Crypto trading is an intimidating process for new traders. Not only are there myriad ways to trade, but each method is different, each requiring its own approach and tactics to see success. One of the most popular trading strategies, trend following, can help traders lower their risk and increase their chances of posting reliable gains. Here, we’ll dive into trend following crypto and cover the strategies available, so traders just starting can increase their understanding and apply what they learn to their own crypto trading endeavors.
Trend following crypto is a trading strategy where traders recognize existing trends in the crypto market, and attempt to take advantage of their momentum. This strategy relies on the ‘trend is your friend’ adage, which suggests that whenever there is a substantial trend, it is best to join in on it. Joining a trend is the simplest and most efficient way to make money trading crypto, since all traders need to do is buy and hold until a definitive peak is reached. The practice also reduces the amount of risk taken on since traders only look for positive trends and never predict of attempt to make markets move.
The basic foundation of trend following crypto is all built around the concept of market trends. A trend is a recognizable pattern in market price movement, which can be anything from a bull run to a bear market. The best way to recognize a trend is by plotting a chart and seeing what the price is doing. If the price has been increasing steadily over time, it’s a strong sign of a bullish trend, and traders can look to buy. On the other hand, if the price decreases steadily then day traders may have identified a bearish trend, and look to sell accordingly.
Once a trend is identified, trend following crypto traders look to execute buy or sell orders at the best possible entry points. This involves waiting until the market looks like it is in a strong upwards or downwards motion and there is increasing momentum for a substantial breakout. If the trader finds themselves losing money, or making no profits, then it’s best to cut losses and try a different approach.
When it comes to trend following crypto, there are two major types of strategies. The first one is a medium-term approach, which is mainly used by long-term traders who look to target big market moves. This strategy requires patience, since trends may need to be monitored for weeks or months before there’s sufficient evidence suggesting a breakout or a continuation of the trend.
The second option is a short-term strategy, mainly used by day traders. This approach relies on shorter-term trends and greater amounts of closeness to the crypto market, as day traders need to enter and exit trades within a relatively short time frame. Unlike the medium-term approach, which targets large market moves, the short-term approach seeks more frequent trading opportunities in order to capitalize on smaller movements in the crypto market.
To wrap up, trend following crypto is a popular trading strategy that can be profitable, although it can also be challenging. Novice traders should start by familiarizing themselves with different strategies, and study price charts in detail to reliably identify trends. By doing so, traders can lower the amount of risk taken on, and increase their chances of posting consistent profits.