Profitability Vary in Spot Trading Strategies
Spot trading relies on basic principle “buy low and sell high” and most strategies aim to achieve that through better timing of trades and setting trade entry and exit points. Profitability largely depends on setting price goals (entry and exit points) and how well market moves. In swing trading, trader hold crypto for several days or weeks, getting exposure to several price reversal, support and resistance levels, and sell crypto once a resistance level is hit after uptrend to make profits. They key is to set price goals and achieve that once market is moving favorably.
In different strategies, you set different price goals and exploit the market in different ways. This is why profitability may vary under the same market conditions depending on the strategy used.
For example, in grid trading (which operates within a predefined target range), you might buy ETH when the price is $100 below a target mean of $3500, and sell it when the price is $100 above that target. Rather than waiting for the price to go beyond $3600—an uncertain outcome—the trader sticks to selling at $3600 to capture consistent profits.
In swing trading, the trader enters at a price level like $3400 and waits for a higher target such as $3900, which may involve enduring several potential reversals or downtrends before the target is reached. Profits in swing trading are often higher but require foresight and confidence that the price will eventually hit the target after several days (or even weeks) of holding.
Understanding how profitability varies across different strategies also helps traders recognize the different risk profiles each of these strategies carry. For traders with a low budget, strategies like DCA (Dollar-Cost Averaging) and grid trading can often be better options, as they generally carry a lower risk profile especially in stable or sideways markets.
Rise of Crypto ETFs
Crypto ETFs were specifically designed to provide exposure to cryptocurrencies without requiring investors to manage a crypto exchange account or hold digital assets directly. Through ETFs, investors own a portion of underlying crypto without directly holding the crypto. These products were developed to bring crypto into regulated, traditional financial markets, making it easier and safer for both retail and institutional investors to participate.
Operating under regulatory frameworks, ETFs provide a more secure investment environment by reducing risks associated with unregulated exchanges and platform security. While these products help avoid many of the risks tied to direct crypto custody and unregulated platforms, the inherent risks of crypto market manipulation and price volatility still remain.
Several financial firms such as Blackrock and Grayscale issue spot BTC and ETH ETFs, enabling investors to gain crypto exposure without having to manage the crypto exchanges and wallets. They charge higher fees compared to crypto exchanges, to cover costs of custody and account management.
Pros and Cons
| Pros | Cons |
| Easy access & liquidity—trade like stocks anytime during market hours | Market volatility—prices fluctuate any time, crypto ETFs can be very volatile |
| Diversification—exposure to many assets in one fund | Tracking error—ETF price can deviate slightly from NAV due to fees or market factors |
| Lower costs compared to mutual funds—lower expense ratios and commissions | Management fees—annual fees reduce returns over time |
| Price transparency—real-time pricing closely tracks NAV | No direct ownership—investors hold shares, not the actual asset (e.g., no direct Bitcoin withdrawal) |
| Regulatory oversight—SEC rules improve transparency and protection | Liquidity risk in niche ETFs—low volume can widen bid-ask spreads |
| Tax efficiency—creation/redemption limits capital gains distributions | |
How does Spot ETFs work?
The iShares Bitcoin Trust ETF (IBIT) is a spot Bitcoin ETF issued by BlackRock that allows investors to gain exposure to Bitcoin’s price movements through a regular brokerage account. Currently priced around $66, each IBIT share represents roughly 0.0006 BTC, a fraction of a Bitcoin.
When investors place a trade of IBIT through a brokerage account, the ETF’s Net Asset Value (NAV) is tied to a fraction of the real BTC price. The ETF provider, through Authorized Participants, acquires the actual BTC to back new ETF shares when demand increases, which can drive demand for BTC in the market, and redeems BTC when shares are removed from circulation as investors sell. On the back-end, the brokerage investor is buying and selling the ETF shares through the exchange, while the issuer interacts with the underlying crypto in the spot market via Authorized Participants. This process ensures that the supply and demand of the ETF remains synchronized with the fraction of the underlying crypto it represents.
Unlike a BTC futures ETF, which tracks the price of BTC derivatives and may deviate due to contract roll costs, a spot Bitcoin ETF directly holds the cryptocurrency, enabling more accurate price tracking.
