In crypto trading, there are four types of trading, and these include scalping, day trading, swing, or position trading. They differentiate by how long they hold a trade and the strategy used to be profitable. Understanding these differences allows investors to match their approach to their personal risk tolerance and daily schedule.
- What does trading in crypto mean
- What are the different types of trading in crypto
- How to select between multiple trading types in crypto
- Difference between scalping and day trading in crypto
- How does high-frequency trading work
- How is trading in crypto different from fundamental trading
- Difference between trading types and trading strategies
- How to know your trading level
- Building your trading foundation
- FAQ
What does trading in crypto mean
Trading in crypto is when users buy and sell digital assets to generate profits. These actions can fluctuate in how often they take place. In contrast to passive investing, trading in crypto can be done in more than one way as traders allocate capital and expect to generate returns in the long or short term.
Traders analyze and look for market signals using technical indicators (volume, data, or other data points) to time their entry. Since crypto is highly volatile, price swings often create opportunities to capitalize on short-term gains—which in some cases is more profitable than passively waiting for prices to increase.
What are the different types of trading in crypto
The four types of trading are position, swing, day, and scalp trading and are based on the amount of time a position is held. The type of trade depends on trader experience, free time, and even risk tolerance level.
Position trading
Position trading is a type of trading where positions are held for longer periods of time. It’s similar to passive investing, and the objective is to capture major market moves while ignoring short-term volatility. The trading style focuses on larger positions with lower leverage to avoid liquidations. Traders analyze the market in longer time frames and wait for macroeconomic events to push the price of an asset towards their target. The strategy is better suited for experienced and patient investors.
Swing trading
Swing trading is a short-to-medium trading type, where users seek to generate profit within a few weeks. Commonly used indicators are RSI and MACD to help identify swing highs and lows on 4-hour or daily charts.
The approach provides a middle-ground as it’s shorter than position trading but longer than simple day trading. It also doesn’t force traders to stay close to the screen and enables them to take long or short positions and wait for the outcome to play out while opening take-profit orders.
Day trading
Day trading is when traders conclude all their positions within the same daily window. It requires consistent monitoring while decreasing the risks of loss due to intra-day volatility. Day traders use leverage and smaller positions to capitalize on shorter movements than in swing trading. In this trading type, users need to manage their risk-to-profit ratios, as approximately 40% of all day traders are priced out due to poor management.
Scalp Trading
Scalp trading is when traders hold tokens for shorter periods of time. A scalp can take between seconds and minutes. Traders read charts and rely on volume as well as candle patterns in crypto to accumulate small wins. Leverage isn’t always used as traders prefer to avoid borrowing fees. Scalpers have a good understanding of market liquidity and are always linked to their screens.
How to select between multiple trading types in crypto
Selecting between types of trading depends on knowledge level and availability. It also plays into the strategy. Inexperienced traders who scalp are less likely to be profitable as they can act on emotion.
Position traders can lose opportunities if they are restricted to the longer time frames. Thus, matching your personality to your trading style dramatically increases your chances of generating consistent profits.
How risky is each type of trading style
Every trade carries a level of risk. 90% of inexperienced traders in crypto lose money in the first year, and even experienced traders have a 50% win rate in trading. Scalping and day trading are higher risk because traders are exposed to intraday volatility and involve borrowed leverage. If positions aren’t managed, they are quickly liquidated.
Swing and position trading carry lower execution risk, but they expose traders to overnight market events and broader economic downturns.
Difference between scalping and day trading in crypto
Scalping means using minute and even 15-minute time frames to spot opportunities, and traders also cross-reference it with candle patterns. Day trading is on a larger time horizon but still shorter than swing trading. Day traders close their positions within hours or within a 24-hour period. In scalping, positions can be held for several seconds to minutes. Scalpers even enter multiple positions on the same asset.
How does high-frequency trading work
High-frequency trading is a term used for strategies that rely on algorithms to execute a lot of trades in a short time frame. Think of it as a way to open and close multiple positions, allowing for programmable results without delays.
The approach identifies trading opportunities and exploits price inefficiencies to execute profitable trades. High-frequency trading (HFT) is popular among institutional traders as it runs large-scale trading models with high volumes. HFT requires expensive infrastructures to be profitable, and recently the approach has been integrated also by companies like Yieldfund, which make HFT accessible to a wider range of traders.
Is HFT different from regular trading in crypto
HFT differs entirely from regular manual trading because it relies on proprietary technology rather than human decision-making. Regular traders manually analyze charts and click to execute trades, whereas HFT systems operate autonomously based on pre-set quantitative rules. While regular day traders might execute five trades a day, HFT algorithms can execute thousands of transactions in the same period.
How is trading in crypto different from fundamental trading
Crypto trading focuses on capturing short-term price action, while fundamental trading is usually seen in stocks and commodities where traders estimate and trade the intrinsic value of an asset. Active traders rely on technical analysis and volume among other indicators. In fundamental trading, investors seek to understand macro-events, longer time plans, and narratives to gain exposure and profit from a trade.
Difference between trading types and trading strategies
A trading type defines your time horizon, while a trading strategy dictates the specific technical rules for entering and exiting the market. Your trading type might be day trading, but your specific strategy could be breakout trading or trend following. Strategies use specific technical indicators to trigger a buy or sell action.
How to select a trading strategy in crypto
To select a trading strategy, a trader needs to know their time frame and what their risk profile is. Traders who are impulsive won’t benefit from scalping or day trading. The strategy, however, is rooted in knowledge and market understanding. Trend following, for example, works in swing trading, while range trading is preferred by scalpers or day traders.
A way to select a trading strategy is to test multiple approaches in real-life situations using demo accounts to understand which technical indicators are best suited for your approach.
How to know your trading level
You can determine the right trading type by honestly assessing your available time, emotional control, and market experience. Beginners with full-time jobs generally perform better with position or swing trading because it requires less immediate action. Highly experienced individuals with deep technical knowledge and quick reflexes are better suited for the demands of day trading or scalping.
What trading strategy works for beginners
Swing trading combined with a trend-following strategy is widely considered the best starting point for beginners. It provides enough time to analyze 4-hour or daily charts without the immediate stress of intraday volatility. Beginners can use simple Moving Average crossovers to identify clear entry and exit points safely and effectively.
Building your trading foundation
Deciding between the types of trading is directly linked to your level of understanding. Inexperienced traders can benefit from position trading as it’s less risky and similar to buying and HODLing. Active trading is reserved only for people who are committed as it carries significant risk for retail.
By taking the time to test different styles in a demo environment, retail investors can find a sustainable approach to the crypto markets.
If you still want to access crypto yields but don’t know or want to actively trade, Yieldfund, a quantitative trading company provides investment plans with up to 48% yields per year and weekly payouts paid in USDC.
FAQ
Which type of trading is best?
There is no single best type of trading, as success depends entirely on your personality, capital, and goals. Swing trading is optimal for part-time retail investors, while scalping suits highly focused professionals.
Which type of trading is easy?
Position trading is considered the easiest type to manage on a day-to-day basis. It requires the least amount of screen time and relies on long-term project fundamentals rather than rapid chart analysis.
What are the main types of cryptocurrency trading?
The four main types of active cryptocurrency trading are scalping, day trading, swing trading, and position trading.
What’s the difference between spot and derivatives trading?
Spot trading involves directly buying and owning the actual cryptocurrency in your wallet. Derivatives trading involves speculating on the future price of the asset using contracts, often utilizing leverage.
