I remember the days when I was getting started with crypto trading. The feeling was a mix of excitement and overwhelm. With thousands of cryptocurrencies to choose from and price volatility that is unheard of, it's easy to feel lost. Not to mention the endless stream of jargon. If you are now where I was 5 years back, don't worry! Everyone starts somewhere, and with the right approach, you can navigate the crypto markets with confidence that grows by the day.
Rather than explaining a bunch of theory here, I explain three proven trading strategies that are perfect for beginners. Since these approaches are intended for beginners, I struck a balance between potential returns and manageable risk levels. These strategies don't require constant market monitoring or advanced technical analysis.
1. Dollar-Cost Averaging (DCA)
This one is an evergreen strategy for beginners and applies not only in crypto but all types of investing. Dollar-cost averaging is beautifully simple. You invest a fixed amount of money at regular intervals, regardless of the current price. For example, you can buy $100 worth of Bitcoin every Monday, no matter if Bitcoin is trading at $80,000 or $100,000 that day. If you have picked a good asset to put your money into, this strategy helps you build a position at an average price. Over time, this strategy can beat trying to time the market.
DCA strategy removes emotion from trading. This prevents beginners from panicking during price drops or feeling FOMO (fear of missing out) during irrational rallies. In crypto's wild price swings, DCA also manages volatility by smoothing out your entry points. This strategy also allows you to set up automatic purchases on most exchanges and lets you do it on autopilot. DCA also builds good trading habits, encouraging consistent investing rather than gambling-like behavior.
To implement this strategy, first choose 1-3 established cryptocurrencies (like Bitcoin or Ethereum). Then, you need to decide on your comfortable investment amount. Once that’s done, set your schedule (weekly or monthly works best), and stick to it for at least 3-6 months before evaluating results.
2. The HODL-ing Strategy
HODL is originally a typo for ‘hold’ that became crypto slang. It is less of an active trading strategy and more of an investment philosophy. HODL involves buying cryptocurrencies that have long-term value and then holding them through market volatility, potentially for years. While all this may sound passive, effective HODLing requires careful research and strong conviction to ride the dramatic ups and downs of crypto markets.
HODL simplifies decision-making for beginners. Once you have done your research and made your investment, your only job is to hold through times of volatility. Most beginner traders lose money trying to time entries and exits. HODL, like DCA, avoids timing mistakes. Depending on where you live, HODL may also help you evade taxes, thanks to lower slabs on long-term capital gains. HODL also aligns with blockchain's long-term trajectory, as the expert consensus is that blockchain technology is still in its early phase.
To implement this strategy effectively, focus on cryptocurrencies with strong fundamentals, active development, real-world use cases, and established communities. Diversify across 3-5 projects rather than betting everything on a single token, and consider storing your holdings in a secure hardware wallet for long-term safety.
3. Range Trading
Range trading is for beginners who want a more active approach but with clear boundaries. This strategy works well in sideways markets (otherwise known as crab markets) when prices oscillate between fairly consistent support and resistance levels. The basic idea is to buy near support and sell near resistance. For the uninitiated, a support is where the prices hit the lower boundary of their trading range, and a resistance is when prices approach the upper boundary.
Range trading has clear entry and exit points. This gives you very specific price targets for buying and selling cryptocurrencies. The strategy works in all market conditions, even when the markets are not clearly moving up or down. Range trading acts as a primer to technical analysis, helping you develop skills in identifying price patterns and market structures. With proper stop-loss placement, risk can be clearly defined in range trading.
To get started with range trading, first identify some cryptocurrencies that have been trading in a visible range for a few weeks. Then, use daily charts to identify their upper and lower boundaries. Now, set buy orders near support with stop-losses just below, and place sell orders near resistance. Start with small position sizes in the beginning.
Concluding Thoughts
Whichever strategy you choose, stick to the basics of trading. Start small. Only trade with money that you can afford to lose. Track your trades, including reasons for entry and exit. Executing thousands of trades wouldn’t make you an experienced trader, but reflecting on your decisions does. Also, avoid putting all your capital into a single trade or cryptocurrency. The crypto space evolves rapidly. So, dedicate time weekly towards expanding your knowledge. No strategy works 100% of the time. However, applying a well-researched approach consistently will outperform emotional buys and sells. Making money by trading crypto is not a sprint but a marathon. By starting with these beginner-friendly strategies, you will develop a strong foundation for potential long-term success in the crypto markets.
