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This article describes the definition of portfolio management, how to build an investment portfolio, what it means to diversify it, and how all this works in crypto. More specifically, this article explains the necessary elements of an investment portfolio in general and in crypto in particular, the investment criteria that apply to different cryptocurrencies and coin types, and what a model portfolio might look like.

Traders and investors usually avoid putting all their eggs in one basket: instead of focusing on just one investment or asset class, they build portfolios of different investments. Portfolio management is about selecting and overseeing a basket of different investments to achieve some long-term financial goal within an investor’s given risk profile.

There are two types of portfolio management ideologies: active and passive. In the former case, portfolio managers attempt to “beat the market,” while in the latter case they opt to invest alongside the market in an attempt to “match” it. The difference is that active portfolio managers will strategize and actively buy and sell financial assets to do better than the market, while passive ones will compose a diversified portfolio that mirrors one of the market indices in an attempt to match the market’s returns.

Portfolio management today is based on Modern Portfolio Theory, invented by Harry Markowitz in the 1950s. It gives a mathematical form to the basic intuition behind diversification: namely, that it is safer to invest in a range of different assets or asset classes than in just one. It follows that one ought to assess an asset’s risk and return not in isolation, but in comparison to other assets in a portfolio. The same principles apply in the realm of crypto. The point then is to compose a portfolio of different assets in such a way that one’s returns will be maximized without increasing one’s level of risk.

In other words, one ought to move along the so-called efficient frontier, one of Markowitz’s key ideas, illustrated by the chart above. If the X-axis represents the risk, as the standard deviation of returns in %, and the Y-axis represents an asset’s returns, then a rational investor will make sure that his or her portfolio is always somewhere above the efficient frontier curve. Moving along the frontier involves taking different levels of risk, as illustrated on the chart. The line on the chart represents the efficient frontier, connecting dots that represent optimal relationships between risk and return for any given level of risk.

For example, a technology company like Google is inherently riskier than an established brand such as Coca Cola. Google is located in the top right part of the chart, indicating significant levels of both risk and return. Coca Cola is located in the bottom left of the chart, indicating low levels of both risk and return. Yet both dots are on the efficient frontier line—that is, in both cases the relationship between risk and return is optimal. That means, for Coca Cola, the return must be no less than about 2%, and for Google, no less than about 10%. Otherwise the relationship would not be optimal.

Portfolio composition involves choices and opportunity costs, for example, choosing between different asset classes, different temporal horizons, domestic or international markets, and the like. The goals can also be different: investing in “blue chips” that are stable and safe, or investing in “growth stocks” that are more volatile but potentially yield higher returns. Individuals can manage their portfolios on their own, or hire professional portfolio managers to do it on their behalf. There are also multiple organizational forms available for investors. For example, closed-end funds are typically actively managed, while exchange-traded funds (ETFs) replicate some market index.

Portfolio management involves several distinct elements. First, assets must be allocated according to expected return targets and the risk profile. The idea here is that different assets diverge in their movement patterns, volatility, and returns. This diversity creates room for composing a portfolio rationally, making sure it accommodates one’s risk profile and return expectations.

Second, a portfolio must be diversified to ensure an adequate balance between risk and returns. Diversification allows spreading the risk across different categories: of assets (e.g. stocks or bonds), of geographical regions (e.g., Europe or Asia), and/or of industries (e.g., biotech or mining). If one fails, the others will not, because these categories tend to diverge.

Third, every once in a while a portfolio must be rebalanced in accordance with the goals and the risk profile. Asset prices and volatility levels change, so it is important to review one’s investment portfolio periodically so as to make sure it doesn’t evolve too far away from the initial goals.

The chart below demonstrates the benefits of diversification. Compiled by Ben Carlson, it shows the differences in year-to-day returns of a number of portfolios with different asset allocations. Each of the seven curves represents a portfolio with a specific ratio of different asset classes. The 100/0 is obviously the extreme case of no diversification at all (i.e. everything is invested in stocks), the 40/60 being the most diversified one. As can be seen, the most diversified portfolio suffers the least during a crash, while the most homogenous one incurs the largest losses.

