New to crypto and you don’t know where to start? In this article I am going to introduce you the following interesting and easy strategies to get started!
- RSI: The Divergence Strategy
- Golden Cross VS Death Cross
- DCA: Dollar Cost Averaging
So, let’s start
1. RSI: The Divergence Strategy
The Divergence Strategy is a crypto trading strategy used to predict when the price is going to start a new trend moving from upward to downward and vice versa. It is based on the RSI Index. RSI stands for Relative Strength Index, it can assume values from 0 to 100 and it is used to understand if an asset is overbought or oversold. In particular, two values are considered: 30 and 70. If the RSI of a certain asset “X” is below 30, it means that X is oversold; if it is up to 70, X is overbought.
Here it comes the interesting part.
When an asset is oversold we expect that (after a certain time) the price will go up; when it overbought we expect that it will go down.
One more interesting point is that sometimes it happens that price and RSI don’t follow the same trend: price has an upward trending while RSI has a downward one and vice versa. This is an early sign of reversing of the price trend.
As you can see in the chart above, the violet line represents the RSI Index; above it, there is the trending line of the price of British Pound/Dollar. As you can see, there are two divergence points underlined in green, in the first one starting from the left, the RSI Index is moving upward, while the price is going down. Right next to it, you can see that the trending price has changed its direction: it moved up (white arrow). In the second divergence point you can see that, while the price is going upward, the RSI Index is moving downward. Consequently, after that the price reached its maximum, it went down following the trend of the RSI Index.
2. Golden Cross VS Death Cross
The Golden Cross/Death Cross is another crypto trading strategy that require the use of two Moving Averages (MAs). With this method you are looking for crossovers between 50 MA (an average of the last 50 days) and 200 MA (an average of the last 200 days) over long chart time frames such as the daily and weekly charts.
There are two types of crossovers:
- Golden Cross (or Convergence): it happens when the moving average of the last 50 days crosses above the moving average of the last 200 days. In this situation the short-term momentum is exceeding the long-term momentum. It is a Buy Signal.
- Death Cross(or Divergence): it happens when the moving average of the last 50 days crosses below the moving average of the last 200 days. In this situation the short-term momentum is falling compared to the long-term momentum. It is a Sell Signal.
3. DCA: Dollar Cost Averaging
The Dollar Cost Averaging crypto trading strategy bases on the idea that, once you decided how much money you want to invest into a certain asset, you don’t invest them all together in the same moment. On the contrary, you divide them in smaller amounts and you invest them in the asset you chosen on a certain time and on a certain day of the week. For example, let’s say that you want to invest 15000$ in Bitcoin. Instead of investing 15000$ in full in one go, you divide them in 30 parts (500$ each), and every Monday (for 30 weeks) at 11.15 you invest 500$ until you invested the entire amount. On the long term, this strategy will protect you from the volatility of the market and will allow you to make higher profits. The image below is a graphic explanation of this strategy.
Another interesting point of this method is that, thanks to trading bot services, it can be completely automated. So, what you need to do is “telling” the trading bot what you want to trade and when you want to trade. The bot will do the work for you.
