not set in stone and traders should always adjust them according to their costs, investment trading cycles, target yields and other factors and changes in external market conditions. Adopt different investment trading strategies for different stages and different cryptocurrency varieties in order to continuously improve your trading style, control risks and increase returns.
Disclaimer
-
Crypto investment involves significant risks. Please proceed with caution. The course shall not be considered investment or financial advice.