The same principles apply to crypto trading. Cryptocurrencies are now a well-established asset class with a lot of internal diversity. Thus, it is possible to build portfolios of different coins with unique functions and value propositions and manage them, actively or passively, in a similar way to how it is done in the traditional stock market.

How many cryptocurrencies should be in your portfolio?

There is no consensus on how many cryptos one should have in one’s portfolio, but there is some evidence suggesting that about 20 different coins or other assets reap maximum returns.

What are the investment criteria for building a portfolio of crypto assets? Again, this is more a rule of thumb rather than a formal theory. Here are some useful tips on what to consider when choosing cryptocurrencies for a portfolio.

Value Proposition. What is the problem they are trying to solve? Ultimately, the value of a crypto depends on how well it solves a certain problem, be it the unreliability of fiat money (BTC), the necessity to rely on human trust in contracting (ETH), or the desire to enhance anonymity (ZEC).

Community. Cryptos are volatile assets and, unlike legal tender, are not as easily convertible and thus not as good at storing value. This makes the level of adoption a crucial consideration when choosing crypto assets for a portfolio. The greater the community of adopters, the better a crypto asset will fare—that is, the more they handle the money, the better for the investor.

Technology. If there is a solid value proposition and a sizable community, a crypto asset may have a bright future, which will be even brighter if it delivers on its value proposition in a novel way. Technology is a key component to the success of all cryptocurrencies, including the industry’s giants like Bitcoin and Ethereum, and thus is worth paying attention to. The next big thing in crypto will be technologically sophisticated, or it won’t be at all.

Governance. Like with other assets, it is important to ensure a good alignment of incentives among the different parties involved in mining or exchanging a cryptocurrency. Is there a way of beating the system by exploiting some unfair advantage? As cryptos become increasingly more complex governance-wise, it is important to factor this into one’s assessment.

Demand. The problem to be solved by a crypto must not be too exotic. The effective demand—the number of potential users and adopters—must be large enough, at least potentially. Otherwise, even if it’s utterly brilliant, the value proposition won’t attract enough money. In other words, there ought to be a market opportunity for an asset to be included in a portfolio.

Market Capitalization. Keeping an eye on this never hurts anybody, so don’t forget about this very important metric: it shows you how big an opportunity is out there.

Top five cryptocurrency portfolio trackers

Wait, but is it possible to monitor as many as 20 different coins in one’s portfolio, whether managed by an investor or by a fund manager on one’s behalf? In this case, portfolio management is an increasingly complex task, cognitively speaking. Fortunately, there is a solution.

Traders and investors usually rely on specialized software to manage crypto portfolios called portfolio trackers. That may sound complicated, but the idea is simple—they are software applications that implement the basic idea of portfolio management (asset allocation, diversification, rebalancing) within a graphic interface in a desktop or mobile app. They ought to be simple and intuitive, so that one can trade without bothering too much about the software itself. Here’s a brief summary of some of the best solutions currently available:

Delta Investment Tracker supports as many as 3000+ coins and 300+ crypto exchanges, and allows you to create and manage up to 10 different portfolios. A good place to start.

BlockFolio is a more advanced app with 8000+ coins and 300+ crypto exchanges. Features include real-time updates, portfolio categorization, notification alerts on price levels, automatic updates between your portfolio and exchanges, as well as a news feed. For those on the way to professionalization.

Cointracking also offers real-time trade profitability and price alerts and supports 8 wallets. Its features are tailored more to sophisticated investors interested in 12 different methods of tax calculations and realized/unrealized gains breakdowns. Best for accounting purposes—and don’t forget to report your capital gains!

Cryptocompare is a cloud-based platform that offers such features as risk analysis, IPO tracking and realized profit/loss calculations along with total revenue tracking. Such a repertoire of features puts it somewhere in between numbers 2 and 3—it’s more of a custom solution for investors with specific demands. It also supports 5000 coins!

