Introduction
Bitcoin and ethereum are among many forms of cryptocurrency that have gained widespread acceptance in the recent past. Some of the traders who have developed interest in trading cryptocurrencies are those who have been affected by the volatile prices of cryptos in the market, hence, they try to trade in order to gain big profits. But for novices, it could be challenging to be profitable with this type of market if they do not have the correct trading system. As promised in the previous article, this post will discuss the aspects that facilitate the improvement of the crypto trading strategy that will increase the probability of successful trades.
First, it is necessary to recall such things as the cryptocurrency market and the fact that it is crucial to have a strategy for trading. Next, we will discuss the basic steps to developing a trading strategy, and covered areas are analysis of a company’s financials, charting and trading signals, managing risks and selecting tools and resources. The key is to understand how to read the market, manage your risks, utilize the information and trading platforms, and adapt to them as you gain experience, and knowing that no one universal strategy exists for crypto trading because it depends on your character and your objectives.
Understanding the Crypto Market
For anyone to engage in trading in cryptocurrencies for them to generate profits then they have to understand the principles of what determines the prices of cryptocurrencies in the market. The prices of the leading cryptocurrencies such as Bitcoin or Ethereum are variable, and they change constantly in the course of time depending on various circumstances that include but are not limited to availability or demand for the tokens, new rules or important events, new technologies, and even general attitudes of investors.
But it is also sensible to pay attention to larger cyclical shifts in the market as well. The volatility of cryptocurrencies is well documented with people experiencing significant gains at the end of 2017 before experiencing sharp losses as the majority of cryptocurrencies prices dropped for most of 2018. Remembering these longer trends will enable one to identify when the market looks over bought or over sold.
Since there are so many elements interacting with each other and affecting the price fluctuations, the crypto market is regarded volatile and unstable. This is why it is important to have trading strategy in the first place as it provides an efficient way of trading. This is largely because of the fact that it will be very hard to make profits on a consistent basis without a proper strategy in such a competitive environment.
Tips on choosing and building your crypto trading strategy
In terms of crypto trading, you can outline that, in principle, depending on the formation of your trading plan, you are initially given generally two options – long-term or short-term. You can also use indicators from both the technical and fundamental approach to analyze market possibilities. Perhaps, it will be useful to focus on these three components of the strategy a bit closer.
Long-term vs Short-term
The long-term traders prevail, who keep their funds in cryptocurrencies for several months, even years holding high expectations for the value increases. This keeps the transaction fees low but there is a lot of emphasis on fundamental analysis to select tokens that are most likely to have real-life use cases and the potential to increase in value.
Intraday speculators aim at earning profits in the short-run via exploiting temporary price fluctuations within one to several days or weeks. This type of trading or swing trading based on momentum and involves a lot of technical analysis across many trades but cashing out could become a bit complex especially during a certain time of the year like tax period.
Both methods are viable and have been used by different scholars in their research undertakings. Some of the issues that you will have to look at to determine whether the long-term holding or trading will work for you include your financial objectives, dedication to learning the trading skills, risk acceptance level, preferred analysis approach, the amount of free time available for trading, size of the crypto portfolio and many others.
Technical Analysis
Technical analysts rely on price and volume charts, indicators, signals, and patterns with the belief that such prices have a pattern that can be forecasted. Some important concepts include:
• Trends – It is possible to look for movements in the general direction of an entire market to get trading signals. Is price movement relatively continuous and smooth, exhibiting only upward, downward or lateral movement?
• Trend lines – Recognizing of price movements that were overcoming or being build up from in prior periods.
• Key Indicators – Averages moving and forming patterns as well as other indicators such as the Relative Strength Index (RSI) offer further confirmation of trades.
It is also important to learn how to read and draw candlestick charts in order to have a visual aid for the patterns, momentum and support or resistance points. Indicators and patterns support trade setups with high probability . Timing is very important in the volatile crypto markets especially in making right trades at the correct time.
Fundamental Analysis
Fundamental analysis goes beyond the price of a crypt currency; instead, it examines many aspects of a project that may include the value of the digital asset, the technology behind them, and the teams behind the project, news or event, and the real use of the project or product.
Fundamental analysts evaluate elements like:Fundamental analysts evaluate elements like:
• I P – In terms of novelty, how novel is the technology behind the particular crypto? The following is the problem that this product will solve:
• Tokenomics – This involves factors such as the token distribution schedule, how the new tokens will be managed, the token burning mechanism, and many others.
• Development Team – This includes information on the technical expertise and experience the team has had in the past, whether their operations are clear to the public, the authenticity of their future plans, and their capacity to execute those plans.
• Current And Future Application – Assessing available existing applications in addition to conjecture on probable widespread utilization.
