Trading cryptocurrency is a bit similar to trading stocks. You must have up-to-date knowledge about the cryptocurrency you are trading. However, there is a difference between stocks and cryptocurrencies: while you can trade cryptocurrencies 24/7, trading stocks have an opening and closing time.
Take note of the following tips in order to trade cryptocurrencies successfully:
1. Have In-Depth Understanding of What Cryptocurrencies Are
Cryptocurrency uses cryptographic functions to secure financial transactions, as it is a medium of exchange that is internet-based. Using cryptocurrencies, people can make fast purchases and do business online anonymously.
The first stages of cryptocurrency are mining and blockchain, which are defined as follows:
The process of mining creates the cryptocurrency supply, wherein the crypto miner ensures that information, transaction, and updates entered in the blockchain are authentic and verified.
This is the database for recording transactions. Once transactions are recorded, it is copied to all the participating computer networks, which is called a “distributed ledger.”
This is why cryptocurrencies are popular to trade because of the technology behind it, aside from its beneficial uses. You must also understand how cryptocurrencies work so that you can manage your coins and to look for factors that can affect your buy-and-sell strategy.
Here’s an overview of the cryptocurrency trading process:
Before trading coins or any cryptocurrencies, you must buy a base coin using your domestic currency. Base coins typically refer to Bitcoins (BTC), but some countries allow buying Litecoin (LTC) or Ethereum (ETC) as base coins.
Open a cryptocurrency exchange so you can buy other coins or altcoins, which are cryptocurrencies other than Bitcoins. A cryptocurrency exchange is essential because it’s the only way you can buy and sell other coins. Some platforms offer mobile apps where you can use your mobile phone to perform transactions.
2. Apply the Psychology of Trading
Understanding and developing your market psychology are very important. Psychology is a big factor since it can affect how you execute, set up, and plan a trade. A lot of traders rely on their understanding, feelings, and intuition when trading. But when you keep yourself updated and read reviews about trading platforms, you’ll be able to make better decisions that may result to earning profits from crypto trading.
Here are some psychological factors involving cryptocurrency trading:
FOMO (Fear of Missing Out)
Traders can get scared to take risks. They may miss out on gains, but also avoid certain losses.
FUD (Fear, Uncertainty, and Doubt)
As a result, you may end up buying or selling your coins without gaining any profit.
Waiting for the price that is in favor of your trade. This can either give you profits when the market is rising, but you may lose a lot when the market is down.
Fear in a situation wherein the stock prices are falling. In effect, a lot of traders mistakenly sell their coins at a very low price.
A trader should learn to deal with the harmful instinct that makes them greedy. A trader should develop a plan in trading that is based on rational business decisions. Sometimes, selling at a very high price can get you stuck when the market suddenly drops.
In order to avoid the negative effects of the aforementioned psychological factors, keep the following traits in mind when trading cryptocurrency:
In everything you do, you need to have patience. Especially when you have a plan, wait and don’t let your emotions decide for you.
This is an important trait to become a successful trader. When you follow your plan or strategy, you’ll avoid selling at a low price.
To survive in the cryptocurrency market, you need to have a well-planned strategy, even if you lose. Also you must have entry and exit points if you want to win trades on a regular basis.
Setting your goals in trading and achieving them.
3. Analyze the Cryptocurrency Market
Choose a reliable market in which you want to trade as buying and selling cryptocurrencies is a big factor, especially when investing. You may be overwhelmed with the thousands of cryptocurrencies in the market so you must first understand the cryptocurrency market itself.
Here are the two most important things to know about the cryptocurrency market:
Highly Volatile (Unstable)
There are 20% to 30% swings in the value of the coins in a manner of days or even hours for some. It can go as high as the predicted market price or can go as low as rock bottom.
The value of currency increases when the value of industries from the technology outside the marketplace of the cryptocurrency increase. Therefore, keeping yourself updated with the blockchain news or technology is essential so you can be flexible with your strategies.
4. Learn and Apply Risk- and Money-Management Systems
Any investment involves investing only the money you can afford to lose as a way of minimizing your financial risk. Because the crypto market is volatile, your risk of losing money is high.
Extraordinary factors in the cryptocurrency market such as government regulations, bugs, and hacks, are also some of the factors that can make you lose money once this is converted into cryptocurrency. This is especially true for security vulnerabilities on crypto wallets, which is where you store your coins.
Don’t invest large amounts of your money in only one coin. The key part of risk management is diversification. It means investing or trading multiple coins helps you grow your profit. It’s also a way to secure the total growth of your cryptocurrency.
5. Learn How to Analyze the Market
In trading, you must also know how to analyze the market. Some traders assess the market by using their tools, while others have their own personal approach. It’s important to analyze the market so that you can make wiser trades and educated predictions.
Here are the most common approach that traders use:
Knowing the cryptocurrency’s past performance can give you an idea of what to expect in the future. By using technical analysis, you will use statistical trends to determine investment and opportunity flows. You will also be able to learn the volume and price movement on the market. Moreover, technical analysis focuses on patterns from the movement of prices and tools used in charting.
When trading cryptocurrencies, you must assess the potential and viability of the coins you want to trade by conducting an in-depth research about it. You must be knowledgeable on the fundamentals of a coin before buying it.
Trading cryptocurrencies may seem similar to trading stocks and bonds, but a careful analysis and approach is much needed. It’s because of its volatility that makes it riskier for traders who are not serious and knowledgeable enough about cryptocurrencies. Before delving into any kind of investment, a thorough analysis of both the market and cryptocurrencies are essential.