KriptoGraphe is the fifth in the top-five ranking with its features of portfolio comparison, FIFO-based accounting, and a list of the top coins by market capitalization, as well as news. It has all the necessary features of a portfolio tracker, even though the exact profile is unclear.

A more detailed comparison of portfolio trackers is available from 3Commas Academy. Choose the one that suits you best, and start trading.

Portfolio management is the activity of building and overseeing a portfolio of different assets to meet one’s financial goals within a given level of risk exposure. Portfolios can be actively managed, where investors or their fiduciaries actively buy and sell stocks to “beat the market” and achieve higher returns. Passive management refers to building a portfolio that “mirrors” the market by replicating one of the representative indices.

Portfolios are constructed through asset allocation, which takes into account different features of different asset classes and their contribution to the portfolio’s overall risk, diversification helps spread the risk across different assets, and rebalancing is needed periodically to ensure tight coupling with the initial financial goals.

In crypto, the same principles apply. A typical crypto portfolio will include about 20 different coins. To monitor them, it is useful to rely on one of the available crypto portfolio tracking apps.

The definition and meaning of investment portfolio management, and a review of its types and methodologies.

What Is a Diversified Portfolio: Building a Profitable Portfolio

A Diversified Portfolio: The Basics of Portfolio Management

This article describes how to start algo trading in a few key steps, as well as some of the key advantages and disadvantages of automated trading in crypto.

Algo trading, or algorithmic trading, is the process of trading using algorithms. As opposed to manual, where computers serve as tools for active trading, algo trading allows traders to write a strategy in the form of a computer algorithm and delegate the execution of trading decisions to a machine.

Algorithms are sets of strict and explicit rules that are followed by computers. Unlike trading manually, algo trading minimizes human interference with the process and is widely praised for eliminating the “human factor” of trading almost completely.

An example of a trading algorithm. Source: Automation Generation

Algorithms are sets of instructions to be executed by a computer program. These instructions reflect one’s trading strategy. Traders can specify precise rules for entry, exit, and money management for particular kinds of assets, and conditions that trigger certain decisions. Sophisticated traders tend to customize their strategies by factoring in their own custom indicators, and work with a programmer who helps them develop a flexible algorithm.

Some automated trading systems are available in the form of specialized software that requires some learning to be used effectively—one at least needs to learn the programming language. Other algo trading software utilizes more common programming languages and/or implements user interfaces that enable users to construct strategies using a predefined set of modules and do not require manual programming. These platforms are great for traders who want to get into algo trading but don’t have any technical expertise.

Algo trading may be exceptionally beneficial for crypto markets, and not without reason. Crypto is a market that is rapidly developing, and hence highly volatile, but also potentially lucrative if smart trading strategies are employed. Some features of crypto may make algo trading in crypto even more rewarding by elevating the pros of algo trading. Consider the following points:

Cryptocurrencies are highly volatile, which means that asset prices change quickly and by large orders of magnitude. This puts a premium on the timeliness of trading decisions—which is precisely what algorithms are good at. In crypto, speed is more important than in more conventional assets, hence algo trading is potentially more profitable.

A diversified crypto portfolio may be very complex to manage: it may include as many as 20 different cryptocurrencies. Algo trading can be the right solution for managing such a complex portfolio, because it is computationally far more powerful than a human mind.

Cryptos are less regulated than other assets, which drives regulation and compliance costs down and allows for more experimentation with trading strategies. This means there are incentives to develop ever more ingenious trading algorithms, which creates new profit opportunities. At the same time, this does present new risks as well.

Many simple solutions are already available on the market, allowing for automated portfolio rebalancing, automated arbitrage, integration with crypto wallets and exchanges, and more.  With all of these solutions, the entry costs for algo trading in crypto are diminishing while the opportunity for successful trading remains large. Check out Upbots, AlgoTrader, and a range of trading bots for different purposes available through 3Commas.

Of course, most of the advantages of algo trading in crypto can also be considered disadvantages. For example, less regulation means more risk, and more innovation means tougher competition.

Still, cryptocurrency algo trading presents a wide range of unique trading opportunities, so it’s understandable if you want to start trading immediately.

