When it comes to the cryptocurrency markets, a lot of what you may already know about trading goes out the window. The digital currency sphere has unique characteristics that demand a different strategic approach.
For a start, crypto volatility offers great revenue opportunities but also dramatically increases your risk. Equally, security concerns such as exchange hacks as well as the growing pains of a new asset class, with regard to the gradual introduction of governmental regulation can have a huge impact on prices. These factors will affect your strategy, which in turn, will influence the type of platform or exchange where you choose to trade.
Our first piece of cryptocurrency trading advice would be to work out the kind of crypto trader you are, taking into consideration your risk tolerance, level of capital investment and time available to spend managing your investments.
You then need to ask yourself a number of additional questions:
What are my profit goals? How much can I afford to lose? How much time can I spend managing my portfolio and in that time frame, with my chosen investment sum, how much can I make trading cryptocurrency? Do I want to manually trade or use a bot? What currencies do I want to invest in and how large a share of my trading portfolio do I want to dedicate to digital currencies?
Once you have the answers to these questions, you can plan your trading accordingly.
One piece of cryptocurrency trading advice you should definitely follow is to mitigate your exposure through diversification. Adding crypto as part of a broader trading portfolio that includes a variety of fiat currencies, stocks, commodities and indices is the best way of spreading your risk across multiple markets and taking advantage of all types of market events with a healthy mix of lower and higher risk investments.
You can further diversify by trading on a wide range of cryptocurrencies, capitalizing on the overall growth of the market. Traders who take this approach share the belief that the crypto arena is going to continue on an upward trajectory, with a rise in its total market capitalization, and that this growth will be driven by a diverse array of altcoins that are creating a broad range of exciting revenue opportunities.
Now you’ve decided what to trade, you need to think about how you wish to go about it. One strategy for the more risk –averse digital currency trader would be crypto arbitrage trading. This type of trading is considered to involve only minimal exposure. It is the process of buying a cryptocurrency on an exchange, where the price is low, and then selling it on another exchange at a higher price, making a profit on the spread. In this way, the trader is able to exploit the price inefficiencies that are still prevalent across exchanges for this emerging new asset class.
To make a profit from crypto arbitrage investment, you need to be able to scan multiple exchanges at once, to identify opportunities the second they arise, find the lowest available buy price and the highest available sell price and instantly execute your transactions before the market exchanges adjust to accommodate for the inefficiency. Clearly, making successful crypto arbitrage trades manually is not a feasible option, so to implement this strategy, you will require an automated system. There are a handful of fully automated trading systems dedicated to crypto arbitrage on the market, with one example being ArbiSmart.com. They are worth mentioning for the fact that they are one of the few fully EU licensed and regulated platforms, which is critical if you are going to enter the crypto trading sphere. They also have human support, which is also, not always a given.
The market is flooded with all types of bots suited to those who want to make a deposit and let the system make all their decisions for them as well as to those who want to program their own strategies so they can be implemented with greater speed and efficiency. These systems know how to buy, sell and trade cryptocurrency at lightning speed, managing a huge volume of trades simultaneously. They can take advantage of market shifts at any hour of the day or night, identifying opportunities as they develop.
The type of bot you choose will depend on your level of market expertise, coding capability and desired time investment. Whichever route you take, just be sure to check the price structure, the level of complexity, the number of integrations with different exchanges and the types of market analysis tools and risk management features that they offer.
Some cryptocurrency trading advice that you’ve almost certainly heard before, but is still worth heeding is not to let your feelings get the best of you. If you have joined any one of the countless online crypto communities, you are constantly being bombarded with media buzz and hype over a sudden shift in the price of Bitcoin, or a new coin that is performing far better than expected straight out of the gate. Fear of missing out, FOMO, can lead to rushed market decisions in the hope of making an substantial profit on a soaring coin, even though prices are inevitably going to eventually course correct. Conversely, fear of losing your core capital can also lead to rash decision making, resulting in your losing out on lucrative opportunities. If you have earmarked a specific coin as a mid to long term investment then ignore the blips on the radar and let it gradually come into its own. Our cryptocurrency trading advice is simple: utilize risk management tools, stay informed, remain calm, and stick with your trading plan and you can grow your portfolio while riding out any market storm.
Whatever altcoins you choose to add to your portfolio, the most important cryptocurrency trading advice to consider is to always keep Bitcoin front and center in your mind. The vast majority of digital currencies are pegged closely to Bitcoin, meaning that peaks and troughs from the number one cryptocurrency can have a huge impact on altcoins. Unfortunately, this effect is primarily negative. For example, a diving BTC is likely to cause an altcoin exodus for the calmer waters of the fiat currency markets. Equally though, a soaring Bitcoin price is also likely to result in an altcoin drop as digital currency traders race to drop their alternative coins in favor of riding the Bitcoin wave. While your chosen coin’s value is dependent on a wide range of factors that end up being reflected in its trading volume, a steady Bitcoin price, or a period of organic increase or decrease in price is optimal for an altcoin’s growth.
The main takeaway from the cryptocurrency trading advice we have shared here is that the crypto market offers incredible opportunities, but in order to succeed you need to know yourself as a trader and plan accordingly. If you push beyond your risk comfort-zone, or get greedy and start ignoring your pre-set profit targets, you will end up making mistakes and endangering your portfolio. Stay disciplined, keep on track and you can achieve exceptional results with the most exciting asset class to hit the global financial markets.
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