Want to invest in cryptocurrencies? Investing in cryptocurrencies has been very fruitful and risky at the same time. It depends on how and when you started. Just a year ago, the value of one bitcoin was $1,000. Currently, it is worth almost $7000 after descending from its all-time high of $19,783 in December 2017. You could have profited and made tons of money if you had invested in bitcoin earlier. However, you would’ve also lost a considerable amount of money if you had started investing in the cryptocurrency within the last few months.
Cryptocurrencies and blockchain technology are exceptionally encouraging, but they are still in the experimental stage. Bitcoin has been around for just 9 years, and Ethereum is just 2 years old. Moreover, there are many issues and obstacles to be overcome – scalability, criminal activities, price manipulation, energy consumption, tax, and legislation are just some of them. In other words, we are still in the early days of this new technology of cryptocurrency and blockchain, which can be compared with the initial days of the internet. Much like the internet when is started out, there are risks, but also lucrative rewards.
Here’s an introduction to some popular cryptocurrency trading strategies used to counter the risks of the markets and increase gains:
Day trading is the act of opening and closing trades within a single day, with the point of making quick benefits from intraday value movements. Since positions aren’t kept open after the market is closed, you maintain a strategic distance from the cost and risk related to holding positions overnight.
Side note – day trading requires focused strategic thinking, so it’s more appropriate if you can set aside a dedicated time for your trades.
Scalping is a type of high-frequency day trading, where your aim is to take small benefits from an extensive number of trades. It includes opening positions in accordance with a trend, regularly entering and exiting the market numerous times as the identified trend develops. Individual trades are held for only a fraction of time – minutes at the most – which makes it a standout approach even amongst short-term strategies.
Scalping can be an effective method to exchange volatile resources like digital forms of money because you take benefits early if the market moves positively and reduce losses by closing positions rapidly if the market turns. Cryptocurrencies are usually very volatile when compared to the traditional stock market, so this strategy could prove extremely beneficial to traders.
Like scalping, this form of trading involves opening a position in line with a trend. But your focus as a trend trader is to maximize profits by holding the position open for as much of the price movement as possible, rather than opening and closing multiple positions in a quick sequence. It can be a short, medium or long-term strategy because trends can develop over any time frame.
Using this strategy requires an understanding of the technical signs that can be used to recognize emerging trades, as well as the likely impact of news and economic events on the markets.
Swing trading is based on the price fluctuation within a trend, and aims to make the most of market volatility by trading moves in both directions as a trend develops. While this opens up more opportunities for profit, you’re unlikely to trade at the exact highs and lows of the price movement, as it often takes a partial swing to avoid loss when a new reversal is underway. Like trend trading, this strategy needs an understanding of technical indicators and the various factors that affect market movement.
This includes holding a position for longer than a day – potentially for a week, months or even years. Hence, you would generally place far fewer trades as a position trader than you would with most other strategies. If you are hoping to take out a long-term position on a cryptocurrency, survey the market carefully – for instance, by taking its technology, the rate of selection and competitors into account.
Automated trading includes the utilization of a computer program to execute trade orders automatically. These frameworks can be: relatively easy or as complex as you like; are completely customizable; and can be ‘backtested’ using authentic information before going live.
An automated trading system can monitor the market condition throughout the day, as well as open and close trades when the specified criterias are met. These trades can be executed by the program even when you can’t monitor what’s going on yourself. However, you’ll have to periodically track the performance your system, as any imperfection in its design could be costly.
Other important points when investing in cryptocurrency:
Since the cryptocurrency market is very new and volatile, the best way to invest in it is to perhaps minimize your risk by expanding your portfolio. All of us would like to think that we can purchase low and sell high. But considering the fluctuating nature of the crypto market, a safer approach may be to make many small investments within a diverse cryptocurrency portfolio. This would minimize your risk and you’ll feel less mental pressure to sell low and buy high. Also, it could be very beneficial to research both prior and current cryptocurrency market trends over time.
Disclaimer: This article is not investment advice, just an opinion on trading in the cryptocurrency market. It is the responsibility of the each trader to do proper research before making any trading division.
Featured image source: Pixabay.
Edited my Marc Johnson.
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