What are the steps to follow for algo trading?

Algo trading greatly reduces the possibility of human error in the execution of trades and elevates the significance of algorithm design: the trading strategy. Hence, before implementing automated trading, one ought to strategize and think about how to implement their trading strategy through an algorithm. There are several things to consider:

Your strategy can be very simple and include rules based on mean reversion, spotting arbitrage opportunities, or based on more complex indicators and factors. Regardless of your strategy, you must hone in on one strategy at a time. This process usually involves the following steps: select or create an appropriate strategy, set up your programming environment, gather and structure the data you’ll need to backtest it, do the testing, adjust your strategy based on the testing outcome, and then deploy the strategy when ready.

Turning a strategy into a set of machine-readable instructions is a complex problem in and of itself. For example, implementing a simple moving average strategy would include choosing a crypto, analyzing its historical performance, checking if it has a positive trend, and computing the current average trend deviation on whose basis the decision will be taken.

There are multiple guides for doing this with different programming languages and platforms. One thing to note: particular attention must be paid to compliance as the algorithm must not violate the relevant regulations in your jurisdiction.

The choice to make or buy software is entirely up to you, and depends on the opportunity cost of the decision. Even if you only need a piece of software and can licence everything else though a subscription plan, software and hardware costs are things to be considered before going down the algo trading route. Unless you have the resources and skills to build software in-house, you can buy a prebuilt solution from any number of providers, like Tradestation, Multicharts, Omnesys NEST, Presto ATS, etc.

Having formulated and automated the strategy and set up the infrastructure, it's time to test your new strategy. Try using the algorithm and performing some actual trades, or use it to reproduce some historical trading pattern to see how well the strategy works.

Following up on the point about the availability of solutions, you should also know what kinds of trading bots are available in crypto. The easiest way to make sense of their variety is to classify them into four main categories: trend-trading bots, arbitrage bots, coin-lending bots, and market-making bots.

Trend-trading bots try to exploit an asset’s momentum. They analyze a given trend and place trades accordingly.

Arbitrage bots identify inefficiencies and price differences across markets or assets and exploit those divergences for a profit.

Coin-lending bots automate the process of lending cryptocurrencies at advantageous interest rates and help mitigate interest rate volatility.

Market-making bots exploit the difference between selling and buying prices, otherwise known as the spread.

Trading bots communicate with crypto exchanges and place orders automatically in accordance with a strategy. They work in three steps: 

Signal generators accomplish the trader’s task and make predictions, identifying possible trades by analyzing market data and technical indicators. Next, they allocate the risk in accordance with the strategy requirements that prescribe the methods of capital allocation during the trade. Finally, when the trades are executed, cryptocurrencies actually change hands by following the signals of the preconfigured trading system. Signals are converted into API requests that are sent to the cryptocurrency exchange which execute the transactions as requested.

The Flash Crash on May 6, 2010. Source: MrTopStep

Algo trading has some obvious advantages that are frequently invoked in professional discussion. Most of them follow from algo trading’s capacity to minimize human intervention in the trading process.

Trading is stressful, and sometimes emotions can overwhelm even the most experienced traders. Algo trading takes the execution of trades out of human hands, and thus eliminates the risks associated with emotional trading.

Like physical models, trading algorithms can be tested before putting them into practice. This is known as backtesting: running an algorithm on some historical trading data to test the strategy that is programmed into it. Sometimes this may not be very useful if markets have changed significantly and historical data no longer captures the market dynamics adequately. However, if backtesting is possible it should always be utilized since testing a strategy without risking money is always great to have.

Algorithms are perfectly disciplined. They follow rules exactly and do not make human errors, e.g., putting a decimal in the wrong place and incurring an exponentially greater loss. Algorithms eliminate the agency problem in the sense that there are no execution errors, only planning errors. With algo trading, if you’re sure about the plan, you don’t have to worry about the execution.

Algorithms are fast. A subset of algo trading is high frequency trading (HFT), which uses ultra-fast algorithms to perform millions of trades in fractions of a second. More generally, algorithms unlock new sources of efficiency that are related to the speed of execution: entering or getting out of a trade a few seconds earlier can make a difference in a fast-moving market.

