Trends in the market are cyclical. Sometimes, a currency pair or cryptocurrency is hot, experiencing a long and strong trend. At other times, trends turn sideways and become boring.
An example of a hot and popular trend right now is passive investing via the best staking crypto on Bybit. Staking crypto means your tokens will earn interest and all you need to do is hold on for the long term.
While this is relatively new in crypto, buying and holding an asset to earn interest is not a new strategy and has been used in FX for decades.
The common theme between hot and cold trends is that the strategies used to trade them in FX can also be applied in crypto. Below, we review five strategies used in FX that you can implement in crypto too.
5 Forex Trading Strategies You Can Use in Crypto Trading
Forex traders are really good at reading the charts to identify the trends. Some trends are extremely long while others are sideways. A good trader will recognize the market conditions and apply a strategy that fits that market environment.
Fortunately, these tried and tested strategies from FX can also be applied and used in crypto. Below, are five popular FX strategies, and let’s discuss how they can be implemented for cryptocurrencies.
- Breakout trade
- Carry Trade Strategy
- Day Trade
- Range trade
Strategy 1: Trading Breakouts on Metaverse Crypto
Generally, within FX, there is a currency that is in a strong trend. The same phenomenon applies to crypto too. For example, for the past several months, metaverse crypto has been an extremely hot trend. Traders were scrambling to learn more about the metaverse and which cryptocurrencies serve these communities.
Once these hot trends are identified, a tried and tested strategy that is quite effective can be applied to the metaverse crypto or other hot trends is called “trading breakouts.” The trader will draw horizontal resistance above a recent high or the all-time high. When the market breaks above the resistance level, they buy. The benefit of this strategy is that it allows the strength of the hot trend to push the market higher.
Strategy 2: Passive Income
Carry trading was a popular FX strategy prior to the Great Financial Crisis of 2008. FX traders would swap out the lower interest rate currency to buy higher interest rate currency. FX traders would earn interest income on the difference between the two currencies’ interest rates.
A similar type of passive income is available in cryptocurrencies too. After you buy crypto, you can stake that crypto to earn interest. Regardless of whether the value of the crypto moves up or down, your investment is earning interest in the native token. If the token’s value increases, then you are receiving interest on an appreciating asset. If the token’s value decreases, your interest earned will help cover a portion or all of that capital loss.
Strategy 3: Day Trading Smaller Trends
Like FX, crypto is traded 24 hours per day. Day traders begin their day by assessing news and what big trends are developing. Then, after reviewing the charts, these traders will set up their entry and exit points based on the shorter-term trends on the charts.
Day traders will open and close their trades typically within a day and definitely within two days. Their goal is to repeat a process over and over, picking up bits and pieces of the larger trend to grow their account balance. As a result, a day trader only cares about the trends that would last for the next several minutes to hours.
Day trading is very popular within crypto too. Many times, the strategy used to day trade FX can also be used in crypto as both markets are very technical. With over 12,000 cryptos available, a good screener is needed to spot the big trends taking place on that day.
Strategy 4: Swing Trading
A common starting point for newer FX traders is learning to swing trade. The margin for error is a little bit more forgiving in swing versus day trading. This is because traders don’t have to babysit and watch every tick of the market. Swing traders can set their entry and exit levels, then turn off the monitor.
Swing strategies also work when trading crypto. The technical indicators used in a swing strategy such as the MACD, RSI or Stochastic will be used the same way for the crypto markets. Since crypto trades 24 hours per day, it is helpful to implement a strategy that allows you to step away from the computer so you can keep your focus and not burn out.
Strategy 5: Range Trading
Range trading is the opposite of breakout trading. Sometimes, the market trades sideways with no real direction. For FX traders, this could be the result of two countries that are strong trading partners with one another and both countries are experiencing similar trends. Sideways trading could also be due to illiquid times of day when trading activity is muted.
Within crypto, ranges will develop too. After a long and strong trend, the market may trade sideways to consolidate those gains. The sideways consolidation will frustrate the long traders forcing them to close out setting up the next large advance. Also, there are times during the day or over the weekend when trading volumes are low creating a lack of buyers or sellers to push the market.
The FX and crypto markets have a lot of similarities. Both markets trade 24 hours per day and are highly technical markets. Crypto will experience hot and cold trends just like FX. As a result, this allows the strategies used by FX traders to also be used in crypto.