Finding A Style of Cryptocurrency Trading that Works for You
There isn’t one style of trading cryptocurrency, there are a few. Some styles are more likely to fit a person’s tastes, tolerances, and goals than others.
Below I’ll describe the different styles and try to offer some insight.
Scalping, Day Trading, Range Trading, Intraday Trading, Swing Trading, Position Trading, and Investing
Although there are different ways to denote the styles of trading, I would denote them as: scalping, day trading, range trading, intra-day trading, swing trading, position trading, and investing.
Scalping aims to make very quick moves, day trading aims to make profitable trades during the trading day, range trading speaks to trading the current range, intraday is just a term I’m using to describe a type of day trading that happens over the course of days, swing trading is trading from one set level to another (typically over the course of days or weeks), position trading is trading over a longer period of time, and investing speaks to building a long term position in an asset or asset class (it is HODLing in its true form).
Some of those styles overlap, but generally, the concept is we are going from the most rapid trading type, scalping, to the longest term type, investing.
One can choose a style that suits them, or one can mix and match styles based on the asset or their goals. Either way, it is wise to adjust your tactics for the style that works for you, as different tactics work better for different time frames (investors are much less concerned with smaller time frames, volatility, and technical support/resistance and will typically have their main position unleveraged, where scalpers might try to front-run support and resistance on a 5-minute chart using leverage).
The best way to understand what styles work best for you is to try them out and to be honest with yourself about how effective you are at the style and how the style affects your emotional and logical well-being.
Simply put, if a style is throwing you off your game and you feel off-balance, then it probably isn’t the right style for you (and if you are constantly taking losses, it also probably isn’t the style for you either).
In a way, the quicker you make moves, and the smaller percentage of your bankroll you risk, the less risk you’ll have with each trade on paper, but the more hands-on your trading will be. Meanwhile, because you’ll make a lot of moves, you’ll end up inviting in more complexity and will have to think more about slippage and fees.
Given the above, position trading and investing are generally the best choices for a new or casual trader, as they require less micromanaging and technical skill. However, those trading/investing types come with added stress in crypto… because the market is volatile even over the long term.
Meanwhile, any trading style that has you hold positions overnight is going to come with stress, because crypto is a 24/7 global market, and it is not uncommon for corrections to set in at night while one is sleeping.
Still, for those who aren’t sure, position trading or investing + dollar-cost averaging is a pretty good starting point to consider.
NOTE: One might refer to the styles on this page as cryptocurrency investing styles. However, that is really a different topic. These are styles of cryptocurrency trading. To me investing styles would be more like dollar-cost averaging, value averaging, etc (ways to build long-term positions in assets). The point here is to discussing trading types, that is ways to build positions with the goal of taking profits, not ways to build a position in an asset as a long-term investment (although, as you’ll see, there is a crossover and investing terms are for sure discussed).
Different Styles of Crypto Trading Defined
With the above introduction covered, here are some detailed descriptions of trading styles (all of which are common to all types of trading, but which we will discuss in the context of crypto):
Scalping is all about making very quick trades. The goal is to make constant profits (even if the profits are very small). You’ll take profits quickly, and you’ll cut losses just as quick. You might make a trade every few minutes, or you might only scalp a few positions a day. You want favorable setups, not just any trade. Ideally, you’d want to be able to go long and short (and would thus need to margin trade, even at 1x leverage, so you can short). However, you can scalp by spot buying and selling (buying and selling crypto).
This type might have you buy Ether at $700, then sell at $705, then buy at $702, and sell at $710. In those cases, you might place a tight stop at say $698. Or you might have a rule that you scale out of your position by hand if the trade goes against you. You will rarely just let your positions run, you have take profit targets at all times.
This requires constant focus. However, if you are good at it, you can make quick money.
This requires risk management and considerable luck or skill, but on paper, you can make constant small gains, and those gains can add up quickly.
TIP: Do some research on risk-reward in trading, this will help you to understand where to place your stops. You’ll likely want to use stops if you are scalping.
Day trading is just what it sounds like, it is like scalping, but instead of making trades over the course of minutes, you typically make them over the course of the day.