Interestingly, the automation of trading also makes new ways of diversification possible. Diversification is a way of spreading the risk across different instruments, but controlling and monitoring many assets is cognitively demanding. Not for algorithms. One of the advantages of algo trading is that it helps control a complex diversified portfolio.

Algorithms can work 24/7 without interruptions. This is a great advantage for two simple reasons: first, sometimes it is important to stay focused and disciplined to continue trading until momentum starts to build up. When it comes to repetitive tasks, there’s no way humans can be more persistent than algorithms. Second, it frees up time that could be spent more productively by the trader, like analyzing the market for their next trading strategy.

One of the other more obvious pros of algo trading is its scalability. With algorithms, one can not only trade faster, but also with larger volumes and greater accuracy.

The disadvantages of algo trading stem from the same root as its advantages: changing the division of labor between human traders and computers. Here are some of the most common issues that may emerge.

Any technology can fail. Algo trading redistributes the burden of error from human to machine, eliminating the risk of execution and putting the weight completely on the design side. An algorithm can be wrong only because the rules are wrong, period. Sometimes, however, unexpected events can happen on the technical side: power loss, connection breakdown, software failure, etc. Algo trading relies on an extensive data-processing infrastructure and thus is more technology-intensive than other kinds of trading. This creates more exposure to purely technical risks and failures.

Automation is never complete, in trading or otherwise. Therefore, algo trading does require some active monitoring on behalf of the trader. This is necessary not only because of technical failures, but also in case of trading anomalies. Even in algo trading, where the algorithms simply execute trades following a set of predefined rules, their interaction may lead to unpredictable dynamics, akin to those that led to the Flash Crash in 2010.

Like other technologies of automation, algo trading may create an illusion of control, thereby diverting attention from some of the real risks. For example, there is a danger of over-optimization, whereby traders will train algorithms on historical data, becoming obsessed with curve-fitting and losing sight of the actual purpose of the procedure. As a result, algorithms will be able to take advantage of certain historical trading patterns, but fail in real trading because those patterns no longer exist.

Some of the other, more obvious cons of algo trading include the high cost of implementing fully fledged automated trading. Algo trading requires significant investment of time and money to learn programming , hiring people possessing the requisite skills, or purchasing the technical infrastructure, data processing and computing capabilities necessary to trade successfully.

Before you automate, make sure you have considered the following important points. First, there are lots of scams that pretend to be automated trading systems. To spot them early on, follow these simple steps: do as much research on the trading system in question as you can, look for reputable testimonials and reviews, learn how the system works, use the trial period (and be careful if such an option is not available), and do not pay any money for promises without seeing an actual product.

Second, think carefully if you really need algo trading. Perhaps it’s not worth it given the investment it requires to be implemented. Perhaps you can do better with old-school manual trading. Perhaps it is worth spending some time on training to algo trade and learning some simpler strategies before tinkering with more complex ones.

Third, always keep your financial goals clearly in sight. While algo trading can be appealing, it’s not a substitute for professional and carefully executed human trading. After all, algorithms are just tools. For some traders, going algo may be a way to scale up and unlock new sources of efficiency, while for others it may turn out to be a very costly education.

Algo trading is delegating the execution of trading decisions to computer algorithms that follow a predefined set of rules. Algo trading requires formulating a strategy, implementing it as an algorithm, and setting the digital and physical infrastructure to execute the strategy effectively. Algo trading strategies can vary in complexity and customization. There are many pros and cons of algo trading, and the decision whether to implement it should be taken with extra care.

In this article, you’ll find out about algo trading, how it works, how to set it up and what to consider before automating.

How to Make Profit by Trading with Algorithms in the Crypto Market

How to Benefit From Crypto Market Movements With Algo Trading

Trying to trade cryptocurrencies without a trading strategy in place is likely to lead to failure and a loss of capital. In this article, we’ll explain what a crypto strategy is, basic types of trading strategies, and how they can help you optimize your trading for maximum profits.

