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Crypto trading: the main features, strategies and rules

20/09/2018 19:15
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Cryptocurrency trading features

Cryptocurrency trading attracts a number of newcomers who want to try themselves in this kind of speculation every day. Crypto trading is unpredictable, high volatile and hard to analyze. Nevertheless, cryptocurrency trading is interesting, and with some proper experience and skills can be profitable.

In this article, we gathered all the basic information about the cryptocurrency trading: the distinctive aspects of this type of trading, popular trading strategies. In addition, you can find the main trading rules for the newbies in the end of the article, so keep reading!

The main cryptocurrency trading features

Before the start, it is important to notice that the cryptocurrency trading has its aspects that should be taken into account during your work. So, let us take a closer look of these features.

Analyze the market. Before you start to work, study the cryptocurrency topic in detail. It is better to pay a particular attention to statistical data – this is how you can trace the patterns of the chosen cryptocurrency.  Once you are done with analysis, you can see that the most active trades appear usually at the beginning of the work day, as well as at the beginning and end of the week. In its turn, the activity declines in the middle of the day / midweek. In addition, you can see the declining of market activity during major international holidays, such as the New Year or summertime. There you can see as the price falls, but then comes back to its’ level in about a month. To know the statistics, you can start with studying the Bitcoin graphs for the past 3-5 years.

Discard the technical analysis. Though we can see good results with stock market or Forex, that type of analysis does not work very good with the cryptocurrency market. The fact is that the behavior of most cryptocurrencies depends on the actions of market participants, pumpers or dumpers, and the actions of media. In addition, when you work with cryptocurrencies, you will always face the high volatility of the market (that is several times higher than the stock or Forex market), so often the trader simply does not have time to deal with numerous graphs. Thus, it is better to not rely on technical analysis, but take a closer look on crowd psychology and the experience of the other traders.

Study the rates. The most convenient tool for cryptocurrency trading is the rates of the chosen cryptocurrency. For example, you can use this graph in relation to fiat money or another cryptocurrencies. You can easy use these charts, which are usually presented in the Japanese candles form and are easy to read and understand.

Do not rely on news. News can well be a good assistant in stock or currency trading. However, in the cryptocurrency world, news are not always effective, because the events here are too quickly, so the current news may be a bit late. In addition, in some cases, news may even become a source of disinformation from larger players. So, don’t ignore news, but analyze them too and think critical.

Assess the prospects. Before you start to trade and right in the working process, it is important not only to analyze the history and cryptocurrency graphics, but also to try to assess the prospects of the coins that you are trading. You can analyze the cryptocurrency development dynamics, assessing its popularity, relevance and usefulness for users.

Learn the history of transactions. Therefore, it will be easier for you to determine the total trading volumes (on a particular cryptocurrency exchange or in a certain trading pair). This is how the trader is able to understand that a coin is interesting and demanded among the users. This helps to evaluate the psychology of buyers, presume the future price movement and even to form a forecast.

Cryptocurrency Trading strategies

There are a lot of cryptocurrency trading strategies. Each strategy should be selected basing with your personal preferences, habits and work schedule. Here we gathered the most popular strategies for cryptocurrency trading.

Scalping. In this strategy, a trader works with very short transactions, which are maximum several minutes long. The trader should analyze the transactions of other users to open a new deal in case the volume of purchases over sales exceeds (because there is a possibility of price growing). During trading, it is popular to use trading robots, which can make decisions to open or close new deals using special algorithms.

Arbitration. Using this strategy the trader should buy and sell cryptocurrencies almost at the same time. So it is possible to make profit from the price difference between different exchanges. For example, a trader buys an asset on the first exchange, where the prices are lower, and sells it on the another exchange with higher prices, so it is possible to make a profit from the difference. To make your work successful, you can use special trading tools (such as trade robots and special arbitration tactics). However, be careful to notice that as the market develops, it becomes more difficult to work with arbitrage strategies.

Buy and hold. This is one of the classic variants for cryptocurrency trading. The trader buys an asset, holds it for some (often long) time, and then sells it once the price goes up. When using this strategy, rely on fundamental analysis, pay attention to the opinions of the experienced users and big investors, and monitor the demand for your cryptocurrency. You can also use the technical analysis to make your work more accurate. Bitcoin could be a good real-life example to describe this strategy, like in 2009 Bitcoin costed just several cents, but in 2017 exceeded to 18 thousand dollars. Therefore, those who bought this cryptocurrency at the very beginning at last made a very successful investment.