NFT trading
Primarily designed to support in-game economies, work of artists and digital creators, NFTs are now evolving into assets that hold utility and enable accessibility to certain online platforms or metaverse worlds. These exist on decentralized blockchain, without intermediaries just like traditional cryptocurrencies. The underlying value of these assets also incentivizes investors to hold it in hope for price appreciation to sell it for profit. By trading these assets in metaverse games, blockchain games, or other platforms, many investors earn passive income just like crypto holding. But the utility these NFTs hold within blockchain games, metaverse or other platforms set these apart from traditional cryptocurrencies.
Forms of NFTs & their uses cases:
- Digital Art – Animations, and generative artworks
- Music – Songs, albums and fan-exclusive releases
- Blockchain Domains – Web3 domain names for decentralized identity
- Event Tickets – Access to physical or virtual events
- Game Assets – Skins, avatars, weapons, and virtual land in blockchain games
- Film & Video – Early access, exclusive clips, or funded projects
- Membership Access – Token-gated communities, perks, and DAO entry
- Tokenized Real Estate – Fractional ownership of physical property via blockchain
NFT Flipping vs Collecting
NFT flipping is a short-term trading strategy, which if timed right can lead to profits. The strategy is to buy right before its price appreciation which often depends on its demand pressure. Unlike crypto, NFT price fluctuations largely depend on project popularity, its utility, and hype of the project among investors. External economic events such as interest rate changes, and inflation have less direct effect on NFT prices, but can still influence them indirectly through changes in the crypto market and investor sentiment. These factors also introduce higher risk in NFT trading since demand pressures and hype of certain NFTs can drastically change.
NFT collecting is more about holding NFTs for long-term, often for accessing the utilities they provide, and for community perks. In the long term, the price of these NFTs can also surge if demand increases, allowing investors to make profits, though the risk of price reduction remains. That’s why many investors collect NFTs with the intention of enjoying their utilities and community benefits, with profit as a possible reward rather than the main goal.
NFT flipping requires proactive monitoring of floor prices, trade activity, trends, and market sentiment to estimate future price moves. NFT collecting, on the other hand, doesn’t require such constant monitoring of trade activity or trends, so there’s less stress.
Monetizing Digital Products
Whether you are a digital creator, artist, or game developer, you can monetize your work by minting NFTs on a blockchain and marketing these assets to your audience. The minting process is where a unique blockchain record (ID + metadata) is created to certify ownership of your files, with that record securely deployed to the blockchain. The file itself is stored on decentralized storage (such as IPFS) while the blockchain holds the ownership data.
Digital creators typically earn through two primary methods: primary sales and royalties (commonly up to 10%) from future resales on platforms like OpenSea and Rarible, though enforcement of royalties can vary depending on the marketplace.
The difficult part — and where most projects fail — is marketing NFTs. Simply deploying your art or creations as NFTs won’t guarantee sales, even if the art is aesthetically appealing. Buyers invest in the story, the community, and the perceived future value of NFTs. An NFT should have clear value or utility within a community or platform. For example, gaming assets (NFTs) can hold real utility within a game, so players are willing to buy them.
Bored Ape Yacht Club sold its NFTs as a gateway to an exclusive community. Consider YouTubers who launch their own merch: they have an audience that trusts them and is emotionally connected to their content. These creators leverage that trust to sell unique clothing or products to their subscribers — who are willing to purchase because of the connection and perceived exclusivity.
Derivatives Deep Dive
Futures Trading
Futures are contracts (with an expiration date) to buy or sell an underlying asset at a future date. Unlike spot trading, futures trading can be profitable in both market directions: price goes up when in a “long position,” or when price goes down in a “short position.” You incur losses if the market goes against your position, which can be magnified in case you have borrowed funds through a leveraged position. Hence, profits or losses can be bigger compared to spot trading in leveraged positions.
For example, you open a long position worth $1000 in BTC futures at a price of $117,000. BTC price increases to $120,000, which is a 2.56% change. Profit acquired is 0.0256 × $1000 = $25.6. If you are using 10× leverage, you will gain 10 × $25.6 = $256 in profit.
In case of a price decrease by the same amount, you would incur the same amount of losses, but before the borrowed funds are lost in a leveraged position, the crypto exchange closes your leveraged futures position.
Since futures are primarily about speculating on future prices of crypto through contracts, either through a short or long position, they also come with risks. Here are the key factors that influence profit or introduce risks:
- Leverage – Higher leverage means larger potential gains or losses
- Position Size – Higher size means higher profit/loss per price movement
- Direction Accuracy – Profit depends on guessing the direction right
If a trader holds the futures contract until expiration, it settles the position in cash, which the trader pays or receives depending on whether they incurred losses or profits through price movements of the underlying crypto.