A crypto trading strategy is a set of guidelines used to buy and sell cryptocurrencies depending on a trader's goals, personal characteristics, and timing. As you can see, the definition of a strategy in crypto trading doesn’t really differ from the definition of a trading strategy in general. In fact, all markets, be they stocks or crypto, work in a similar way. They even may have all the same trends, fluctuations, flats, and reversals. Still, there are some conceptual differences in the crypto market, such as the usage of blockchain technology and its severe volatility factor.

Every trader, no matter their outlook and timeframe would benefit from a trading strategy. Without a strategy, trading is no more than gambling or blindly copying the trading strategy of others. At the same time, having a strategy itself doesn’t guarantee anything. There will always be trading risks with any strategy a trader employs. Still, a trading strategy will help traders more easily endure the periods of drawdowns as well as lock in their profits in a timely manner. 

There are three basic categories of crypto trading strategies (or strategies in general):

In short-term trading, the trading time frame ranges from a few minutes to several days. Short-term traders can make dozens of trades per day, so they expose themselves to more profits or losses along the way.

Among short-term strategies, two of the most common are scalping and day trading. Let’s have a closer look at each of them.

Scalping is a strategy in which traders enter and exit the market multiple times, generating a small profit of a few pips (percentage in point, the smallest price move) on each trade. Most scalpers trade within a time frame of several seconds to 15 minutes, making this the most fast-paced strategy.

Since the time spans of scalps can be just a few seconds, it’s almost impossible to effectively follow this strategy manually.

Because of the rapid nature of scalping, scalpers usually trade just one or two currency pairs with which they are deeply familiar. They need to know in detail how these currencies behave and what the best time for trading is, including when the market is most volatile, and when it’s quiet.

Another challenge of scalping is that traders can’t wait for the perfect timing to enter the market or cherry-pick their trading setup. Scalpers need to be able to adjust their trades to the current market situation and do so quickly. This includes trading breakouts, making counter-trend trades, making trend continuation trades, and so on.

Being a high-frequency trading strategy, scalping also requires using purpose-built software. In crypto, there are a few platforms for scalpers. One of the most popular is CScalp. Also, scalpers are among the traders who benefit most from algo trading.

Although scalping is applicable to the crypto market, many traders believe it’s not the best crypto trading strategy. In fact, it’s one of the most difficult approaches to trading, especially for beginners.

Day trading is also referred to as intraday trading. Historically, this method of trading came from the stock market, which has limited working hours. Unlike stock markets, crypto markets work non-stop, so day trading in crypto simply points at a short trading span, which is usually up to 24 hours. Day traders trade within a single day without holding positions to the next day.

Day traders usually spend 8 hours per day or more behind their monitors.

What you should know about day trading is that it’s an active strategy that requires a lot of time investment. It wouldn’t be an exaggeration to say that it’s suitable only for full-time traders: making several trades per day without leaving open positions overnight takes up hours of time each day.

Another thing that makes day trading especially challenging is its ongoing decision-making process. It puts a lot of emotional and cognitive pressure on traders who need to maintain a high level of concentration. Of course, there are people who thrive in such conditions, but still, day traders must maintain a level-head and not get emotional about their trades.

Also, don’t forget about exchange fees. Since many trades are placed in a single day, fees can significantly reduce profitability. If you want to become a day trader, you need to find an exchange with the lowest fees possible (e.g., Binance or FTX).

Medium and long-term trading refers to trading that takes place over a couple of days or weeks. With these strategies, traders can patiently watch and wait until they see the right moment to act on a given trade. In fact, this is more advisable for beginners and occasional traders because there are not as many time constraints as in short-term strategies. The longer time frame allows you to consider trends calmly and make more confident decisions.

Swing trading is an active trading strategy, although its time frame is wider than that of a day trader. In swing trading, traders usually hold their positions for anywhere from a couple of days to a month. The goal is to capture short-to-medium-term profits as trends change in a market. This trend change is also called a leg or a swing.

A swing trader would be interested in capturing those low-to-high points, or the high-to-low points if they want to short the position.

