6 Strategies for Trading Crypto Assets
A Beginner’s Guide to the Fundamentals of Trading
To a large part of the world, trading assets (crypto or otherwise) is understandably intimidating. It involves buying and selling something with the hope of creating more wealth for yourself, and the fear of losing some of the limited resources you have available.
As a result of its perceived complexity, we’ve decided to set about demystifying trading as it relates to crypto. What you learn here will be taught with crypto in mind, but it can be applied to traditional trading as well. Here are 6 trading strategies to get you started in the crypto space.
Passive Investment Strategies
Passive investment strategies are perfect for beginners, as they’re simple and easy to implement. Passive strategies can be applied not only to crypto, but to other asset classes as well.
One such effective passive strategy is dollar-cost averaging, which can be implemented in three ways: purchasing by time, price, or a combination of the two.
Purchasing by Time: Purchasing by time is just as it sounds — it’s the repetitive purchase of an asset at regular intervals, regardless of the price. For example, you might buy $250 of Bitcoin every two weeks. Purchasing by time means purchasing fixed amounts at regular, consistent intervals.
Purchasing by Price: Purchasing by price means that your incentive to buy is when the asset hits a certain price, regardless of time. An example would be leaving staggered orders to buy a set amount of bitcoin when the bitcoin price hits $10,000, $8,000, $6,000, and $4,000. Your purchases are dictated based on the price of the asset, regardless of the time.
Combination: Purchasing by price and time can be combined to create a custom investment strategy. One thing to keep in mind is that the less systematic your investment strategy is, the more variable your performance will be.
Simple Algorithmic Strategies
Simple algorithmic strategies are meant to minimize market impact during the execution of your trade. The difference between the price when you decide to trade and the price at which you actually execute is known as implementation shortfall (slippage).
So what are some good simple algorithmic strategies to implement?
Smart Order Routing (SOR)
SOR is an automated order process. It looks at a variety of trading venues to find the best possible rates for your order. For most, building a bot would be time-consuming and complex. Fortunately, there are companies that provide SOR as a service.
Time Weighted Average Price (TWAP)
TWAP splits its trades into set time intervals throughout the day in order to reduce the trader’s impact on the markets. See more on TWAP from Trading Tuitions here.
Volume Weighted Average Price (VWAP)
VWAP finds the daily price average of an asset by looking at price and volume. It’s calculated by adding the dollars traded per transaction and dividing by the total shares traded. Want to learn more? Check out Investopedia’s detailed explanation here.
Get Started Trading
Now that you’ve reviewed these strategies, are you ready to choose a method to fit your crypto trader plans? We hope these beginner’s strategies can help you dip your toes in the vast world of crypto trading.
These blog posts will serve as a general factual overview of crypto trading. No content in these blog posts or on the ShapeShift website constitutes purchase or investment advice. Digital assets are experimental, volatile and risky, and we therefore recommend that you seek professional advice from a qualified advisor before making any financial decision.
The information is provided “as is” without warranty of any kind, express or implied, and in no event will ShapeShift be liable for damages of any nature resulting from reliance upon the information. The blog posts may contain links to third-party materials that are not owned or controlled by ShapeShift. ShapeShift does not endorse or assume any responsibility for any such third-party sites, information, materials, products, or services.