10 trading strategies to suit various growth objectives

Trading cryptocurrencies in Singapore can be a complex and challenging activity. This is particularly the case among traders who are getting started in the industry or those who are only familiar with traditional finance. If you have some trading background and are only aware of the general investment strategy — buying cryptocurrencies while prices are low or selling off when prices are positively high — know that you are not the only one.

However, do take note that there are other trading strategies you can adopt regardless of the market conditions to maximize returns while managing risks more effectively. So, what are they?

What is a trading strategy?

trading strategies

A trading strategy is a detailed plan that draws on analyses of different market conditions and price movements to avert risks while making informed decisions to meet growth objectives.

Before getting into the nitty-gritty of several trading strategies, it is important to address a common misconception about market conditions; they only go up or down. That is not the case as there are different types of market conditions namely trending or ranging. It is vital to differentiate them so that you can employ a suitable strategy accordingly.

What is a trending market?

A trending market is one in which a price generally moves in a single direction — either upward or downward. It is identified using several patterns and trend lines and can range from short-term to long-term. Additionally, a trending market is dependent on factors including political activities, government policies, economical factors, foreign and direct investments, and supply and demand. 

What is a ranging market?

A ranging market, on the other hand, involves a price moving back and forth within a range. There is a ‘resistance line’ which indicates a resistance for the price to go any higher and a ‘support line’ that prevents the price from dipping any further.

Which trading strategies to consider for different market conditions?

1. Benefitting from a large price movement

Strangle – A strategy where you hold both call and put options with different strike prices (but the same expiration), it benefits you when the price movement swings sharply in either direction. For such a strategy, it could mean a double damage hit or double win victory with the same price.

2. Take on a neutral position amidst volatility

Straddle – You own both put and call options at the same time with different strike prices (but same expiration date). It benefits you when the digital assets either rise or fall from the strike price and typically applies during volatile conditions.

3. Protect against large losses with limited gains

Collar – To mitigate against large losses, you buy a put option to limit risk from large price drops, while concurrently selling a call option to collect a premium. This protective put and covered call approach protects against huge losses, but limits upside potential.

4. Profit from either side of price movement

Market Neutral – A market-neutral strategy is typically a trading or hedging strategy that aims to generate returns that are independent of the market’s movements and uncorrelated with other asset classes.

5. Decisions based on views and market conditions

Directional Trading – Leveraging one’s perspective of overall financial market sentiments as a deciding factor to take on a buy or sell approach. You can either take a long position during an upward price trend or a short position for a falling price.

6. Conservative approach with level capping

Knock-out – Automated expiration once specific price level and preferred capping are fulfilled. While the strategy limits losses, it also minimizes profit potential by expiring upon reaching a barrier where the underlying asset has reached or surpassed the predetermined price. On the other hand, there is the Knock-in strategy where it is favorable once the underlying assets meet and fulfill a specific price.

7. For traders with higher risk appetites

Short Straddle – A more technically complex strategy, it allows you to collect profit by selling both call option and put option at the same strike price and expiration date. However, this strategy requires careful risk management as there is theoretically no limit to losses when the price of the underlying asset increases.

8. Strategy that covers bull and bear market sentiments

Butterfly-spread In order to embrace market uncertainties or volatilities that could either swing towards bullish or bearish conditions, a butterfly-spread is intended to cover either spread while fixing your risk and capping your profits and losses for some form of trading control. It requires investors to incorporate four calls or puts or combinations of both with three strike prices.

9. Maximize profit in a low volatility environment

Iron-Condor – A strategy that comprises multiple activities involving placing puts, calls, and strike prices within the same expiration date. In fact, Iron Condor serves as an extension to the Butterfly Spread where profit works best when there is little movement to the underlying asset while managing risks by capping the potential losses.

10. Setting a specific objective to receive a payoff

Knock-In – For individuals who like to have more control over their trading activities, they can adopt the knock-in option and only realize the contract once the price is met. Typically for such options, the premiums are more affordable, and depending on the direction set, they can choose between a knock-in or knock-out strategy.

You may also like: 5 factors to consider before you allocate crypto in your portfolio

Partnering with experienced digital asset specialists

At Sparrow, our team of digital asset specialists possesses the expertise to structure different strategies for any market condition. Whether your outlook is bullish, bearish, or even neutral, our team can help you with solutions designed to meet your trading goals.

If you feel intimidated by the complexities and risks inherent in crypto options trading, contact Sparrow’s team of experts to learn how you can incorporate a suite of strategies to meet your growth objectives. We have the technical expertise and trading experience to customize a solid framework that addresses various pain points and preferences.

Risk warning on digital payment token services:

The Monetary Authority of Singapore (MAS) requires Sparrow Tech Private Limited (Sparrow) to provide this risk warning to you as a customer of a digital payment token (DPT) service provider.
Before you pay Sparrow any money or DPT, you should be aware of the following.
1. Sparrow is exempted by MAS from holding a licence to provide DPT services. Please note that you may not be able to recover all the money or DPTs you paid to Sparrow if Sparrow’s business fails.
2. You should not transact in the DPT if you are not familiar with this DPT. Transacting in DPTs may not be suitable for you if you are not familiar with the technology that the DPT services provide.
3. You should be aware that the value of DPTs may fluctuate greatly. You should buy DPTs only if you are prepared to accept the risk of losing all of the money you put into such tokens.

The information provided here is for informational purposes only and is not to be construed as a recommendation or advice to any prospective investor in relation to any legal, tax, financial investment or any other matters. You should consult with an attorney or other professional advisors to determine what may be best for your individual needs.

Content contained on or made available through any of our communication channels is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on any of our communication channels is at your own risk.