While still being an active trading strategy, swing trading is less stressful than day trading. Many traders find it comforting that they don’t have to make decisions every minute or jump at every little move in the market. Swings unfold over days and weeks, so it leaves some time to make analyses and plan a trade.

Swing trading could also be a more attractive strategy for you, because it allows you to sit through periods of drawdown. If you’re trading over a couple of weeks’ time frame, chances are there will be days when the chart is drifting lower and a reversal pattern is unclear. With the swing trading strategy, you’ll be able to ride it out, while a day trader might be out of their trade after waiting just 15 minutes.

Trend trading is a strategy where traders take action after a trend has started to unfold. For example, they buy when they see the unfolding upward trend and sell after a pattern indicates the trend is over.

In the image above, typical entry and exit points of a trend trader are noted on the chart. Even though the trader would miss a bit of profit at the bottom and top of the trend, they still earn a hefty sum on a successful trade. The key idea of trend trading is to take advantage of a trend once it has already started. That way, the results are more predictable. Take a look at the screenshot below.

By following the classic idea of buying low and selling high, it’d be better to buy the asset when it’s at its bottom. However, it’s easy to be smart when looking back at the chart. When you’re actually at the moment and the trend is going lower, you don’t know what will happen and how low the price will fall. There is a chance this is the beginning of the end for the downward trend, or, the price could continue to fall. Trend trading allows you to wait for the trend to become more clear, making it a safer option for traders even though they likely won’t be maximizing their profits.

In the second case, it’s less of a guessing game.

It’s much easier to predict that the market is going to keep going up than to predict the top and bottom of a move. Does this mean that trend trading is always a winning strategy? No. It often happens that a trend doesn’t occur in the way you had anticipated. Promising trends sometimes reverse just after you enter a trading position, but more often than not, they persist. As long as the trader is accurately predicting trends more often than not, their win ratio will be good enough to profit from this trading strategy.

A win ratio is the ratio of all your winning trades to your total number of trades.

If the trend isn’t going as you expected, it’s time to apply the “cut your losses” rule. That means it’s better to get out while there’s still only a small loss as opposed to holding on as your losses grow. Still, in the case of trend trading, a few good trades per year can cover some small losses. To some degree, trend trading resembles poker: you need to patiently wait for a really good hand while remaining disciplined and folding the weak ones.

HODL, a misspelled variation of “hold,” means keeping crypto asset positions for a long time, whatever the situation in the market. This strategy is more of an investment rather than trading. It’s mostly related to holding a blue-chip crypto (i.e. Bitcoin or Ether) that is proven and will continue to grow over time.

Another variation of HODLing, specific to the crypto market, is to try to find a high-quality currency at the very beginning of its growth and buy it at a very low price. Since it’s super affordable at that time, you can buy a higher quantity of that cryptocurrency and then hold it for weeks, months, or even longer. For example, those who believed in DeFi coins a couple of years ago and have held through their growth have turned huge profits along the way. 

Whatever option you take, HODLing requires great patience and nerves of steel.

In this article, we’ve covered the five most common trading strategies for the crypto market:

Scalping, the most active strategy, with a 15-minute time frame. It requires lightning-fast thinking as well as special software.

Day trading, or making multiple trades within one day. This takes a lot of time investment, so this strategy is really only for full-time traders.

Swing trading, a medium-term strategy with a timeframe from a couple of days to weeks. If you like active trading but can’t spend every day behind a monitor, this strategy is probably for you.

Trend trading, a cautious strategy where you try to avoid unnecessary risks by making deals only when there’s an obvious trend.

HODLing, a passive strategy where you keep your carefully selected assets as long as possible.

In this article, you’ll find an overview of the strategies you can apply for efficient cryptocurrency trading.

Learn all about Blockchain & Crypto

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A Diversified Portfolio: The Basics of Portfolio Management

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A Diversified Portfolio: The Basics of Portfolio Management

How to Benefit From Crypto Market Movements With Algo Trading

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51% Attack

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Smart trading terminal and crypto trading bots