Perpetuals Trading
Perpetuals are contracts similar to futures contracts but without an expiration date. They enable traders to open short or long positions without worrying about expiration or scheduled settlement of the trade. Just like in futures trading, you earn profit if:
- Price goes up while in a long position.
- Price goes down while in a short position.
The losses or gains are magnified depending on your leverage and position size when you enter the trade. Apart from these, there are several other key factors to watch out for, such as the funding rate and liquidation risk. To keep the perpetual contract price close to the spot price, crypto exchanges use funding payments between longs and shorts every few hours (often every 8 hours).
If the contract price is above the spot price, longs pay shorts; if it is below, shorts pay longs. During a trade, if a trader’s margin falls below the maintenance requirement while using a leveraged position, the exchange may liquidate the position to prevent the account balance from going negative.
Traders often prefer perpetuals over futures contracts because they can hold short or long positions for as long as they want without the risk of expiration or forced settlement. However, funding rates can accumulate to the point of wiping out profits if a trade position is held for too long.
Derivatives Trading: Proven Strategies
1. Going Long in Uptrend markets
Crypto prices can move in several ways depending on how buying and selling pressures shift, and how capital inflows and outflows change with investor sentiment and trading platform activity. In stable or sideways markets, price often moves in both directions around a mean level, which is generally less suitable for long futures positions.
To make significant profits, futures traders often enter the market with a long position just before or during an uptrend. This requires evaluating the likelihood and strength of the uptrend, as well as whether the market is likely to continue in that direction, using trading signals and market data. Opening a long futures position without identifying a potential uptrend can lead to losses, which is why market analysis is crucial before trading futures.
Another popular approach is swing trading — holding a long futures contract for several days during an uptrend to capture profits from medium-term price movements. This requires patience, as price can temporarily reverse (pull back) while you hold the position.
To successfully spot multi-day uptrends, traders often combine multiple technical indicators, such as:
- Moving Average (MA): Price consistently above the 50-day or 200-day MA suggests a strong uptrend. A Golden Cross (50-day MA crossing above the 200-day MA) often signals further price appreciation, though it is a lagging confirmation.
- Moving Average Convergence Divergence (MACD): The MACD line above the signal line and both above zero indicate bullish momentum.
- Relative Strength Index (RSI): RSI holding between 55 and 70 for extended periods can indicate sustained bullish pressure. This works best when paired with MAs for confirmation.
2. Range Trading
Range trading involves capitalizing on price movements that oscillate between support and resistance levels. Most of the time, crypto markets move within support and resistance levels, without either trend (upward or downward) completely dominating. In such situations, traders often use a range trading strategy.
- Long futures position near the support level (when buying pressure repeatedly pushes prices upward).
- Short futures position near the resistance level (when selling pressure repeatedly pushes prices downward).
For example, BTC futures price oscillates between $116,500 (support) and $118,500 (resistance).
- Long trade: Buy at $116,600 with target near $118,400.
- Short trade: Sell at $118,400 with target near $116,600.
Use a stop-loss 1–2% beyond support or resistance to avoid big losses on breakouts.
During such intervals, price breakouts can also occur — for example, a support level being broken by newly induced selling pressure due to a major market event. Technical indicators such as Moving Averages (MA) and Fibonacci Retracement can help spot support and resistance levels. However, the risk of breakouts and sudden trend changes still remains, and technical indicators can never guarantee how long a support or resistance level may hold.
3. Hedging
Hedging is more a risk management strategy rather than a profit-making strategy. In this approach, you take an opposite position in crypto futures or perpetuals to offset potential losses in your spot holdings due to market movement. For example, if you are holding some BTC and there’s a risk of losses from a downtrend, you can enter a short BTC futures position. The profit from the short futures during the downtrend can offset the losses in your spot position.
You hold 0.5 BTC at $118,000 and short 0.5 BTC futures at $118,000.
If BTC falls to $113,000:
- Spot BTC: Price drop = $5,000 per BTC → Loss = $5,000 × 0.5 = –$2,500
- Short futures: Gain = $5,000 per BTC → Gain = $5,000 × 0.5 = +$2,500
- Net result: $2,500 gain – $2,500 loss = $0 (perfect hedge, ignoring fees and slippage)
When traders enter a futures position along with a spot position with the intention of hedging, the downtrend could also reverse, leading to profits in the spot position but losses in the short futures position. Hedging may provide protection against spot losses only when the market continues in the anticipated direction. Even if spot losses and futures gains cancel each other, you still incur funding rates and trading fees on the futures position.