Unlike technical analysis that focuses on the price movements of an altcoin, fundamental analysis seeks to establish the worth or value of the crypto that is based on the evaluation of a project through project research.
Managing Risk
Given that investing in cryptocurrencies is a highly risky investment, it is of paramount importance to employ sound risk management principles that would protect your capital. Some tips include:
• Such trades include Stop-Loss Orders – are special instructions given to the broker to exit the trade at specified prices to avoid further losses.
• Take-Profit Orders - As with the Take-Loss orders, there are take-profit targets which are executing orders to sell and book profit once pre-set prices are attained.
• Position Sizing – Decide on the amount of your account that you devote to each trade so that even if things went horribly wrong, it would not greatly affect the portfolio.
• Diversification – Having a variety of cryptocurrency that are promising instead of relying on the success of Bitcoin or any other example like Ethereum.
Another rule to abide by is no ‘emotional trading’ that means don’t make a trade out of fear or greed. And last, don’t risk money you need to feed your families or pay rent, as many traders do, but trade or invest money that you can afford to lose.
Staying Informed
One of the cryptos biggest problems is the break neck speed at which the market and innovations occur. Trading involves making right decisions and this is only possible if one is well informed through research on the news and events that may move the market.
Reliable information sources include:
• Crypto News Websites – Some of the most relied on are CoinDesk and Cointelegraph which provide a detailed list of the latest news stories, regulations, technological advancements, financial events, and many others.
• Analyst reports – Well-known analysts may present market news, stock forecasting, and business projections.
• BraveNewCoin – This is an aggregate of various communities such as Reddit, Twitter, and others that share information on the market movement, rumors, trends, memes, or even warnings.
• Government Stances – The regulators and the policymakers usually release statements that can have a considerable effect on the prices.
The more information the analysts collect, the more capable they will be to respond to change, opportunities and threats as they happen in the market. It is strongly advised to subscribe for the alerts and notifications with regard to news.
Helpful Trading Tools
Having at their disposal proper trading tools and platforms that are adapted to the trading of cryptocurrencies is also one more factor that is crucial to the proper execution of strategies. Such resources include:
• Wallets – Digital storage solutions that allow the holding of cryptocurrencies and also include a facility for trading. Some of the leading options currently available for storing this cryptocurrency include Exodus and Atomic Wallet.
• Exchanges – Coinbase and Uniswap, which are some of the platforms that allow the user to swap their cryptocurrencies directly or convert their fiat currency into cryptocurrencies.
• Trading Bots – Provide trading algorithms for stock, forex, cryptocurrency and commodities and other valuable tools such as charting, portfolio tracking and trading bots such as 3Commas and TradeSanta.
• Portfolio Trackers – Not only actual quotes, but also the applications that operate with the promo codes, alerts, calculations, and P & L registers, such as CoinMarketCap.
• Cryptocurrency Trading Platforms – Essential for complex crypto taxation – platforms such as Trijo can import trading data for easier filing with the help of software like CoinTracker.
The wide range of tools that has been developed for trading purposes in recent years makes using even complex crypto trading strategies far more manageable.
Learning Through Experience
Last of all, trading skill can be considered as one of the major factors, which are developed during the course of gaining experiences in trade and mastering the ways of acting in this or that specific situation. It is therefore important to ensure proper tracking and reviewing of your trades as you try to progress with your trading. Some effective methods include:
• Trade journal – Writing notes of the procedure of your analysis of market, trading motivations, strategies, goals, outcomes and lessons learned from every single trade.
• Performance Statistics – You can determine the key parameters that gives a more profound insight into the strategies such as the profit percentage, the win rate, the risk/reward ratios and many more.
• Flexibility – which means, be prepared to change your programs to fit fresh market conditions since yesterday’s best practices may not be today’s ideals.
Thus, the ability to stay working on it, analysis, and willingness to change something in the process depending on its results are the ultimate skills as you do not become a good crypto trader in a single day and it is only possible if you learn by doing.
Conclusion
That in brief outlines the main sectors which you ought to embrace while designing your trading model of the cryptocurrencies. I mentioned some of the factors to consider as follows: the time to study the market thoroughly, apply technical and fundamental analysis, manage risks, monitor news flow, use supportive tools and platforms, and learn from experience to develop the best strategy for personal trading profile.
Of course there are obstacles in the chaotic environment of crypto trading, but when it comes to trading people should not give up the effort for continuously research, make smart decisions, and improve the best practices of successful strategies of long term profitability. The authors intend this guide to be a good starting point for the formulation of your own financially rewarding cryptocurrency trading strategies. This is because the crypto market is a complex market to deal with, and if you are disciplined and able to respond to this fast market, you will be able to conquer the challenge.
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