Cryptocurrencies, like Litecoin, have highly volatile markets that are rather unpredictable. That makes the price go swinging in one direction and then flipping all the way to another side, making it not easy to find strategies that bring returns for traders. Most of the traders look for strategies that are definable, actionable, and they do not require constant monitoring of the market. How can you make this volatility a risk and not an opportunity?
In this article, we will describe three proven Litecoin trading strategies for both short-term and long-term traders. All the strategies considered below passed back-testing and are appropriate for frenzied cryptocurrency trading. If you are a novice trader or an experienced trader, one of the strategies that we will present will help you build the best profit on the Litecoin market.
Let’s discuss all of them in detail. We are going to cover the entry and exit points, the outcome from the backtesting, and how each can be used to enhance your trading performance. By the end of reading this article, you will have actionable tools to start trading Litecoin profitably.
Strategy 1: Short-Term Trend Following Strategy
It is a short-term trend following strategy, making it suitable for traders who would like to catch minor swings without noise in the market. The strategy is basic, in that it uses of the 20-day simple moving average (SMA) that is one of the most widely used metrics to identify trends.
Rules:
- Buy: Position when Litecoin’s closing price breaks above the **20-day SMA.
- Sell: Cover when the closing price falls below the 20-day SMA.
Backtest Results
We ran a backtest on this strategy on Litecoin, entering historical data, and the results are quite astounding:
Total trades: 156
Avg profit per trade: 8.4%
Annualized return: 114%
Now compare this against Buy and Hold. If you simply owned Litecoin, you would have seen a yearly return of about 40%. Even this basic buy-and-hold strategy blows this out of the water.
Equity Curve Definition : This strategy is so far showing steady growth, and this equity curve is a definite indication that trend following can be a very robust strategy. The application of the 20-day SMA will give rise to entry and exit points at which the trader will still hold onto a positive trend and not be swung by the tail of a reversal.
Strategy 2: Trend Following Strategy in the Long-Term
This strategy suits long-term trading. For a two-line simple moving average system, he will need one over the short time period and another on the long time period to help him know the important trends for a much longer duration.
Rules:
Buy: when the short-term moving average (100-day SMA) goes above the long-term moving average (250-day SMA).
- Sell: Exit the trade when the 100-day SMA moves below the 250-day SMA.
Backtest Results:
We tested this strategy on Litecoin and this time with a much smaller sample size of just 7 trades, but the power of the result was strong:
Annual Return: 66%
- Buy-and-hold returns were around 40% per year as this strategy would produce 66% annual return.
Although there are very few trades, the long-term moving averages do actually capture the big trends and provide good returns on fewer trades. It would be advisable to have an account with high stability so that you can hold a position for a longer period of time where you could ride out more significant price movements.
Strategy 3: Momentum Strategy
This is a momentum strategy well suited to allowing easy profit in the momentum of prices and ideal for the traders who like quick profits during sharp uptrends or downtrends. It calculates momentum and entry/exit points based on the use of price action over the past 25 days.
Trading Rules
- Buy: Enter when the closing price is above the closing price 25 days ago.
- Sell: Close when the closing price is smaller compared to the closing price 25 days ago.
Backtest Results:
We backtested this momentum strategy using Litecoin. The following are its results:
Total Trades: 129
Average Gain per Trade: 9.6%
Equity Curve: The equity curve shows a huge spike upwards to prove that momentum-driven entries and exits work well.
This approach is very easy and effective in capturing the trend, purely based on the price action of a period selected to be as short as 25 days. A trader may use this approach to position himself anytime when there is clear momentum for Litecoin, always buying when the price is trending upwards and selling when it is trending downwards.
Summary of All the Three Strategies
| ategy | Timeframe | Mean return per trade | Annualized Return | Trades per Year | \ |
|---|---|---|---|---|---|
| Trend Following Short-term | Short-term (20-day SMA) | 8.4% | 114% | 156 trades | |
| Long-term Trend Following | Long-term (100/250-day SMA) | N/A | 66% | 7 trades | |
| Strategy Type | Momentum (25-day) | 9.6% | N/A | 129 trades |
Conclusion: Take the Leaps with these 3 Easy Litecoin Trading Techniques
Litecoin, just like any other cryptocurrency, has huge riches in store for the smart traders who know how to leverage on its very volatile nature. By following short-term and long-term trends along with a momentum strategy will help elevate your chances of gaining huge profits immensely.
Best suited for Short-Term Trend Following: A trader who loves to gain from fast price movements and be aligned with the short-term momentum of the market.
The long term kind of trend following is best suited when the person is a patience-evoking guy who would not mind catching the major trends with fewer trading activities.
This type of momentum strategy best goes with the waves of price action, because they love to ride uptrends and downtrends when they are the strongest.
Taking the rules evolved in each of these strategies, you can formulate a balanced approach for Litecoin trading. Powerful results of backtests support the effectiveness of all such strategies for generating returns. Nevertheless, you can configure each of these strategies according to your specific trading style as a day trader, swing trader, or long-term investor.
If you are a fresh trader in Litecoin, or other crypto markets, it makes sense to begin opening with small positions and then increase exposures as one learns. With these 3 simple Litecoin trading strategies, starting today will take you on the path toward successful trading:.