Managing Risk and Portfolio
Derivatives trading, if not managed well, can wipe out entire capital — especially due to leveraged positions during unpredictable markets. Futures and perpetuals trading are primarily about speculating on future price movements through short or long positions. This requires identifying price trends using a combination of technical indicators, trading signals, and market data before entering a trade.
An optimal approach is to diversify across multiple derivatives assets and strategies so that a loss in one trade can be offset by gains in another. Professional traders often allocate a specific portion to spot assets alongside derivatives contracts, even if their primary goal is derivatives trading. They also keep a portion of capital in reserve or in stablecoin staking for stability and liquidity.
To manage portfolio and risk, here are the best practices:
- Position Sizing – Risk only 1–2% of your total capital per trade. Use smaller position sizes when applying higher leverage.
- Stop-Loss & Take-Profit – Always set stop-loss orders to limit potential losses if price moves beyond your threshold. Similarly, use take-profit orders to secure gains before the market reverses.
- Diversification – Spread capital across different spot and derivatives assets. Allocating some funds to stablecoin staking can provide more predictable returns.
- Portfolio Rebalancing – Adjust allocations periodically based on performance and market conditions. Avoid over-allocating to one asset solely because it has recently performed well.
- Combination of Technical Indicators – Use multiple indicators to confirm trend strength and identify support/resistance levels, but avoid over-reliance on any single tool.
- Monitor Performance – Keep a trading journal to track strategies, entries, exits, and outcomes. This helps identify profitable methods and reduce riskier approaches.
Creating a diversified portfolio
An optimal approach to diversifying a crypto portfolio can be to allocate based on the historic performance and risk profiles of assets. BTC has historically maintained consistent support and resistance levels, along with periods of sideways markets. In recent months, its price has surpassed the $100,000 level and is currently fluctuating around $117,000. Due to its generally lower volatility compared to ETH, strategies such as swing trading and grid trading are often used for BTC. For BTC futures, range trading may be a suitable option, as BTC prices frequently oscillate between support and resistance levels.
ETH futures, on the other hand, carry a higher risk profile due to ETH’s higher volatility. Based on these considerations, one possible portfolio allocation could be: 40% in BTC spot trading (swing trading), 20% in BTC futures (range trading), 20% in ETH spot trading (day trading), 10% in ETH futures, and 10% in USDT staking (for more predictable returns). Allocations can be adjusted based on asset performance or expanded to include other assets.
Prior to initiating trades, traders often use strategy backtesting in simulated environments to gain exposure to different market conditions and evaluate whether a strategy can generate returns. They set investment size (simulated crypto), order types such as stop-loss and take-profit, technical indicators, and rules for trade entry and exit. The simulation environment runs historical market data, allowing traders to test strategies under those conditions.
For example, a simulator might run two months of past BTC price data. Initial capital: $10,000, stop-loss at a BTC price of $108,000. BTC price increases from $110,000 to $120,000 over the two-month holding period, leading to a $901 profit due to a 9.01% price increase.
It’s important to note that backtesting only tests strategies on past historical data and can help inexperienced traders understand how market conditions evolve and how a particular strategy might perform. Current or future market conditions can differ significantly, and the same strategy may not give expected returns. Therefore, backtesting is a tool for testing strategies — not for predicting future returns.
How to Achieve Psychological Mastery in Crypto Trading
A key aspect of successful trading is building a system for managing your trading decisions and portfolio. This system can combine trading tools (order types, trading bots, market analytics), a diversified portfolio with tracking apps, technical indicators, and trading signals. Once these tools are in place, you can make more informed decisions—such as determining the timing of trade entries—reduce impulsive actions, and aim for more consistent trading outcomes. It’s also essential to set clear goals, including specifying your trading strategies and defining your risk tolerance, such as the maximum losses you are prepared to accept.
Pay close attention to major trends and developments, including regulatory updates, ETF approvals, the launch of new crypto exchanges or services, listings of new assets, crypto airdrops, and shifts in investor sentiment. These factors can strongly influence crypto prices and, when combined with technical indicators and trading signals, can provide insights about market movements.
It’s important to remember that hype around new cryptocurrencies or projects is sometimes driven by influencer narratives rather than genuine growth or adoption. To avoid being manipulated by market hype, research the project’s team, track their progress, and review milestones—rather than relying solely on the stories and narratives circulating in the market.
This guide is for informational purposes only and is not financial advice. Always conduct your own research before trading.