Don't let those red and green candles scare you away! These 5 beginner-friendly strategies can help you make smart moves in the crypto trading arena.
Crypto markets are known for volatility, which means there are endless trading opportunities available even for beginners - only if you know how to find these opportunities. If you’re just starting out your trading journey, you will likely feel overwhelmed by the sheer amount of information available on the internet, and that only makes it harder to get a clear read on the market.
While there is no one-size-fits-all approach, there are a few strategies that usually work well for beginners in the crypto sphere. In today’s article, we discuss five popular beginner-friendly crypto trading strategies to consider.
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Crypto Trading Essentials
Before we dive in, it’s important to have a basic understanding of candlestick charts, and it will be useful to have access to an online charting tool, such as Tradingview, as well.
Also Read: How to Use TradingView
Disclaimer: This content is for informational purposes only, and is not (nor should it be construed as) financial or investment advice. Test these strategies for yourself, and see what works for you before making any investment decisions.
Strategy #1: Moving Averages
Moving averages are one of the most popular indicators in technical analysis. This technical indicator shows the average price of a specific number of candlesticks. For example, a 100-day moving average will calculate the average price of the last 100 candles, and print this value on the chart. With a new candle, it adds a new data point and removes the oldest one – resulting in a smooth line on the chart.
The chart below shows the 100-day moving average on Bitcoin’s daily chart. As you can see, it moves with the market, both down and up in a smoother way. This is a great way to cut out the noise of day-to-day volatility.
The moving average follows price action with a delay because it takes a while for a price move to be reflected in a 100-day average. The shorter the moving average (for instance, a 13-day moving average), the faster it will react to price swings.
Essentially, moving averages help traders understand the trend direction. Traders can also use this indicator as dynamic support and resistance. As you can see in the example below, the 100-day exponential moving average acted as a resistance and support multiple times, especially when it lined up with a horizontal supply and demand zone.
When trading with moving averages, it is important to note that they work well in trending environments but will lose their efficiency when the market moves sideways.
Read more: How to Use Moving Averages?
Strategy #2: Golden & Death Crosses
Another powerful trading technique is built on moving averages, but because it is a completely different strategy, it still deserves an entry of its own. As discussed, moving averages display the average price over a set period of candlesticks. The golden cross and death cross appear when a long-term moving average and short-term moving average cross one another. To explain it further, we are going to use the 50-day and 200-day moving averages.
A death cross, as the name suggests, is the bearish scenario. This happens when the 50-day moving average crosses below the 200-day moving average. In essence, this tells you the short-term trend is weak and a downside can be expected in this duration.
Conversely, a golden cross is a bullish sign, where the 50-day moving average crosses above the 200-day moving average. This suggests strength and tends to signal further upside.
The chart below shows the two most recent examples of a death and golden cross, on Bitcoin’s daily chart. As you can tell, the signal usually only prints after a significant move has already happened. Price will rally from the bottom and a golden cross is printed much later in the game. Still, historically, golden and death crosses have a decent strike rate.
Nevertheless, these also have a history of printing fake signals, especially during range-bound price action. Moving averages and their crosses work well during strong trends, but we don’t recommend relying on them during sideways price action.
Seasoned traders like to use golden and death crosses, primarily in higher time frames, but some traders have managed to build a working strategy around them on lower time frames as well.
Read more: What Are Golden and Death Crosses
Strategy #3: Market Structure
Another popular – and easy to master – strategy revolves around understanding the market direction, without using any indicators. With a solid understanding of the market structure, traders can get the feel of the chart in the blink of an eye.
The market structure tells you the direction of the price of an asset by taking a zoomed-out view. There are three kinds of market structures: bullish, bearish and sideways. The consecutive swing highs and lows (also called swing points) are used to determine the type of market structure.
The chart below is an example. The market structure is bearish initially because the price is printing lower highs and lower lows. As the first higher low is printed, it is time to start paying attention. A full market structure break happens when the price pushes beyond the latest high, confirming a higher high.
At this point, the overall direction of the market shifts. As with moving averages, this information helps you decide the direction you will trade in. After all, longs are generally the best bet in an uptrend, whereas you are better off with shorts during downtrends (not financial advice).
