One of the best ways to gain exposure in crypto trading is via futures contracts. A futures contract is an agreement between two parties whereby they agree to buy and sell crypto assets without actually owning them. The contract usually contains vital information, such as the asset price and the agreement expiry date.
To trade cryptocurrencies successfully, crypto futures traders must implement specific strategies that work. These strategies include technical analysis, fundamental analysis, and risk management strategy.
This piece provides information on strategies that work, and also explains why strategies are essential in crypto futures trading. You will also discover practical examples or case studies of crypto futures trading platforms.
Importance of Strategies in Crypto Futures Trading
Since cryptocurrency is highly volatile and the potential risk is high, crypto futures traders must set a strategy. You must determine the market’s entry and exit points and position sizes. Thus, informed traders will always endeavor to maximize opportunities with a probability of yielding huge profits.
Another importance of implementing trading strategies is to help keep your emotions in check. Thus, you are less likely to act impulsively, such as sudden greed or fear, as these emotions could ruin your investment capital.
The last reason we encourage crypto futures traders to implement the right strategies is to help build consistency and adaptability. In the face of market fluctuations and high uncertainties, a trader who has built enough adaptation can focus on long-term success.
Having known the importance of strategy in crypto trading, what next? Let’s delve into the typical top five strategies that you may employ.
Strategy 1: Risk Management
Even though cryptocurrency is known to be highly risky, you can control the outcome of your investment. The foremost thing is identifying the potential loss to set a countermeasure against the bear market.
You may read this article on rewarding strategies to overcome the crypto bear markets.
When crypto futures traders successfully identify risks, how do they curb the potential loss?
Setting Stop-loss Orders
Crypto futures traders who use the stop-loss order set a price level at which they exist a contract position, mainly when the market movement is unfavorable.
Implementing the technical analysis strategy to set a stop-loss order to identify moving averages is always best. However, we recommend that you don’t move too far away or close to your market entry price. Expert traders recommend a stop-loss price level of not less than 1% and not more than 10% of the entry price.
Position Sizing
Position sizing describes the level of risk you are willing to expose your capital to. To determine your position size, estimate your risk percentage, usually between 1% and 3%. Also, position sizing varies with traders due to tolerance and expertise level differences.
Here is a formula crypto futures traders use in calculating position size:
Position size = Maximum Risk / Stop-Loss Distance
Diversification
Diversification can help crypto futures traders minimize loss by spreading their capital across different assets. This trading strategy is ideal for long-term investors who must set investment goals for long-term returns.
This article by DroomDroom explains the strategies needed to diversify your crypto portfolio.
Strategy 2: Technical Analysis
Technical analysis is a strategy employed by crypto futures traders in estimating the potential market state of a cryptocurrency. According to Investopedia, Charles Dowis is considered the father of technical analysis and the first editor of “The Wall Street Journal.” The Wall Street Journal was educative, informing readers about the stock price movements.
In technical analysis, you study the market trends, volatility rate, historical price, and chart patterns. The major aim of this analysis approach is to help identify the best time to buy and sell crypto assets. Typically, informed crypto futures traders would buy when the market price is low and sell when the price is high.
Here is a full article on technical analysis, as a trading strategy.
Below are three tools popularly used in technical analysis strategy.
Candlestick Chart
The candlestick chart can identify a crypto asset’s behavioral pattern within a particular time frame. For instance, you can check the opening and closing price or the highest and lowest point of Ethereum in the past week. The set timeframe could also be less or between 10 minutes and 24 hours.
How does the candlestick chart work?
If you see a red candlestick in the chart, the asset ended the day at a lower price, which is a bearish or negative price indicator. On the other hand, if you see a green candlestick, it signifies a bullish or positive price movement. You will also see some thin lines and patterns, also known as wicks, which provide additional information you need to know, such as buyers’ and sellers’ movement within the market.
Moving Averages
Moving averages are used to identify the market trends of a cryptocurrency and the average price point within a set timeframe. The time frame varies with the strategy measures the crypto futures trader is employing. If you use the short-term moving averages, you can expect it to be more responsive than the long-term approach. On the other hand, the long-term moving averages offer smoother trends by efficiently toning down the daily fluctuations. It’s also important to note that the short-term moving average is usually between 20 and 50 days.
