A Fun Introduction to Trading Strategies for Crypto and Derivatives
Disclaimer:
We can’t offer financial advice. This is a blog about trading strategy, not advice for how you should invest your money, or crypto.
Scared of trading? You shouldn’t be. But it’s true that you need to understand what you’re doing. Sadly, a lot of trading education is dry. We try to make it a bit more…interesting.
This is just a brief overview of different trading strategies though, and gives you an understanding which are suitable for crypto and which are suitable for derivatives trading. You’ll also be able to click on links to each individual trading strategy to learn more about it and how to apply it to your trading. That’s when things become more interesting!
Trading Strategies: Pick Your Weapon
Trading crypto and derivatives isn’t about winging it—it’s a calculated game of wit and strategy. Here’s a sharper breakdown of the major moves you can make:
- HODL: Buy, hold, and chill. The idea is to weather the volatility and cash in when the value moons. Ideal for believers, not day-to-day thrill-seekers.
- Scalping: Blink, trade, profit. You exploit tiny price movements within minutes or seconds. A scalper’s mantra? Small wins stack big.
- Swing Trading: Ride the trends, avoid the noise. Swing traders look for clear patterns—breakouts, reversals—and hold trades for days or weeks. Strategy meets patience.
- Arbitrage: Exploit price gaps between exchanges or markets. It’s a logistical sprint: fast execution, low fees, and an eagle eye for inefficiencies.
- Trend Trading: Follow the flow. Identify a trend, go long (buy) or short (sell), and stay in until the momentum fades. Just don’t get caught when the trend flips.
- Day Trading: The one-day stand of trading. Open and close all positions within market hours. It’s about small, frequent profits—no overnight risk.
- Options Strategies: Manage risk like a pro. Use options contracts to hedge positions, create spreads, or bet on market volatility. Complex but versatile if you know the ropes.
- High-Frequency Trading (HFT): Automated trades at lightning speed. Algorithms crunch the numbers, detect patterns, and execute in milliseconds. Humans just watch the bots go wild.
- Position Trading: The long game. Hold positions for weeks, months, or even years—betting on major trends, not daily noise. It’s swing trading’s older, more patient sibling.
- Breakout Trading: When prices smash through support or resistance levels, you jump in—buy the breakout, ride the momentum, and bail before the hype fades. Think of it as catching a rocket at lift-off.
- Mean Reversion Trading: What goes up must come down (usually). Traders bet that prices will snap back to their historical average after extreme highs or lows. It’s the “calm down, market” approach.
- Grid Trading: Set automated buy and sell orders at intervals, forming a grid. Profits come from small price movements in a sideways market—no need to predict direction, just let the grid work.
- Funding Rate Arbitrage: Used in perpetual futures trading. Traders go long or short to collect funding fees when rates swing in their favor—profiting from the market's attempt to balance longs and shorts.
- Copy Trading: Mirror the moves of pro traders, either manually or through automated platforms. Great for beginners or those wanting passive exposure to active strategies.
- Statistical Arbitrage (Stat Arb): Using quantitative models to find price discrepancies across assets or pairs, betting they’ll revert to their statistical relationship. Algo-heavy, but profitable if done right.
- Momentum Trading: Jump on a fast-moving trend and ride it until the momentum shows signs of slowing. "Buy high, sell higher" is the motto—perfect for volatile crypto markets.
- Contrarian Trading: The rebel move. Go against the crowd—buy when everyone’s selling, sell when they’re buying. It’s high-risk, but it pays off if you're right.
- Range Trading: Identify price ranges (support and resistance levels) and trade within them—buy low at support, sell high at resistance. Works best in sideways, non-trending markets.
- News-Based Trading: React instantly to breaking news—good or bad—and trade based on expected market reactions. Speed and accurate info are key here.
- Event-Driven Trading: Focus on price moves triggered by events like earnings reports, token burns, forks, or regulatory announcements. Big moves mean big opportunities.
Every strategy has its edge, but not all fit every trader. Test, learn, and adapt.
Let’s clarify which strategies work for crypto, derivatives, or both:
- HODL: Pure crypto. You’re buying actual assets (Bitcoin, Ethereum, etc.) and holding onto them for dear life. This is a long-term play—not suited for derivatives like futures or options.
- Scalping: Both crypto and derivatives. Whether it’s spot markets or perpetual swaps, scalping thrives on tiny price changes and high trading frequency.
- Swing Trading: Works for both. Swing traders look for price trends in crypto or derivatives contracts (like futures). It’s a versatile strategy.
- Arbitrage: Primarily crypto. Price differences between exchanges are your playground. In derivatives, arbitrage exists but usually involves complex setups with options or futures spreads.
- Trend Trading: Both crypto and derivatives. Traders follow trends in price action, whether it’s a token or a contract. As long as there’s a trend, this works.
- Day Trading: Both. You can day-trade crypto on spot markets or derivatives like perpetual contracts and options. The strategy applies to any asset with intraday price movement.
- Options Strategies: Derivatives only. Options contracts (puts, calls) aren’t native to crypto spot markets—they’re exclusively in the derivatives realm.
- High-Frequency Trading (HFT): Both, but better in derivatives. Crypto markets can be chaotic for HFT, but derivatives markets often offer the depth and liquidity that algorithms love.
- Position Trading: Works for both. Whether you're holding a crypto asset like Bitcoin or a derivatives contract like futures, position trading is about betting on long-term trends. Great for slow and steady.
- Breakout Trading: Both. Breakout trading can be used in crypto when prices smash through key levels (like resistance levels on Bitcoin) or in derivatives like futures where contracts break through significant price barriers.
- Mean Reversion Trading: Both. This strategy works in both markets when prices revert to their mean after an extreme swing. Perfect for volatile crypto markets or overbought/oversold derivatives.
- Grid Trading: Primarily crypto. Grid trading is best for crypto in sideways markets, where price fluctuations can trigger buy and sell orders at set intervals. Derivatives can work, but it’s more common in crypto.
- Funding Rate Arbitrage: Primarily derivatives. This strategy is mainly used in perpetual futures markets where the funding rate can vary significantly between long and short positions.
- Copy Trading: Both. Copy trading can be applied to crypto markets or derivatives, where traders follow professional strategies and replicate them either manually or with automated platforms.
- Statistical Arbitrage (Stat Arb): Primarily derivatives. Stat Arb relies on complex algorithms and price discrepancies between assets or contracts, often used in derivatives due to the availability of data and liquidity.
- Momentum Trading: Both. Momentum trading works well in both crypto and derivatives, where traders ride the momentum of fast-moving trends in either the spot market or futures contracts.
- Contrarian Trading: Both. Contrarian trading works in crypto or derivatives when you go against the crowd, betting on market reversals—whether it’s a token or contract.
- Range Trading: Both. Whether in crypto or derivatives, range trading is effective when the market moves within a specific price range—buy at support, sell at resistance.
- News-Based Trading: Both. News-based trading applies to both crypto and derivatives, as market reactions to news events can drive price movements in either market.
- Event-Driven Trading: Both. Event-driven strategies, triggered by earnings reports, token burns, forks, or regulatory announcements, apply to both crypto and derivatives for major price moves.
Some strategies are universal, but others thrive in specific domains. The key? Match your weapon to the battlefield. Want to explore one in-depth? Let’s dissect it.
Ready to dig into one? Let’s break them down…and let’s start with HODL: The Lazy Genius of Crypto Investing. Or simply click on any of the trading strategies above to get a full explanation of each