The best part about market structure is that it works well on even the lowest time frames. Traders like to use these shifts in market direction (market structure breaks) as trade triggers. For example, one could decide to enter a trade in the direction of the new trend and hold it until the market structure breaks in the other direction.
This can yield powerful results, but the market structure – as any tool – can provide false signals as well. When these false signals happen, it often solidifies the previous trend, which can cause acceleration.
Also Read: How To Use Market Structure in Trading
Strategy #4: Dollar-Cost Average
By far, the easiest strategy on this list is dollar-cost-average (also known as DCA). Because of its simplicity, the chances are you’ve already used this strategy, although perhaps unknowingly. In essence, the strategy works by purchasing a small amount of a cryptocurrency at a set interval, rather than buying everything at once. The key part of this strategy is that you keep buying, regardless of what the market does.
For example, Bonnie purchases $250 worth of Ethereum every Tuesday, for the entirety of 2023, investing a total of $13,000. This works well because scaling in over time smooths out the volatility of a market. It helps you deal with emotions during market volatility, as you have time to get used to the size of a position.
This strategy gets a lot of critique though, with opponents pointing to the fact that someone starting to dollar-cost average during the height of a bull market would go down significantly. They strike a valid point - DCA strategies should not be deployed randomly, but rather in certain conditions.
For example, if Bitcoin has been in a bear market for multiple months and has corrected more than 70% from its previous all-time highs, you can deploy DCA techniques with a much higher likelihood of making a positive return (not financial advice)
When a new bull market starts, you can turn off the DCA strategy and watch your account grow, until your uncles and friends start talking to you about crypto too. This is when successful traders deploy inverse DCA techniques, selling a portion of their portfolio at a fixed interval.
Strategy #5: Relative Strength Index - Divergences
A more complex but highly effective strategy can be found when comparing the relative strength index to price action. The relative strength index is a momentum oscillator, which are tools that visualize the strength or weakness of a certain asset. Moving up and down between 100 and 0, higher readings indicate buying momentum, whereas lower readings indicate selling momentum.
While many traders merely rely on overbought (RSI readings above 70) and oversold (RSI readings below 30) readings, it gets especially interesting when we start analyzing the discrepancies between the RSI and price action.
For example, when the RSI makes higher lows while the price pushes for a lower low, this is seen as a strong bullish signal. It shows sellers are losing momentum, and the market is ready for a reversal. The so-called bullish divergence historically results in a significant bounce. Take the recent Bitcoin bottom for example - the market printed one of these bullish divergences right at the lows.
A bearish counterpart to this divergence exists as well; bearish divergences form when the price prints higher highs, but the RSI prints a lower high. This shows buyers are losing momentum, and a reversal is on the cards. This signal was printed at the peak of the bull market, marking one of the most significant reversals in years.
All in all, divergences between price and the relative strength index are strong trading signals that can help you spot reversals before they happen. The strongest signals happen at the extremes of the RSI, above 70 and below 30. Divergences work across all time frames as well, but we have found them to be most effective on the 4-hour and daily charts.
Refer to our article on the Relative Strength Index and divergences to learn more about this powerful tool!
Conclusion
That concludes our write-up, giving you five different trading strategies to work with as you embark on your journey in the crypto markets.
To sum up, moving averages can help you understand the overall trend direction or give you extra confidence when the price corrects into a support level. When using multiple moving averages, crosses of these moving averages can serve as warning signals or as confirmation of a newly-formed trend.
Market structure and the relative strength index can help you spot reversals early, providing you with timely entries and exits, and helping you make the most of each move in the market. Dollar-cost average strategies can be used for a longer period, building a long-term portfolio for the next bull market.
All in all, we recommend experimenting with the different indicators, learning more about them, and determining which one works well for you. When you decide on which strategies you will use, it is important to not get overly fixated on one strategy.
In our experience, analysis works best when it is used in confluence with one or two other analysis forms – for example, combining the relative strength index divergences with market structure and price action analysis.
Writer’s Disclaimer: This article is based on my limited knowledge and experience. It has been written for educational purposes. It should not be construed as advice in any shape or form. Please do your own research.
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