Relative Strength Index (RSI)
J. Welles Wilder Jr created the Relative Strength Index (RSI) as an oscillator ranging from zero to 100. This strategy aims to identify a crypto asset’s buying and selling signal. When the RSI reading is lower than 30, the asset is being oversold, and when higher than 70, it signifies an overbought condition.
Pro crypto futures traders often use the Relative Strength Index (RSI) tool with any other technical analysis tool mentioned above. Here is a formula for calculating the Relative Strength Index (RSI) of a cryptocurrency:
RSI = 100 – [100 / (1 + Relative Strength)]
Where Relative Strength = Average Gain / Average Loss
Strategy 3: Fundamental Analysis
Fundamental analysis involves studying the factors responsible for crypto prices and to what extent these factors can influence the market rate. Thus, you are not just stating whether an asset price will increase or decrease but also explaining the reasons for your speculations. For instance, if, in the past, an asset’s demand moved up after collaborations or a new product was launched, it will most likely happen again.
As a newbie, you must understand the crypto market to implement the fundamental analysis strategy successfully. You can start by researching the particular cryptocurrency you are interested in. You should get familiar with the use cases, technology updates, inflation rate, regulatory developments, and community support.
Strategy 4: Trading Psychology
Four common emotions closely associated with trading psychology are fear, greed, hope, and regret. These emotions mainly influence the decision-making patterns of crypto futures traders. For instance, when traders are overwhelmed with greed, it clouds their sense of reasoning, and they develop an excessive desire for profit. Emotions like fear will cause traders to take crucial decisions or risks that could generate huge profits.
One of the best ways to handle trading psychology is to be disciplined towards trading actions. If you have developed or planned trading strategies, follow suit and don’t deviate. However, there may be instances that demand a change of plan but confirm that any change being made would create a better effect. As a result, we highly recommend crypto futures traders to have psychological support, such as a mentor or a community. These support systems will help in determining whether changing a predetermined trading strategy is worth the risk or not.
Here is an article that further explains the psychology in cryptocurrency.
Strategy 5: Continuous Learning
Trading strategies constantly evolve, so crypto futures traders must continuously improve their knowledge scope. You need to adapt quickly to new market trends and be able to adjust your trading strategies when needed.
You may register for trading emotional and psychological classes for a positive long-term investment return. Another effective way of continuous learning is to engage other traders on community platforms. This will provide you with the necessary insights and broaden your perspective.
Trading platforms like Solus Finance will continually share updates with traders so they can make informed decisions. Here is a tweet from Solus Finance emphasizing its membership club or app soaring high across The European Union and Africa, as users get essential updates or information.
🚀 WE'RE SOARING HIGH 🚀
✊🏻 Super pumped to share these stats:
⏱️ On an average, 2 users sign in to Solus every minute
🌏 SEA has the most number of Solusites
🇪🇺 Followed by The European Union
🌍 Followed by Africa!
❤️ Thanks to every Solusite!
🌐 Join the club if you haven't… pic.twitter.com/XXMFaQPHVX
— Solus (@SolusFinance) August 3, 2023Case Study of Crypto Futures Trading Platform – A Must-Known for Crypto Futures Traders
As mentioned earlier, consciously learning the technological advancement ongoing within a crypto digital space is essential in applying the right strategy per time. Since the Solus Trading platform has gained popularity recently and even been recognized by the founder of the layer 1 blockchain Shardeum, we will be using it as a case study.
“It was also impressive to see how they had hit the nail on the head when it comes to targeting a certain demographic group. Understanding the appetite of consumers, Solus will focus on GenZ users with interest in researching financial tools and fintech products or simply planning to build wealth through passive income.”
Nischal Shetty, Co-founder and President at Shardeum.
Solus Finance now has 33K+ token holders as of the time of writing, as it continually introduces new features into its community. The founders have also promised to release the $SOLUS tokens in 2024, which will be used in the Solus ecosystem. Thus, traders aware of this forthcoming development can prepare to participate in the token’s testnet. More importantly, this and many other new developments Solus Finance may introduce will affect the market movement and popularity. This will also help traders to develop the best trading strategy for current and future trading activities.
Conclusion
Since leverage is a crucial element of crypto futures trading, implementing tight trading strategies is essential. This is because leverage exposes crypto futures traders to significant loss and gain, depending on their trading skills and experiences. Once you implement any of the strategies discussed above diligently, you can easily navigate through the high-volatile market and overcome the surrounding challenges.
