Advanced trading strategies can give you more opportunities to grow your crypto portfolio and make more long term gains. Sounds great, but these strategies are often sophisticated and require knowledge of the crypto space in order to execute them effectively. We’ve listed the most effective and proven trading techniques here, with a summary of how to use them, along with the potential risks and rewards involved with each.
It is important to understand these techniques and, more specifically, the risks of each before putting them into practice. As the old adage goes, if it was easy, everyone would be doing it.
This trading strategy involves buying a cryptocurrency from one exchange where the price is low and selling it on another, where the price is higher. The differences are often in fractions of a percent, and change constantly, so you need to be laser focused on a particular coin or token, and have liquidity in multiple exchanges at the same time. Most successful arbitrage takes place by traders using exchanges that are popular in different parts of the world and off-ramp into different fiat currencies.
How to use: Monitor different exchanges for price discrepancies and execute trades simultaneously.
Risks and rewards: Rewards can be consistent but small. Risks include exchange fees eating into the profit margins, transaction delays, and potential price shifts during execution.
This is a high risk, high reward strategy that should only be attempted by experienced traders. It involves borrowing funds to increase the size of a trading position, multiplying any potential gains or losses.
How to use: Certain exchanges will offer leverage options, which are typically in the form of multiples of your capital injection. You can then use these to increase the capital you have to invest.
Risks and rewards: There are very high potential rewards due to leverage; however, it also carries high risks, including the possibility of losing more than your initial investment. Any changes in price will have a much bigger impact on your investment than it would without leverage.
Holding a price position for several days or weeks, expecting to profit from predicted upwards or downwards market shifts. This strategy is not as sophisticated as others in the list, but it requires a cool head and rational decisions to execute a trade based on logic, not emotion.
How to use: Assess the market using various techniques, including technical analysis tools, market news etc. and then identify the market trends to pick potential entry points (where you consider the price to be below market value) and exit points (price above market value).
Risks and rewards: Rewards come from capturing larger price movements. Risks involve market volatility and misjudging market trends.
Bot trading
A cryptocurrency trading bot is an automated software program that is designed to make trades on behalf of the user. The bots use predefined algorithms and strategies to assess the market, analyzing data, tracking price movements and placing trades.
How to use: Program or use pre-existing trading bots that execute trades automatically based on the market conditions.
Risks and rewards: Rewards include efficiency, speed, and the ability to trade 24/7. Risks involve technical failures, bugs, and the inability to react to sudden market changes. You are wholly reliant on the software.
Earning interest by lending assets or leveraging assets through borrowing. DeFi lending and borrowing markets allow any user to borrow or lend digital assets via decentralized systems governed by smart contracts. The smart contracts will determine the interest rates, transaction amounts, repayment terms, and loan expiration dates.
How to use: This is done through the numerous DeFi platforms available online.
Risks and rewards: Rewards come through earning interest and being able to leverage; risks include platform security, liquidation, and market volatility.
Yield farming and staking
Earning rewards by providing liquidity to DeFi protocols or holding and locking cryptocurrencies. With yield farming you can earn interest on crypto holdings by lending them out or staking them in DeFi protocols. Staking is the process of holding a currency in a certain wallet or exchange for a certain period of time, to support the exchange, in return for additional coins as a reward.
How to use: Stake tokens in DeFi platforms or participate in liquidity pools.
Risks and rewards: High rewards from interest and incentives; risks include smart contract vulnerabilities and market volatility.
Flipping NFTs
Buying non-fungible tokens (NFTs) at a lower price and selling them at a higher price.
How to use: Research and purchase promising NFTs, then sell them when their value increases.
Risks and rewards: Similar to forms of art and some other physical auctionable assets, high rewards can be made from finding rare and popular NFTs at the early stages and selling when the price pumps; however, when NFT’s launched it quickly led to market saturation, liquidity issues, and value depreciation across the majority of the market.
ICO and IDO participation
Investing in initial coin offerings (ICOs) or initial DEX offerings (IDOs) to acquire tokens at their early stages.
How to use: Research and participate in promising ICOs and IDOs through platforms and exchanges. Look for new projects that are being launched, research into them and purchase the ICO or IDO before the project is fully launched onto the market.
Risks and rewards: Potential for high returns if the project succeeds, as the initial price should be much lower than market price for good projects, to encourage early investment; however, high risks include scams, regulatory issues, and project failures. A lot of projects have been seen to advertise and market themselves heavily before launch and then forgotten about post-launch.
Technical analysis
This is a method used to predict future price movements by analyzing historical price data and chart patterns. This approach is based on the idea that past trading activity and price changes can be valuable indicators of future price behavior.
How to use: Traders apply various technical indicators such as moving averages, Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and trend lines. These tools help identify potential trading opportunities by highlighting trends, momentum, and potential reversal points in the market. For instance, moving averages can smooth out price data to identify the direction of a trend, while RSI can indicate whether a cryptocurrency is overbought or oversold, suggesting potential entry or exit points.
Risks and rewards: The primary reward of technical analysis is the ability to time entry and exit points more precisely, potentially increasing the chances of profitable trades. By recognizing patterns and trends early, traders can make informed decisions to maximize their gains. However, there are significant risks involved. Technical analysis relies heavily on historical data, which may not always accurately predict future market movements. False signals can lead to incorrect trading decisions, resulting in losses. Additionally, the cryptocurrency market is particularly susceptible to manipulation, which can distort the validity of technical indicators and patterns.
Fundamental analysis
Evaluating a cryptocurrency's intrinsic value by analyzing its technology, team, use case, and market position.
How to use: Research whitepapers, development updates, partnerships, and overall market trends to find projects with potential and real uses.
Risks and rewards: Long-term rewards if the project succeeds. Risks include misjudging the project's potential or market acceptance.
