It is pivotal to have a strategy while investing in cryptocurrency as it boosts the chance of making significant returns on investment. With the right approach, you can avoid problems such as mistimed trades and volatility. Below is a guide where you can find the best investment strategy to suit your goals and the risk you stand to take.
1) Dollar-Cost Averaging (DCA)
Dollar-Cost Averaging is a strategy where the investor invests only a fixed amount of USD into BTC at regular intervals. For instance, purchasing 50$ every week would be an example of DCA.
This strategy helps overcome the emotional component involved in trading as the steady investments continue irrespective of how much the price swings. This way you perceive the fall in price as a chance to acquire more at a lower cost rather than bailout.
It also helps avoid bad timing as chances of losing a significant amount of money lessens during a market downturn. If you would invest all your money just before the crisis, you could lose all your investment along with savings.
The downside of this approach would be missing out on investing at a time before the market starts to trend upwards.
2) Buying and Holding
The holding method is the most effective investment strategy. It involves buying and then holding on to the asset for a period with no intention of selling in the short-run. The fluctuation of the market is ignored as the investors aim for a long-term growth strategy.
This strategy is easily applicable. It just needs buying of the currency, and that’s it. Once you have purchased it, you now have to wait for your investment to grow.
Not only this strategy saves your time but also removes emotions and anxiety involved in the trading.
However, there are drawbacks. Holding may require you to commit your money to the currency for years for it to work. Another disadvantage is that many cryptocurrencies go on to become obsolete or lose value over the years. It can cause significant loss to the investor.
3) Day Trading
Day trading is the process that involves trading within the same trading day. The crypto market runs 24/7. Traders seek the benefit of the volatile market by using the rise and fall in the prices.
Barriers to entry are also less, which means there is an abundance of immature traders. The number of novice traders gives an edge to the one with more knowledge which they can use to improve returns by reacting quicker.
Usually, it requires the trader to invest lots of time, and it potentially becomes a full-time job. However, day trading can also be done on auto-pilot with the help of trading bots. These bots help you to buy and sell coins at the correct time.
4) Swing Trading:
Swing trading is the act of buying and selling crypto after a given movement in the price and charts.
Swing trading is slow-paced and allows the user to understand the process and do adequate research while also benefitting from instant trades. Traders usually master this strategy before moving on to the day trading.
The only drawback is the commitment of time to learn and trade crypto.
5) Yield Farming
If you are a daring person who likes to take risks, yield farming is just the right strategy. Yield farming is a practice of lending or gambling your crypto assets. It is carried out to generate higher returns or additional crypto assets.
Lending of crypto assets is charged at an interest rate or sometimes fees. The payoff is that majority of the time the coin appreciates rapidly. It is done through DeFi protocols.
The returns can be far more than traditional trading, but it also brings higher risk due to fluctuations in the crypto market.
When choosing a strategy, you might have to consider certain factors, for instance, the amount of time and capital you want to invest in the currency. The final strategy will entirely depend on your goals and risk appetite.