Fundamental analysis. Initially, a fundamental analysis was used in cooperation with companies -as stock trading. Usually the ratio of the stock price to the profit, the ratio of profit to the price of the stock, and the return on capital were taken into account. For crypto currency, it is better to use factors such as NVT - the ratio of the cost of the network to the number of transactions, price of the cryptocurrency. In addition, it is important to analyze the quality of the team that is working on cryptocurrency launching.

Cryptocurrency portfolio. This is the strategy, when a trader invests in different cryptocurrency assets and gets an income from each one. Such a portfolio can equally include both top-level cryptocurrencies and unknown or just new altcoins. If the portfolio is formed correctly, the trader can get a good profit. Moreover, even if one of the assets falls in price, it will be possible to cover the loss from the other assets’ income. You can get more details about creating and working with cryptocurrency portfolio in our article.

Trading on fluctuations. This method is good and possible due to high volatility of cryptocurrencies. The trader buys cryptocurrency, keep it for several days or even weeks, while trying to determine the next movements of the price. Nevertheless, the strategy assumes some great risks, since it is extremely difficult to predict the price movement correctly in high volatility.

Trading with news. This is the complex and ambiguous strategy. The trader should track the news, and in case of the emergence of positive or negative messages from the media make a decision to sell or buy his assets. This strategy works simpler theoretically than in real life, where trading with news involves greater risks and ambiguity (for example, news may be misinterpreted by crypto community, or even go unnoticed).

Back to the previous level. This is an active trading on short-term gaps. The trader opens deals in the opposite direction to the main trend. It is better to use this strategy during a strong rates decline, when the price is expected to return to its previous level. This method is convenient due to the high cryptocurrency volatility, and sometimes such jumps happen quickly enough. Nevertheless, there are also difficulties – for example, sometimes it is very hard to determine the right time for the transaction. To avoid risks do not make large bets, choose ones with 2% of the deposit amount maximum.

Transactions from the support level. A trader opens trading positions when the rate grows to the desired psychological level (you can use the resistance and support lines on large timeframes.) It is possible to earn money with this strategy, because it requires simple analysis and allows you to use a wide range of rate fluctuations. But it's important to remember that it is better not to invest too much due to high risks. It is better to use 2-3% operations of the main deposit.

Rules for cryptocurrency trading

During the trading process (especially after the first successful transactions), some traders often forget about security rules, begin to behave carelessly and, eventually, lose their money. To prevent you from this, we prepared several rules of crypto trading, which help you to keep the deposit and not go minus.

  1. Never work with last money. During trading, you can get both good profits and losses. Since there always is a risk to lose everything, you should avoid working with the last money. It is better to allocate an amount that you are not afraid to lose, and use it specifically for trading. This will allow you to control your finances better, and will save you from unnecessary excitement and nervousness during work.
  2. Do not deposit all money at once. Firstly, so you will not lose everything if the transaction fails, secondly, you will be able to react to the market actively. The experienced investors advise to divide the deposit into several parts: large (50%), medium (15 and 15%) and small (10 and 10%). The large part should be invested in top cryptocurrency, medium parts – in medium coins, and small – in promising altcoins, which can change its’ price and bring a profit.
  3. Try to buy cheaper and sell more. For that, sell cryptocurrency from the "green" zone, and buy from the "red". Following this rule will help you to avoid losses at any stage of the work.
  4. Do not trade against the market. It is not worth buying when most market participants sell, and vice versa. Such a strategy can be successful, but it is risky to use it while working with cryptocurrency, especially if you are a beginner. It is much better to focus on the large market players’ actions.
  5. Keep a trader's diary. You can use a paper form, or choose to use an electronic version – here you will need to install special program. It is important to fix your deals regardless of your experience or the chosen strategy. With the diary, you can analyze your work and avoid the same mistakes.

Cryptocurrency trading is interesting, but risky too. Before you start buying and selling different coins, make sure that you understand all the mechanisms of trading and the cryptocurrency market principles. In addition, you can apply to the special courses for trader beginners, as well as use an additional seminars, webinars and read some literature on crypto trading topic.

Remember that awareness and caution are your first steps toward profitable trading and investing.

The world of cryptocurrency is constantly developing and brings something new, so stay with us and remember to subscribe to our pages in Facebook, Telegram news feed channel and YouTube channel to stay in touch about all updates of cryptocurrency world!

Do not forget to join our Telegram chat for investors, where we discuss the latest innovations in cryptocurrency world and online investing.

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