What Is Trend Trading in Crypto? Benefits and Potential Risks

Introduction

Widely used in successful portfolios, trend trading is a strategy that adheres to the constant directional move of a crypto asset. This approach tends to be sustainable over the long term, making it one of the safest and smartest methods for entering the crypto market.

In a market like crypto, charged with volatility, following a trend can save a trader from headaches and quick losses associated with very short-term strategies.

Following a trend could lead to an attractive profit ratio without worrying about substantial losses. However, it will depend on the forecast, greed, and timeframe of the trader.

One key benefit of trend trading is the ability to manage the equity with a focus on retaining gains instead of worrying about not losing quickly, as it happens in short-term trading.

From a logistical perspective, a trend trader does not need to monitor every movement of the price of a crypto asset. This is correlated with a psychological benefit that brings calmness to the trading experience compared to other trading approaches.

Key Takeaways

1. Identifying trends in the crypto market requires the technical analysis and research skills of the trader.
2. The market sentiment, moving averages, MACD, and Relative Strength Index (RSI), as well as chart lines, price alerts, and timing orders, play a fundamental role in the framework of the trend trader.
3. Altrady’s wide variety of tools provides all the essentials to start developing, implementing, and improving trend trading strategies: From technical indicators to charting tools, and assets explorer to scanning.
4. Automation, and algorithm trading, accompanied by a smart trading suite for stop-loss, take-profit, and order execution.
5. Trend trading strategies are distinguished by holding positions by conviction in an asset and its underlying project. 
6. Common behaviors among traders involve exiting their positions for lacking the necessary information to trust their analysis.
7. Fulfill research about the asset you are trading so that when a retracement in the price comes, fear do not take control of the decision-making process.

Understanding Trend Trading Strategies

Trend trading is a long-term and mid-term investment method that profits from holding assets based on their fundamental values while reducing associated risks. 

It is the most employed concept for building investment portfolios.

For this trading method, we might look at three variants according to their time frame.

Trend Trading Strategies: From Swing Trading to Long-Term Holds

1. Short-term: involves taking positions for periods of days to weeks. Swing trading is the core strategy for this case.
2. mid-term: this case forecasts a directional price movement for several weeks to months. The mentality of an investor begins to get into action.
3. long-term: this is purely an investor case, long-term trading will hold an asset for months to years.

Trend trading is widely established on technical analysis strategies that involve using indicators and charting tools.  Meanwhile, when using trend trading strategies, one should look into fundamental analysis as well. Technical analysis provides traders with a ready-to-go workspace of predesigned concepts and execution strategies that traders could rely on to achieve their goals.

Tools for Trend Trading

Moving Averages are designed to identify the sustained directional movement of a digital asset. They consist of two variants: Simple Moving Averages (SMA) and Exponential Moving Averages (EMA). 

This indicator employs lines in the chart to display its values. It is also the base concept of other indicators and combines different interpretations for several strategies. Explore more on how moving averages help traders identify trends in the context of the cryptocurrency market.

Moving Averages Convergence Divergence (MACD) is an indicator that looks for momentum, oscillating through the correlation of moving averages to spot essential moments of the price action of an asset.

Consisting of MACD lines, a signal line, and a histogram, this indicator gives bullish and bearish signals, pointing to potential trends in those respective directions. How to Interpret MACD Signals? Click here to find out how.

Relative Strength Index (RSI) will on a scale from 0 to 100, try to measure the speed of change in price movements. Its primary results aim to identify overbought and oversold zones of the traded asset, and in combination with another indicator like volume, traders nowadays use it to spot divergence and convergence concepts. It is a welcoming indicator for many beginner traders.

In the context of trend trading, this indicator will suggest when would and would not be a good moment to enter a position. Here, Altrady explains how to use it in combination with the two previously mentioned.

In the technical analysis process, the concept of confirmation is critical to avoid false signals. Relying solely on one indicator or another does not solve effectiveness issues on its own.

To overcome this situation, it's important to employ techniques of confirmation of the price action. 

Those like:

1. Correlate multiple indicators.
2. Establish a relation with fundamentals.
3. Do not rely on the decision process of an indicator; instead do research for confirmation. (For example, confirmation from the candlesticks.)

In the context of a crypto chart analysis, building a technical dashboard has advanced benefits for a trend trader. How to use it? The following table will try to illustrate it.

Using Altrady for Trend Trading

Altrady is the ultimate all-in-one trading suite that offers a wide range of features for all types of traders, including trend traders.

Real-time functions like price alerts and position updates, bring trend traders all that's needed to keep track of the performance of a crypto trend once it is identified and positioned.

Use the watchlists from Altrady to set price alerts at the time you explore the markets and several crypto instruments.

Developing a Trend Trading Strategy

To start developing an effective trend trading strategy, take into consideration the following steps:

1. Elaborate a trading plan detailing all the rules for the execution of trades.
2. Choose the right combination of indicators that best fits you.
3. Backtest the strategy.
4. Set a risk management framework.
5. Choose between 1 to 3 categories of crypto to build a coherent trend trading strategy able to build a portfolio.

Once a position is about to be executed, it is imperative to have a forecast for entry and exit points. This is important to be consistent with risk management and reward ratios.

Draw trend lines, mark key levels, spot supports, and resistances, and expect supply and zones to be formed.

Set take profit and stop loss based on that chart information.

Some risk management techniques for trend trading suggest trailing the stop-loss of the position to protect it as it advances on a winning path. Other techniques involve selling part of the winning position and entering again in another opportunity, adding more and increasing the size of the position for bigger potential profits.

Conclusion

As we saw, trend trading is an easy concept for trading the cryptocurrency market effectively, and with a long-term approach.

So far, we learned:

1. Indicators to identify potential trades.
2. How Altrady's platform is the perfect one to achieve trend trading goals.

Remember to visit Altrady's library to expand your knowledge of indicators and fundamentals, so you can develop and understand better strategies.

Altrady's watchlists, smart trading, and portfolio management tools will improve any trader's experience with a trend trading vision.

Don't forget to keep practicing and backtest strategies using demo accounts, as well as preparing mentally for the transition from demo to live trading

Take advantage of the ultimate Altrady's Free Paper Trading offer and Sign Up today to begin a professional career as a trend trader.