Directional trading is trying to trade based upon the speculation of either the whole market, or of that particular crypto that you want to trade. Usually it involves taking a long position being bullish or taking a short position being bearish. However, like every other trading strategy, directional trading also has its own positives and negatives. Let us look into some reasons that motivate towards entering directional trading.
Why to Do Directional Trading
More Profitable: Directional trading is more profitable in terms of volumes of profit. As the risk associated with directional trading is higher as compared to its counterpart non directional trading, the profit percentage on the same investment is also higher usually. And all of us trade to make money. So directional trading is more suitable towards achieving this goal.
Natural Choice: Usually, over a period of trading and out of experience, traders develop expert skills with respect to both trading and market speculation. So directional trading seems to be a very natural choice, as it lets you use your total knowledge as a cryptocurrency trader and make the desired trades.
More Suitable: When it comes to trading cryptocurrency, or becoming a cryptocurrency trader, we all know that the market is very volatile. So this makes it even more suitable for directional trading as the price fluctuations are rapid and huge. So if the price moves in your speculated direction, you are sure to make a lot of money out of a single trade.
Mitigates Risks: Although there can be losses in directional trading as well, but these are rare and also can be mitigated by simple risk management strategies. For example if a trader places a limit order, he is trying to mitigate his losses in case such an event arises.
Gain Both Ways: Directional trades usually involve going for short and long positions. So whether the price goes up or it goes down, the trader gains from the trade. The only prerequisite is that he must be able to make the right judgement in the right direction of the price movement.
Secure: Directional trading is safe in the sense that the gaps in the two legs of the pair in the directional trade, comes to a closure sooner or later. So if you can afford some money out, for considerably longer periods of time, to be invested in directional trading, you are more or less safe with your capital investment.
Advantages of Directional Trading Strategies
Even major consulting firms in cryptocurrencies, like executium.com keep the option for directional trading in their clients’ portfolios. There are many reasons as to why directional trading is preferred. Some of these are:
1. Most directional trading strategies are simple to use and flexible for traders.
2. Directional trading is popular in other mediums as well, like stocks, options, futures etc. So if you are new to cryptocurrency, but familiar with other instruments, it is more or less the same here to give you a great start.
3. Directional trading needs lesser technical analysis as compared to its counterpart non directional trading in cryptocurrency.
4. The basic idea is simple. It is to go long on an uprise and short on a downfall in prices.
5. You can use simple services like executium.com who can manage the entire directional trading for you, on your behalf, without bothering you at all.