An emerging asset class with a total market value of over $1 trillion is sure to make any investor’s head spin. Cryptocurrencies have been one of the best performing asset classes in 2021.
A growing number of investors, both retail and institutional, are allocating part of their portfolio to digital assets, hoping to make a long-term profit.
However, digital assets are subject to strong price fluctuations, which makes them risky assets. Trading in this new space requires due diligence and careful assessment.
Let’s take a look at the 10 best crypto trading strategies of 2022.
- How Much Crypto Should You Own?
Many people argue that stock market performance thrives and there is no need to invest in a volatile emerging asset class, such as crypto. There is some truth to this statement given that the performance of stocks, bonds and bills has averaged around 20% per year over the past three years.
However, a look at the performance of Bitcoin from a few dollars in price in 2009 to $68,000 in November 2021 is all the incentive an investor needs. An opportunity like this should make you wonder “why not add crypto trading strategies to my portfolio and maximize my earnings”.
A 2019 Yale study recommends allocating 4-6% of your portfolio to digital assets. Most financial advisors and money experts recommend investing between 1% and 5% of a portfolio in crypto.
On the other hand, crypto veterans and experts might suggest you allocate up to 20% of your portfolio to this industry.
- The Right Storage Combination
After allocating a portion of your portfolio to crypto, the next essential decision in the list of crypto trading strategies concerns the storage of purchased crypto assets.
You may think that storage can be part of the strategy, but after reading further you will realize how proper storage of crypto can help you trade them more efficiently.
Crypto assets can be kept in hot or cold storage. Hot storage refers to an online digital wallet while cold storage refers to an offline wallet like Trezor.
Experts generally suggest storing the majority of your crypto in cold storage to prevent it from being hacked and protect it from third-party liabilities.
Crypto traders may hold a small amount of crypto in their hot wallets to facilitate movement in and out of positions. It can also be used for short-term moves.
- Liquidity priority
An important measure of the crypto market is liquidity. There are hundreds of coins and tokens available for crypto trading. Prioritizing liquidity thus becomes an essential part of crypto trading strategies.
Since crypto traders enter and exit positions quickly, they must choose an asset with high demand so that it can be traded and a profit can be made.
An asset with great potential but less demand leads to fewer trades. A trader’s money is then caught in that trade, sitting at the mercy of the market.
An important marker for measuring liquidity is the recent trading volume of a crypto asset. Trading volume indicates the amount of cryptocurrency bought and sold, indicating overall interest in the asset.
- Volatility Harness
The main distinction between the traditional market and the crypto market is the volatility factor. Since crypto is an emerging asset, the hype and speculation surrounding the asset class can lead to periods of heightened volatility.
However, a certain range of daily volatility is considered healthy in the crypto market and is a great opportunity for profit. It could be considered one of the most profitable crypto trading strategies.
However, to take advantage of this volatility and manage the risks associated with it, a trader must have adequate experience and knowledge of the market to manage its price fluctuations.
Another way to take advantage of this volatility is to pay close attention to what is happening in the market and to the asset being traded itself. This means tracking news and all blockchain-related updates as well as historical charts so you can identify emerging patterns.
- Invest what you can afford
Remember that when exploring the cryptocurrency market, you only invest what you can afford to lose. This is a very important rule that should be followed when venturing into crypto trading.
If you cannot bear the potential total loss of your crypto trade, it means you cannot afford the risk of investing the amount you are considering.
Crypto novices should take a cautious approach and allocate less of their investable income to the asset class. While experienced crypto traders and DeFi experts tend to have a higher risk tolerance, which leads to larger trades.
- Take your winnings often
According to experts, crypto traders should often reserve their profits. Instead of speculating whether the price of the crypto asset might rise upon exiting a position, a trader should regularly take profits to deal with market volatility.
Having a pre-determined objective when determining crypto trading strategies will further help the trader define their entry and exit points.
- To diversify
One of the golden rules of trading in the crypto market is to diversify. By trading a variety of coins and investing in various crypto projects, an investor can significantly reduce their risk.
The crypto industry offers a huge bouquet of investments, including “internet of things,” non-fungible tokens, DeFi projects, and a wide variety of coin types.
For further diversification, investors can use different crypto exchanges as different platforms offer different assets.
By spreading their investments across different digital assets and exchanges, crypto investors can lower their overall risk profile.
Diversifying your portfolio is the best crypto strategy for beginners. Filling up on a single crypto asset could lead to heavy losses.
A notable trading option offered by the crypto market are ETFs (exchange-traded funds). A crypto ETF tracks the price of one or more digital tokens. Several Bitcoin ETFs and blockchain ETFs are available in the market.
ETFs provide exposure to crypto without the added expense of ownership and without hidden fees, such as transaction and network fees.
Crypto ETFs also allow investors to diversify their portfolios without incurring the costs of each token.
- Average dollar cost (DCA)
The cost averaging strategy consists of regularly investing a certain amount of money. Investors make regular purchases and lower their average cost.
This strategy allows you to invest money during bear and bull markets. DCA also reduces the risks associated with the violent volatility of the crypto market.
Using the DCA strategy helps remove emotion from new positions in the market and also helps ignore the short term for longer positions by buying crypto over an extended period.
Keep in mind that DCA is a long-term crypto trading strategy and cannot be used to make quick profits.
- trading bot
Crypto trading bots are automated software that help you buy and sell cryptocurrencies. This software helps an investor to increase his income and reduce his losses.
Bots can take advantage of the fact that crypto markets trade 24/7. They also react much faster than investors.
The most popular type of bot is the arbitrage bot, which takes advantage of the price differential between different crypto exchanges. Since the price of Bitcoin varies slightly from exchange to exchange, bots that can move fast enough can beat exchanges that are slow to update their prices.
It is one of the most popular crypto trading strategies of 2022, especially in the midst of this crashing market.
While all of these crypto trading strategies may seem easy on paper, navigating the volatile terrain of the crypto market is quite difficult.
Every investor should carefully research their investments and trading strategies before investing any money.
A novice crypto trader can join telegram groups or find mentors who have been in this industry for some time to help them formulate their crypto trading strategy.
Every investor should carefully assess the amount of money they are willing to trade and lose when formulating their trading strategy.