Choosing the Right Trading Strategy
Trading is not a chaotic sequence of transactions – this is an art that requires skills and understanding of the market. If you plan to trade cryptocurrencies, you should prepare and do your own research to find out the best trading strategy. Unless you apply your knowledge in practice, you won’t be a successful trader.
First and foremost, we should mention that there is no ideal strategy. Everyone decides for themselves because different options may work differently.
What are your predictions?
Your outlook is the major foundation of your trading strategy. Say, you want to make money on ZIL price fluctuations. If you expect it to go up, you can buy ZIL. If you think it will go down, you can short sell the stocks.
There are four major outlooks:
Bullish (rising of cost);
Bearish (falling of cost);
Neutral (price remains stable);
Volatile (major swings in price).
You can further categorize your strategies according to moderately or significantly bearish, etc. These strategies can be combined for you to find suitable tools.
Is the risk worth the reward?
Risk management is crucial when you choose a strategy. Each strategy has its risk profiles, so assess all the potential losses before you start trading and never invest what you cannot afford to lose. You can determine the risk by using risk graphs. The reward ratio should be analyzed, too.
Single Position vs. Options Spread
Options trading strategies imply creating spreads – combining several positions to reach a successful one. One of the best things about this strategy is that you can limit your risks and cut the costs of taking a certain position. Also, you can create a position that will be beneficial in case of different outcomes.
As a rule, taking spreads is always better than taking one position. However, the latter has a few advantages. First, there are fewer transactions used, and the commissions you pay are lower than for spreads. Besides, a single position can be profitable when the market develops the way you expected. With spreads, profitability is limited.
Which trading levels are required?
Say, you want to buy Enjin coin to make money on price difference down the road. Are you competent enough to determine which way Enjin price will go in the short or long term? The choice of strategies should be based on your experience and financial situation. You can bear high-risk levels only if you have a high trading level.
When it comes to cryptocurrencies, your previous trading experience is of less importance because the crypto market develops according to its own rules, and is less predictable than regular currencies and commodities.
How complicated is a strategy?
Options trading can be pretty challenging. While some strategies involve one-two transactions, others are based on a chain of buy/sell actions. Before you implement any strategy, decide whether you are ready to handle it – that may have a serious impact on your returns.
Think over the ideal entry and exit points when you decide upon a trading strategy. The more experience you get the more strategies you will be able to perform simultaneously. Also, consider using automatic trading instruments. When you become an advanced trader, choose legging because it allows generating more profit when you figure out the right timing.
To become a successful trader, you should be able to forecast price fluctuations correctly. At the same time, your actions, i.e., transactions, should be performed according to a strict plan. Knowing several trading strategies will never hurt, but your financial education should be consistent and full of practice. Learn about trading strategies one by one, and gradually, you will be able to pick the ones which work better for you.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes