A beginner's guide to cryptocurrency trading strategies

If you’re hoping to profit from trading cryptocurrency, then you'll benefit from arming yourself with ample insight and a well-crafted crypto trading strategy. 

There are many viable approaches to trading crypto. From spot trades, exchange arbitrage, scalping and day trading to every cryptocurrency owner’s favorite buzzword — HODLing — traders have a wealth of options at their disposal. After choosing a reliable exchange, even a novice trader can start trading quickly.

Certain crypto trading opportunities have also emerged in the traditional finance world. For instance, since early 2024, several regulated Bitcoin (BTC) exchange-traded funds (ETFs) have become available, attracting significant interest from both retail traders and institutional investors. 

Bybit has been at the forefront of bridging the worlds of crypto and traditional finance by launching its TradFi platform, which allows you to trade assets like stocks, commodities, forex pairs and market indices using your crypto funds as collateral.

Among the more recent crypto trading innovations is AI-powered arbitrage, whereby you leverage intelligent trading bots to profit from price discrepancies across exchanges. 

This guide will take you through the fundamentals of strategic cryptocurrency trading. We'll give you an overview of active and passive trading methods — as well as long- and short-term crypto trading strategies — and show you how to use these techniques to your advantage.

Key Takeaways:

• A crypto trading strategy is a plan for buying and selling cryptocurrency that minimizes risk and optimizes profitability. 

• Active crypto trading strategies include day trading, swing trading, scalping, arbitrage trading and trend following, while the main passive strategies are copy trading, staking via exchanges, long-term holding and dollar-cost averaging.

• Beginners are advised to allocate the majority of their portfolio to passive strategies, while keeping a minor portion for active strategies.

What is a cryptocurrency trading strategy?

A cryptocurrency trading strategy is a plan for buying and selling cryptocurrency that minimizes risk while improving the chances of turning a profit. A well-defined trading strategy mitigates trading risks, and dictates trading reactions to varying situations in the market. 

Having a trading strategy helps keep emotions out of trading decisions, in order to more strategically coordinate trades.

A comprehensive trading strategy may include:

• Assets you trade. For instance, there are significant differences in the risk profiles of established stablecoins, blue-chip major coins like Bitcoin or Ethereum (ETH) and volatile smaller-cap altcoins. These differences require the application of distinct strategies, depending upon the asset type. Also, you may need different approaches based on whether you trade standard crypto coins or tokenized real-world assets (RWAs) like gold and forex, which are available on Bybit’s TradFi platform. 

• Tools, indicators and signal resources used. Some examples of these include technical analysis methods, trading bots and sentiment measurement techniques.

• Trading schedules. There will be a significant difference in trading schedules between high-frequency strategies, such as day trading or scalping, and long-term, low-frequency investing. 

• Entry and exit plans. Major among these are stop-loss orders that limit losses, and take-profit orders that are used to lock in profits before a reversal disrupts your expected further gains. 

• Ways to measure portfolio performance. Keeping a trading journal to accurately track your performance is paramount.

With assets, trading configurations, indicators, entry and exit patterns and other trading guidelines stipulated beforehand, you can create a comprehensive trading plan.

There are two basic types of trading strategies: 

• Active trading strategies require your intervention and call for conscious, regular attention. 

• Passive trading strategies use less time and don't require frequent attention. 

Usually, you'll be following a well-established method that doesn’t require constant monitoring. We'll be discussing both approaches presently. 

Cryptocurrency markets

Investors trade cryptocurrency across various crypto exchanges. The following is an overview of the definition of — and differences between — trading in spot markets and cryptocurrency derivatives markets. 

Spot market

A cryptocurrency spot market is any market in which a cryptocurrency coin or token trades directly, essentially “on the spot.” Trading on a spot market is the most fundamental form of trading in which to exchange and settle a cryptocurrency for another asset. 

The process begins with traders depositing funds into an account held by a cryptocurrency exchange. Buy and sell orders are then placed and executed. 

Cryptocurrency spot markets involve makers and takers. Makers place orders, such as a limit order, that don’t get filled immediately. Takers place orders that get filled in their entirety, "taking" existing orders created by makers.

Derivatives market

A derivative is a financial security whose value is derived from an underlying asset or a group of assets. In the crypto market, these derivatives are typically futures contracts, options contracts, leveraged tokens and token swaps. For example, an options contract involves entering into an agreement to buy cryptocurrency at a predetermined date and value in the future.

Unlike spot markets, cryptocurrency derivatives exchanges can offer greater borrowing capabilities (leverage), which can magnify profits or losses. For example, Bybit offers crypto derivatives trading with up to 100x leverage. Derivatives contracts also offer the opportunity for advanced trading strategies, such as trading pairs, arbitrage, shorting the market and spread trading (to name a few). 

Short-term trading (active trading)

Short-term trading, otherwise known as active trading, involves more frequent transactions. The following is a breakdown of the main short-term trading strategies available. 

Day trading

Day trading involves entering and exiting a position throughout the day to turn a profit. Even though crypto exchanges don’t ever close, day trading still refers to a short-term trading style in which traders aim to profit from same-day price movements. 

Day traders may rely on a combination of fundamental analysis, technical analysis and other techniques to identify market inefficiencies. For example, day traders may trade based on one-, five- or fifteen-minute price charts.

The volatility of crypto creates many potential opportunities, but it takes keen market insight and significant trading experience to be successful at day trading. Hence, this method is recommended for advanced traders.

Scalping

Scalping focuses on extremely short-term trades to profit from small cryptocurrency price movements on high volumes. Scalpers can open and close positions within seconds or minutes, taking advantage of market inefficiencies in order to earn small profits. That's why scalping is relatively similar to high-frequency trading (HFT). Successful scalping takes both extensive knowledge of cryptocurrency and advanced analytical skills.

 Many day traders utilize scalp trading, devoting a portion of their trading budget to it. Scalpers use technical analysis and extensive charting to find and act on time-sensitive opportunities. They also need to set well-defined goals and a clear exit strategy.

Scalping is relatively suitable for traders who aim to make more profits with larger positions, and who hold significant crypto funds, such as institutions and whales.

Arbitrage trading

Arbitrage trading capitalizes on price differences across different cryptocurrency markets. Arbitrage traders typically purchase a cryptocurrency on one exchange and immediately sell it for a higher price on another exchange, capturing the profit. While profits aren't guaranteed, arbitrage trading offers the lowest risk and typically yields the smallest profits. 

CoinMarketCap lists over 300 spot market exchanges, a tally that's growing steadily. The vast range of trading platforms means there are many opportunities for short-term traders to find and capitalize on inefficiencies. Arbitrage trading is recommended for those with prior experience in this trading style. It's labor-intensive, and timing is everything. 

For successful arbitrage trading, it’s crucial to use automated tools to catch price gaps before they disappear.

Swing trading

Swing trading is a longer-term trading strategy in which traders aim to capitalize on short- to medium-term price trends, or "swings," in cryptocurrency prices. Most swing trades involve gains over a period of a few days to weeks at a time. Unlike day trades, swing trades typically last more than 24 hours, and can even last days or weeks. 

Swing traders identify waves of volatility for an asset that’s likely to move, and then they open a position for a variable period in order to capture a profit. 

Swing trading is beginner-friendly, because it gives traders more time to devise trading plans. It includes charting techniques that identify highs and lows. For example, the Gann swing method pinpoints reversals with candlesticks and oscillators, relative strength indicators and recognition of patterns such as bullish and bearish engulfing patterns. 

Trend trading



Trend trading, also referred to as position trading, makes cryptocurrency investment decisions based on a coin or token's momentum. It’s normal for traders to hold a position for an extended period, up to a few months. Trend crypto traders analyze momentum, looking for upward or downward trends, and then enter a trading position while speculating that the coin or currency will trend in that direction. 

Trend traders often rely on fundamental analysis to enter into advantageous trades. However, they can also factor in a variety of technical indicators. Moving averages, relative strength index (RSI), moving average convergence divergence (MACD) and trend lines are four common trend trading indicators used to increase traders’ success rates.

The table below summarizes the trading methods covered above:



Short-term trading methods

The two main ways to trade cryptocurrency in the short term are trading pairs and derivatives. While trading pairs uses a combination of spot trading and arbitrage to net profits, derivatives trading involves trading contracts initiated based on trader speculation. Let's take a closer look at both styles. 

Trading pairs

Trading pairs in cryptocurrency is a way to leverage the price difference between pairs of currencies (or tokens) traded across various markets. Traders may use arbitrage across crypto exchanges to profit from the relative price differences between pairs. 

A base currency is used to initiate a trade. For example, a BTC/USDT trading pair would enable you to trade BTC for USDT. Cryptocurrencies can either be exchanged for one another, or for fiat money, such as the U.S. dollar (USD), in the form of USD-backed stablecoins, such as USDT, USDC, etc.

Cryptocurrency derivatives trading



Derivatives trading uses financial instruments whose value is determined by an underlying asset. These instruments typically settle at the spot price of a given asset. Derivatives add a layer of leverage, as well as the ability to speculate on price action. 

Futures, options and perpetual contracts are the most commonly used derivatives. Let's take a closer look at the types of cryptocurrency derivatives trading that are commonly available. 

Futures and options

Futures are derivative contracts that allow you to buy or sell an asset at a predetermined price and on a fixed future date. Options contracts, on the other hand, give you the right, but not the obligation, to buy or sell an asset at a predetermined price at a specific future date.

Perpetual contracts

Perpetual contracts — also known as perps and perpetual futures — are derivative contracts that allow you to track the price of an asset for as long as you prefer, and to settle the contract by buying or selling the asset on your preferred future date, at the prevailing market price at that time. 

Leverage and margin

Leverage and margin are two crucial concepts that you need to be aware of when trading derivatives by borrowing funds. Leverage is the multiplier that amplifies your exposure to the traded asset, while margin is the collateral you post to open and maintain that leveraged position. For example, if you contribute $1,000 of your own funds, and borrow another $9,000 from your trading platform or broker to place an order for $10,000, your leverage ratio is 10x ($1,000 of your own funds × 10 = your total order size of $10,000), while your margin is $1,000 (your own funds). 

Long-term trading (passive income trading)

Long-term trading — also known as passive income trading — offers distinct advantages over short-term strategies for traders who lack time or advanced insight into crypto markets. The following is a breakdown of the primary long-term cryptocurrency trading methods. 

Buy and hold (HODL)

Buy and hold — better known as the misspelled acronym “HODL” — is a trading strategy that involves holding onto investments in hopes of long-term gains. By buying and holding cryptocurrency and speculating on possibly exponential growth, HODLers may disregard much of the volatility of cryptocurrency markets. 

By ignoring short-term swings, instead of “holding on for dear life” (HODL), traders no longer suffer from fear of missing out (FOMO) and fear, uncertainty and doubt (FUD). FOMO is the number one cause of buying at too high a price, while FUD leads to SODLing (or "selling at too low" of a value.)

A buy-and-hold strategy has additional advantages, such as filtering out short-term market noise, reducing transaction costs and relieving investors of the psychological burden of constantly watching markets.

Staking

Proof of stake (PoS) blockchains use staking rather than mining to validate transactions. With PoS blockchains, cryptocurrency owners are rewarded for staking their tokens to validate transactions. This involves holding a specific amount of funds in a crypto wallet to support the security and operations of a particular blockchain network in exchange for set rewards.

Instead of staking directly on the blockchain, you can take advantage of a more user-friendly, less technical approach by staking on a centralized exchange (CEX). Many exchanges, including Bybit, offer staking products that only require you to invest funds and collect your regular rewards, while the platform handles all the technicalities of on-chain stake management on your behalf, either directly or via trusted third parties. 

Copy trading

You can also try copy trading, particularly if you’re new to the world of cryptocurrency. Copy trading involves following and replicating the market moves of established traders with successful track records, known as master traders. As you earn profit by following a master trader’s strategy and moves, you pay commission from your earnings to them. 

For beginning traders, copy trading can be a valuable way to learn from experienced traders' market moves — and to become profitable from day one. 

Trading bots (DCA & Grid)

Besides copy trading, another excellent automated trading method is that of using trading bots. You can specify trading parameters for these bots once, and then turn them on, sit back and rely upon their automated execution. Naturally, it's essential to monitor your bot's performance and to adjust parameters when market conditions change, or when the initial settings don't yield satisfactory results.

Bybit offers a variety of trading bots. Some bots allow you to automate your grid trading strategy. Bybit’s Spot Grid Bot and Futures Grid Bot are designed for the Spot and Derivatives markets, respectively. With grid trading, you specify several target price levels both above and below a reference price, often the current market price for the asset. As the asset hits these price levels, the bot automatically executes buy or sell orders, aiming to buy low at one level and sell high at the immediately higher one.

Another functional bot offered by Bybit is the DCA Bot, which automates your dollar-cost averaging (DCA) strategy. With DCA, you invest fixed, equal amounts in a crypto asset at regular intervals, such as daily, weekly or monthly. The key goal of the DCA strategy is to average out your purchase price over time, reducing the impact of market volatility and avoiding the need to time the market perfectly.

The table below provides a basic comparison between grid trading and DCA.



Beyond crypto: Expanding your strategy with Bybit TradFi

Some traders might want to expand their activity beyond crypto to traditional asset classes. Usually, trading assets like stocks, commodities and forex involves satisfying significant regulatory, residency and minimum capital requirements. There are also layers of fees you’ll have to pay to brokerages in order to get involved in traditional asset trading. All these factors act as significant barriers to entry for many retail traders interested in traditional assets.

Bybit TradFi is an innovative platform that lets you trade gold, silver, other commodities, forex pairs, market indices and equities via contracts for difference (CFDs), using your crypto funds as collateral. You don’t need a traditional brokerage account. Any Bybit user can use the TradFi platform, avoiding the frequently onerous barriers to entry when trading these asset types. 

For instance, using Bybit TradFi, you can hedge with gold against bear markets, or speculate on popular forex pairs. TradFi offers simplified access to these markets through tight integration with the MetaTrader 5 (MT5) trading platform.

As a beginning trader, you can choose direct active trading or automated copy trading, both of which are fully supported on Bybit TradFi.

Closing thoughts

As you enter the world of crypto trading, you'll quickly find a wide variety of methods and strategies at your disposal. However, some of these strategies might be better suited to more experienced traders. As a beginning trader, it's crucial to keep the majority of your portfolio in passive strategies, such as HODL, staking via exchanges, copy trading and DCA while you learn and adapt to the crypto market's dynamics and peculiarities.

To build practical experience without risking real funds, Bybit Demo Trading offers a low-pressure way to practise placing orders, managing positions and testing basic strategies in simulated market conditions. This helps beginners gain confidence and understand platform mechanics before trading live.

A small percentage of your portfolio can also be allocated to more active strategies so that you’ll be able to test the waters and learn directly by applying these methods. At the end of the day, no amount of HODLing and DCAing will let you learn the ropes of day trading or swing trading. You’ll need to directly experiment with these strategies at a smaller scale in order to gain necessary experience.

To simplify your initial steps in the market, it’s also highly advisable to use automated tools, such as the bots offered by Bybit. For instance, while you can handle your DCA strategy manually, using the DCA Bot will let you save time, reduce the rate of errors and remove the element of emotion from your trading. 

Finally, don’t forget the value of good ol’ portfolio diversification via different asset classes. Thanks to Bybit's TradFi platform, you can now diversify your crypto holdings with traditional assets, such as precious metals, stocks, forex, non-metal commodities and market indices.

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