A day trader might scalp, trade the range, or even take short term position trades in a single day. They are day trading because they aren’t holding their position into multiple trading days.
You still use stop losses and scale in and out of positions, but you are looking for a little more profit on each trade than a scalper, and you typically have more tolerance for volatility and might let some of your positions run.
NOTE: You could consider scalping a type of day trading, but since they both have specific connotations, I’m defining each separately.
Cryptos will constantly define a range they are trading in. Generally, this range will be a type of consolidation (either accumulation, big players getting more coins for the next leg up, or distribution, selling coins at a high before the big players let the market drop).
A range trader trades the range and sets stops, they don’t really care if they are trading the range at the all-time high, or trading the range at the local bottom, as they are simply buying the bottom of the range with a stop, and then selling the top of it (or scaling out toward the top).
When you have a range you have clear support and resistance, so trading it makes sense. While others trade the breakout or breakdown, you focus on making profitable and predictable trades in the current range.
This can be a type of day trading or intraday trading, but the goal is to trade the range, not to buy into an uptrend, or buy after a downtrend, etc.
This is day trading, but a style of day trading that allows for holding positions over more than one day. Simple as that. The reality is traders do this and there is no rule that it can’t be successful. In crypto, the market never closes, so there is no end to a trading day (the best we get is daily candle closes). With software, you can automate positions and in this respect, there is not specifically a reason to close a short-term position just because the clock strikes 4 pm or whatever.
Swing trading is all about finding support and trading to the next resistance level, or more generally picking an entry and a target and holding the position until your target is hit or other exit conditions are met.
Here you will open a position (sometimes gradually) at what you calculate to be the local bottom AKA support, then you will aim to HODL your position all the way to what you believe to be the local top AKA resistance (generally gradually scaling out of your position to lock in profits). Obviously, it is the reverse logic for shorting, you aim to short the top of the forming trend to the bottom.
Swing trading is generally done over the course of days or weeks. That means you’ll be taking a position, sleeping on it, watching it go up and down in waves, etc… ideally, all without panicking.
If you can get a good sense of TA, for example, if you feel like you can analyze patterns and detect likely support and resistance levels, it can make a ton of sense to focus on swing trading.
Crypto goes up and down in waves, swing trading is all about finding the bottom of the wave and riding it to the top (with long positions; it is the opposite with short positions).
Exactly how long you spend depends on the timeframe of the chart and the pattern you are analyzing, but in general, a move can take a while.
Those who effectively swing trade using long and short positions tend to do very well and do very little work. That said, detecting the pattern, staying calm, and being willing to use lose on stops takes some guts.
NOTE: I strongly feel swing trading is the most welcoming trading style and the easiest to get good at due to higher time frame support and resistance tending to hold better than lower time frame and due to not having to react too quickly to trades. Swing also lets you capture meaningful runs. Consider starting here first if you want to trade, if you are more interested in investing than trading, but still want to take profits, consider position trading.
Position trading is like a zoomed out version of swing trading or like the trading version of investing. Here you’ll try to build/take a long position low or short position high and then stick with that position for weeks, months, or even years.
This is the simplest form of trading, but it also takes a lot of discipline. Consider someone who has been long on Bitcoin since $5k or short since $12k (the price of BTC is currently $8.3k). Bitcoin has gone to the high $5ks from $20k, and to the high $11ks from that high $5ks low. A disciplined position trader potentially sat through both of those events (although they perhaps scaled out of some of their position or reopened positions or perhaps they exited completely when the trend turned against them fully after a considerable drawdown from the top).
Position trading is a lot like investing, in that it is long term, but it isn’t purely investing, as the end goal is to make a killer longer term trade based on overarching trends.
In crypto, you’ll need to hold through the crazy ups and downs, the bear and bull markets, the good and bad news, and keep your eye on the ball.
TIP: Try pairing position trading with high time-frame trend signals like 50 and 200 day MA crosses (feel encouraged to use a more nuanced strategy, I just want to give a simple example). Here you might close a position on a bearish cross and only reopen again on a bullish cross. This sort of strategy works on trending assets, and the major cryptos tend to trend.
