Todays article we are bringing the focus back to our more traditional approach with the best trading strategy for cryptocurrency. Thank you for all the great comments shares and overall positive sentiment about my last article on Asteroids and the unfathomable wealth opportunity.
It was a totally different tone and so we were a little nervous about releasing it, but again thank you for the positive messages, here is a link if you missed the release.
Cryptocurrency trading can be a bit technical for a new trader, but with the right information on the crypto market, it is a very smooth process. In the cryptocurrency market, the most important thing to do is to avoid losing money. This can be done only when the best trading strategy for cryptocurrency trading and investing.
Crypto trading is the buying and selling of the digital currency. This trading is usually done on a different trading platform, known as cryptocurrency exchanges. These platforms allow an individual to know the trends in the market, which will, in turn, help in knowing the best time to carry out the trade. The market comprises of buyers and sellers who are usually referred to as bulls and bears respectively. These two parties entirely control the crypto market, with each always trying to dominate. That said; let us now get into the details on best trading strategy for cryptocurrency traders.
BEST TRADING STRATEGY FOR CRYPTOCURRENCY OVERVIEW OF THE OPTIONS
An individual can trade cryptocurrencies using fiat currency or other cryptocurrencies. The most traded pair is the crypto-fiat pair. For every pair, there is a specific rate at which it is sold and this price changes depending on several factors controlling the market. This price action can be determined by factors such as
Bitcoin’s trend: The crypto market is largely dominated by Bitcoin. All the altcoins usually follow bitcoins trend. If Bitcoin’s prices fall, the same happens for altcoins. With altcoins, one has first to buy Bitcoin then trade the bitcoin with fiat currency; this is one of the significant reasons behind Bitcoins dominance.
Mining cost: The blockchain technology allows people to mine new coins by validating the coins. This mining requires a lot of electricity and expensive machinery. If the cost of mining increases, the prices also tend to increase with it. This raise occurs to ensure that miners do not go at a loss.
Government interference: cryptocurrency prices are also controlled by decisions made by various governments on how they ought to operate. When a government endorses cryptocurrencies, investors comfortably trade the coins and thus increasing their prices.
Forking: Whenever a coin faces disputes that lead to the breaking of a new coin from the currency in question, the price of this the original coin is greatly affected. This scenario happened to bitcoin when a bitcoin fork took place, giving rise to bitcoin cash: the prices fell drastically.
The above factors come in handy when learning the best trading strategy for cryptocurrency trading.
BASIC CRYPTOCURRENCY TRADING STRATEGIES
Having a good Cryptocurrency trading strategy is all a crypto traders needs to make the most out of buying and selling of bitcoins and other digital coins. Different types of traders use different approaches. We have day traders, swing traders, and long-run traders. However, some basic strategies work for all these traders.
The following are essential facts that inform the kind of trading strategies to use in crypto trading:
- The crypto market is very volatile: By this, we mean that the prices change very fast with any small changes in the market. With the fast-changing prices, a trader should only invest money they can afford to lose. Several factors can affect the market prices to change in less than an hour drastically: investing a lot of money may bring a lot of losses in the long run.
- Make choices based on research: There are more than 1600 cryptocurrencies in the world today. It is therefore vital for a beginner to critically look into a coin before investing in it. There has been a lot of scam cases lately cryptocurrencies, some of which have never been heard of.
- Short-term trading: Prices in the crypto market change with every passing hour. If for instance, you notice that the prices have drastically shot up, don’t wait for another hour to see the next movement. Make your trade immediately before the trend changes. A downward movement follows every upward trend. More so, short term trading works well for day traders.
- Using a stop: Due to the market vitality, long-term trading may not be profitable when it comes to trading cryptocurrency. However, if one decided to try long-term trading, they need to use stop losses. A stop loss is a set price that determines the value at which you can sell your coin incase the prices drop. Putting a stop loss allows a trader to avoid losing a lot of money in the case of a massive drop.
BASICS OF TECHNICAL ANALYSIS OF PRICE ACTION
Market analyzation is a very crucial part of crypto trading. It is only in analyzing the market will a profitable trade be made this is simlar to the forex market. In cryptocurrency trading, there are two types of market analysis: we have technical analysis and fundamental analysis. Technical analysis involves the study of price charts for different coins, while fundamental analysis focuses on explaining the reasons behind the subject market trend.
Crypto traders widely use technical analysis. This is so because it usually gives a clear picture of the trend in the crypto market. In addition, one can study the trends for a specific coin and predict the incoming trend. It uses the previous market price action movements and trading volume to determine the next price.
Under technical analysis, there is a price chart filled with chart patterns including triangles, rectangles, and curves. The commonly used chart pattern is the candlesticks pattern. These candlesticks are of two types: green and red signifying buyers and sellers, respectively.
If a red candle stick forms on the chart, it means that the sellers are dominating the market and prices will eventually fall. So, bed candlestick opens at a high price and closes at a low one.
On the other hand, the green candlestick represents the buyers (bulls) in the market. This candlestick indicates that the buyers are dominating the market, and the price is likely to go up.
Candlesticks form patterns, which, will tell you if the price is likely to go up or down. Nevertheless, the essential thing to know is that if there has been a consistent upward trend, then a downtrend is impending. The reverse is true.
The trading chart also has some indicators that also help in analyzing the market. We have mathematic indicators such as Relative Strength index (RSI), Moving Average (MA), Moving Average Convergence Divergence (MACD) and Parabolic SAR, among others.
Date and time
The chart is a graph of prices against time. One chooses the time span in which they want to analyze the specific coin. Day traders usually uses one hour chart to analyze. In this chart, the length of one candlestick is proportional to one hour. So, in a case where you are analyzing bitcoin’s price in the past 24 hours, you will have 24 candlesticks.
BEST TRADING STRATEGY FOR CRYPTOCURRENCY AND MISTAKES TO AVOID
Day trading can be a very profiting venture since one is playing as per the rules of cryptocurrencies; changing daily. Below are some of the tips that will help any beginner to trade successfully.
Work with a plan: This law applies everywhere: you cannot do anything well without a plan. It is important to first know the profit you want to make before you decided to enter the market. Know when to enter, where to place your stop loss or take profit among others
Entering and exiting the market: the point of entrance and exit in the market determines your net profit. Your entry point is the current price of the coin when you decide to buy it while the exit point is the price at which you are aiming to trade your coin.
The entrance should be lower than the existing to make maximum profit. Hence look for a point where the margin will be considerable.
Always use a stop loss and take profit. As mentioned earlier, a stop loss will help reduce the losses in case the price drops lower than you anticipated. On the other hand, putting a take profit enables you to make more profit peradventure the prices hit the point.
In doing this, it is vital to make use of the resistance and support levels. The resistance level is a level that marks the highest price the coin has reached over a period of time. On the other hand, the support level is the lowest price that the coin has reached severally.
Focus on bitcoins trend: Bitcoin’s dominance in the market makes all the altcoins follow its trend. However, there are instances where some big investors manipulate bitcoins price, and consequently, the altcoins trend differently.
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Earnings Disclaimer: The information you’ll find in this article is for educational purpose only. We make no promise or guarantee of income or earnings. You have to do some work, use your best judgement and perform due diligence before using the information in this article. Your success is still up to you. Nothing in this article is intended to be professional, legal, financial and/or accounting advice. Always seek competent advice from professionals in these matters. If you break the city or other local laws, we will not be held liable for any damages you incur.