A Beginner's Guide to Crypto Futures Trading Strategies
Crypto futures enables traders to amplify their potential profits (and also losses), hedge against market risks, and short digital assets in a highly liquid market with reduced trading fees. But here's the catch – you need a strategy, or you'll end up as the cautionary tale at the next crypto meetup.In this article you'll learn five of the most popular crypto futures trading strategies. Each strategy – be it scalping, day trading, swing trading, hedging, or position trading – embodies different hypotheses about market efficiency and price movement.
Based on your time horizon and risk profile, let's dive in and find the strategy that suits you best.
For beginners, we also recommend exploring VALR's perpetual futures trading guide.
An Introduction to Trading Strategies
A trading strategy is a systematic methodology traders use to buy and sell cryptocurrencies and other assets in financial markets. A sound strategy has predefined rules and criteria to assist decision-making.
A trading strategy can be either simple or complex and may include the following considerations:
Investment style
Risk appetite
Market capitalisation
Portfolio diversification
Leverage
Tax considerations
Market sector
Traders should create their trading strategies based on objective analysis and data and should follow them diligently. That said, strategies should be reevaluated and optimized over time to increase their effectiveness and adjust to changing market conditions.
Trading strategies are based on either technicals or fundamentals, and they are critical for the long-term success of crypto futures traders (and all traders in general) as they help them make informed, data-backed decisions instead of relying on their emotions. The latter is a very important aspect, as emotions like fear, greed, overconfidence, and excitement are the worst enemies of traders, often driving them to place orders that could later lead to losses.
The Top 5 Crypto Futures Trading Strategies
As we examine each strategy, consider how it aligns with your trading goals, available time, and comfort with risk. Remember, there's no one-size-fits-all approach in trading. The key is to find the strategy or combination of strategies that best fits your individual circumstances and trading objectives.
1. Scalping
Scalping is an intensive, short-term trading strategy that enables traders to generate profits from small price changes. Because these movements often are very tiny, traders usually place numerous trades daily to increase their potential revenue.
Since crypto is a highly volatile market, it is an excellent choice for scalpers. However, you should always place tight stop-loss orders and use leverage with caution to minimize your risks.
Scalping works best in crypto bull markets, and effective risk management, meticulous planning, and swift execution play a crucial role in the strategy's success.
Here are a few popular scalping techniques:
Breakout scalping: Monitor the price action around established support and resistance levels and look out for signs indicating a definitive move (breakout) below support or above resistance.
Range scalping: As part of a lower-risk scalping strategy, analyze periods of crypto asset fluctuations within a clear lower and upper boundary and place orders accordingly.
News-based scalping: Since crypto prices are historically sensitive to major news, monitor news sources like media outlets and social media channels to identify significant events and attempt to benefit via scalping.
2. Day Trading
Day trading is a trading strategy where traders buy and sell crypto futures contracts on the same day to profit from short-term price movements. It comes into great contrast with long-term investment, which involves purchasing and holding digital assets for several months (or even years).
Similarly to scalpers, day traders also aim to take advantage of the market's high volatility to make same-day gains on small price movements. They use technical analysis for decision-making, as well as to determine entry and exit positions, and regularly utilise leverage to amplify their potential gains.
Popular day trading indicators include:
Moving averages (MAs)
The Relative Strength Index (RSI)
The Ichimoku Cloud
The Moving Average Convergence Divergence (MACD)
Fibonacci retracement
3. Swing Trading
Swing trading is a crypto futures trading strategy that aims to realise gains from short- to medium-term price movements. In practice, this involves the trader holding positions for several days and weeks before exiting them.
Providing a fine balance between the short-term day trading and the long-term position trading strategies, swing trading offers the potential for significant returns without requiring traders to monitor digital asset markets every minute. At the same time, it allows them to identify and capitalise on short- to mid-term market trends.
Popular swing trading techniques include:
Trend retracements: Using indicators like the RSI and Bollinger Bands, traders can identify opportunities for gains when a cryptocurrency is in a clear uptrend but experiences a short-term, temporary pullback.
Breakout trading: Based on established ranges or patterns, traders monitor the market for potential breakouts to capture substantial price movements via swing trades.
Moving average crossover: By analyzing the crossover of various moving averages, traders discover potential trend reversals and continuations.
4. Hedging
Hedging is a popular crypto futures trading strategy that involves traders placing trades to mitigate the risks of declining or rising asset prices. In practice, this looks like the following:
A crypto trader has a primary position, which can be a spot market trade, a futures trade, or a long-term investment in a digital asset.
The trader identifies and evaluates the risks related to the primary position. For example, if you hold BTC in your wallet, this would be the price of Bitcoin falling over time.
The trader opens a leveraged position via crypto futures in the same asset or trading pair in the opposite direction of the existing trade to offset the primary position's potential losses.
In terms of crypto futures contracts, a hedging strategy can either be:
A short hedge: A strategy that helps mitigate risks related to the primary position's falling asset prices.
A long hedge: By taking a long position in crypto futures, a long hedge helps traders reduce risks related to rising asset prices.
5. Position Trading
Position trading is the trading equivalent of the "HODL" investment strategy. Here, traders enter positions and hold them for several weeks, months, and even years to realise gains from long-term price movements.
For this strategy, traders often utilise long-term indicators like the 50-day and 200-day moving averages to find entry and exit points. While traders don't necessarily have to apply leverage or monitor the market every day, effective risk management plays a key role in the success of position trading. Thus, measures like stop-loss orders and diversified portfolios could help them minimize their risks.
Get Started With Crypto Futures Trading on VALR
Trading strategies play a crucial role in crypto futures trading. With a sound strategy adapted to the market's current conditions and executed diligently, traders can realize long-term gains with digital asset futures trades.
Looking to trade crypto futures? Head to VALR to get started!
Frequently Asked Questions
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To select coins for futures trading, consider factors like investment style, risk appetite, market capitalization, portfolio diversification, leverage, tax considerations, and market sector. It's important to use objective analysis and data to create and follow a trading strategy, which should be reevaluated and optimized over time to adapt to changing market conditions.
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Choose a crypto exchange with a solid reputation, low trading fees, high security, good regulation, and availability in your country. VALR is highlighted as a reputable exchange for futures trading, offering a wide selection of futures pairs, up to 10x leverage, and advanced security measures.
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A take profit strategy involves setting predefined rules and criteria to assist decision-making, allowing traders to exit positions when a certain profit level is reached. This strategy helps lock in profits and manage risks effectively.
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Hedging in crypto futures involves placing trades to mitigate the risks of declining or rising asset prices. Traders open a leveraged position in the opposite direction of their primary position to offset potential losses. There are two types of hedges: a short hedge to mitigate risks of falling prices and a long hedge to mitigate risks of rising prices.
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Crypto futures are contracts to buy or sell digital assets at a set price on a future date. Perpetual futures, which do not expire, are the most popular in the crypto market. Futures trading allows traders to speculate, hedge, and gain exposure to cryptocurrencies without owning the underlying asset, often using leverage to amplify potential profits or losses.
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate.
VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).
Futures trading is provided by VALR DAM Pty Ltd as a Juristic Representative of CAEP Asset Managers Pty Ltd (FSP number: 33933) an authorised financial services provider.
Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