I don’t consider investing and trading to be the same thing. Trading is all about taking a position and aiming to take profit. Investing is all about having ownership of an asset as a store of value with a very general goal of increasing that value over time.
Warren Buffet is an investor. He considers buying stock like owning part of a company. If you own a fortune 500, you aren’t looking to take profits when its value goes up, you are looking to see more growth. A low price means the company is cheap (this is not something a trader really ever thinks about).
Investors are more likely to sell their position because they don’t like the direction of the asset’s price than they are to sell their position due to its current dollar value.
An investor isn’t necessarily going to set a stop loss. Instead, they will build a position in the asset and stick with their investment for as long as the reason they made the investment in the first place is true.
An investor is a true HODLer, they really don’t need to look at prices and charts unless they are looking to add to their position at a good price.
Investing is not trading, but ultimately buys and sell are made, and it is important to understand that this style will suit some.
NOTE: In any of the above styles you can take a full position at once or ease in. Some people will run accumulation bots and buy very small amounts of coin all day long, some people will enter a position incrementally with a few buys, some will go into the full position in one swing. Doesn’t matter which style you pick, just as long as it works for you and you have some way to manage risk.
TIP: All the above styles require patience. There is nothing more common than seeing a string of losses in a row when day trading or immediately seeing a downtrend after opening a well researched long position (or uptrend after a short position). What can go wrong, often will. You need to bear through the fails to see if a style is statically working over time, you cannot judge a style or an implementation of a style based on a few results in a short window of time. The goal is to be right more often than you are wrong, not to be right every time. Once you find a style, it will take work to refine, and your tactics will likely need to be tweaked based on the current market and coin you are focused on.
How to Pick the Right Style for You
The right style for a person depends on the person. There is some general advice to offer:
- Find a style that works for you, stick with it, get good at it, refine it, and keep at it until you are profitable. Don’t switch up your style if it stops working, just calibrate your style to the current environment (for example, take 5% of your holdings and range trade if we are stuck in a range; don’t just turn from a position trader to a range trader because of what happened this week as a rule of thumb).
- There is nothing that will kill your portfolio quicker than turning into an investor at a high or turning into a day trader at a low (because you are effectively buying high / selling low in those cases).
- Actually, there is one thing worse than that, that is not practicing risk management. Each style requires a different style of risk management (the more trades you make, the smaller the positions and the tighter the stops should be). Even though all styles require different risk management tactics, in all cases the idea is to limit your downside and to give the asset enough room to run. Going all-in with 100x leverage on one play is essentially never the right move, not setting stops when day trading is essentially never the right move (unless you are at your computer and will exit trades by hand nimbly, thus acting as your own stop).
- Trading cryptocurrency is a rather high-level sport. I’m not sure there is a more difficult pastime when it comes to trading. Most people are going to fall on their face over and over for months on end (if not years). Worse, if you come into crypto in a bull market, you are likely to not fall on your face at first, and then will be ill-prepared for the bad times (and will start falling on your face later into your game).
- Expect pain and try to learn some lessons, if it feels easy, it is likely that you are in a bull market and you should brace yourself for difficultly ahead (it never stays easy for long).
- Try to make your lessons affordable by using risk management and by avoiding switching up a style that has been working because it stops working for a few trades (for example, avoid the thing where you suddenly become a day trader at the bottom or an investor at the top; also avoid the thing where you hit a few stops, and then don’t take the next trade because you are scared; in terms of statistics, that next trade is usually the winner unless your strategy is bad).
IMPORTANT: Watch out for taking advice from others, making trades based on other people’s calls, switching trading styles mid-stream, etc. I strongly feel that you should find a trading style that works for you and stick with it. Also, you must learn the difference between a bear and bull market so you can avoid trading like a bull in a bear market and vice versa. Honestly, I could talk about my own style and give advice here, and I did in a past iteration of this, but this isn’t a page about how to trade, it is a page about trading styles. If you want my advice, trade the trend and stick to swing, position, and investing.