CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.

Cryptocurrency trading strategies and tips

The cryptocurrency markets are renowned for extreme volatility, making them attractive, but tricky, to trade. Learn how to optimise your trading with these strategies and tips.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
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Source: Bloomberg

Cryptocurrency trading strategies

Trading cryptocurrencies enables you to go long or short to take advantage of price movements in either direction, opening up a world of possibilities. And a trading strategy is a great way of making the most of those possibilities – helping you identify worthwhile opportunities, and enter and exit trades at the right moment. Here’s an introduction to some popular cryptocurrency strategies:

Day trading

Day trading

Day trading is where you open and close trades within a single day, with the aim of making quick profits from intraday price movements. Because positions aren’t kept open after the markets are closed, you avoid the costs and risks associated with holding positions overnight.

However, it does require focused attention so it’s really only suitable if you are able to set aside dedicated time for your trading. Learn more about day trading.

Scalping

Scalping

Scalping is a form of high-frequency day trading, where your aim is to take small profits from a large number of trades. It involves opening positions in line with a trend, often entering and exiting the market multiple times as it develops. Individual trades are held for just a few seconds – minutes at the most – so it is one of the most short-term strategies.

Scalping can be an effective way to trade volatile assets such as cryptocurrencies, because you take profits early if the market moves favourably and minimise losses by closing positions quickly if the market turns. Find out more about scalping.

Trend trading

Trend trading

Like scalping, this form of trading involves opening a position in line with a trend. But your aim as a trend trader is to maximise profits by holding the position open for as much of the price movement as possible, rather than opening and closing multiple positions in quick succession. It can be a short, medium or long-term strategy because trends can develop over any time period.

Using this strategy requires an understanding of the technical indicators that can be used to identify emerging trends, as well as the likely impact of news and economic events on the markets. Discover some tools for trend trading.

Swing trading

Swing trading

Swing trading focuses on the price oscillations within a trend, aiming to make the most of market volatility by trading moves in both directions as a trend develops. While this opens up more opportunities for profit, you’re unlikely to trade at the exact highs and lows of the price movement, as it often takes a partial reversal to identify that a new swing is underway. 

Like trend trading, this strategy requires an understanding of technical indicators and the factors that move markets. Learn more about swing trading.

Position trading

Position trading

Position trading involves holding a position for longer than a day – possibly for weeks, months or even years. For this reason, you would generally place far fewer trades as a position trader than you would with most other strategies.

If you are looking to take out a long-term position on a cryptocurrency, assess the market carefully – for example, by taking its technology, rate of adoption and competitors into account.

Automated trading

Automated trading

Automated trading involves using a computer program to execute trade orders automatically. These systems can be as simple or as complex as you like, are fully customisable, and can be ‘backtested’ using historical data before going live.

Automated trading systems can monitor markets throughout the day, opening and closing trades at opportune moments, even when you are unable to monitor what’s happening yourself. But of course, you’ll still need to monitor your system carefully, as any flaw in its design could prove costly. Find out more about  automated trading.

Cryptocurrency trading

You don’t need to own cryptocurrencies to trade
on them.

Learn how to go long or short on bitcoin, ether,
ripple and litecoin.

Cryptocurrency trading tips

A strategy is a useful decision-making tool, but it will only take you so far. Many other factors combine to determine your success as a trader – including your experience, discipline and use of risk-management tools. Consider these tips to get the best out of your trading:

Prepare properly

1. Learn about cryptocurrencies

Take the time to learn about cryptocurrencies, blockchain technology and financial markets, so you understand what you’re trading. This will be an ongoing process, as the markets are constantly evolving and move in response to news regarding technical developments, hard forks and regulation, among other factors. 

2. Create a trading plan

A trading plan is a comprehensive blueprint for your trades. It might set out details of your attitude to risk, objectives, trading strategies, risk-management rules, and more. It can also detail the markets you intend to trade – for example bitcoin, ether, litecoin and ripple. Learn how to  create a trading plan.

3. Practise trading

Those new to cryptocurrency trading might want to start with a demo account to learn the ropes. You can use this to test your trading plan thoroughly, and revise it as much as necessary, before moving onto a live account. You can also join  IG Academy to build your trading skills.

Utilise risk management strategies and tools

1. Calculate your risk-reward ratio

Before placing any trade, decide whether the risk involved is worth the potential profit – known as its risk-reward ratio. For example, if the potential loss is £100 and the potential reward is £300 then the risk-reward ratio is 1:3. The ratio you choose will depend on your risk appetite, personal circumstances and strategy. Find out more about  managing your risk.
 
2. Use stops and limits
 
A stop will automatically close a position if its price moves against you by a certain amount. IG offers:
• Basic stops, which are free but could be closed at a worse price than requested if the market moves quickly or ‘gaps’

• Guaranteed stops, which will always close a trade at the exact level you specify. You’ll pay a small premium if a guaranteed stop is triggered
• Trailing stops, which follow positive price movements to lock in profits. Again, these stops are not guaranteed, so could slip if the market moves quickly

You may also want to consider using a limit, which will close the trade automatically once it has earned a certain amount of profit. Find out more about  stops and limits.
 

Be disciplined

Try to remain disciplined when trading cryptocurrencies, by only placing trades that are in line with your trading plan. This will help avoid common pitfalls that arise when emotion affects your decision making – such as chasing losses or getting overconfident from a winning trade. 
 
What’s important is that you focus on the quality of your trades, rather than the quantity.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.  Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. 

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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