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Crypto Trading Strategy Basics
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Investing in cryptocurrency is unlike investing in any other asset. It’s new, fresh and exciting. With the right trading strategy you stand a much better change of generating a return on your investment.
First, to get started:
Choose a reliable crypto exchange: A crypto exchange is where you will buy, sell and trade cryptocurrencies – Liquid offers all that and more.
Choose a currency: Or even better, currencies. If you’re new to the market, you may want to invest in one of the better-known currencies with a high market cap, such as Bitcoin, Ethereum, Bitcoin Cash or XRP.
Things to keep in mind
As you consider your strategy, there are several key things to keep in mind about the cryptocurrency market.
The market is highly volatile
It’s common to see swings of 20-30% in a coin’s value in a matter of days.
Blockchain technology is new and evolving
A factor that drives the volatility of the crypto market is the fact that the technology behind it – blockchain – is new and changing. As the value of the technology to industries outside of the cryptocurrency marketplace increases, so does the value of currency.
Only invest money you can afford to lose
Currency values go up and down quickly. Blockchains and cryptocurrencies can be affected by hacks and bugs that decrease in value in unforeseen ways. The traditional stock market has swings, but if you hold your positions and make good decisions, it is rare to see major losses over time. But with cryptocurrency, the risk of losing money is much higher. Play it safe.
Do your own research: #DYOR
This goes with any sort of investing, but it is particularly important for cryptocurrency. Research the currencies you’re considering buying to make sure they meet your investment goals, while also being companies whose mission you support. Remember, an investment in a cryptocurrency is an investment in the company that generates it, as well as an investment in blockchain technology.
Avoid FOMO (Fear of Missing Out)
There's a lot of hype around cryptocurrencies. This can lead to people buying coins at a high price, only to lose money if the currency’s value drops. Don’t invest in a currency just because there’s a huge buzz around it.
Diversify your portfolio
You can make decisions about which coins to invest in – there are more than 1,500 cryptocurrencies on the market. But just like with stocks, it’s advisable to have some safe bets along with any riskier investments you want to make.
Take profits at intervals
If you watch the cryptocurrency market closely, you’ll see that values can increase and decrease at any time. If you’re doing short-term trading and see a large increase in value, you might want to see if the value will increase even more. But what goes up must come down. So by setting up a strategy where you’re taking profits at regular intervals, you increase your likelihood that you’ll see steady returns.
Use stop-loss for day trading
A stop-loss is when you set a determined price at which you would sell a currency if it drops in value, useful for protecting your trades.
When using a long-term trading strategy for investing in the stock market, a person can rely on the historical data to make a decision. That’s not always the case for cryptocurrency as there is only a limited amount of data available.
Yet still, people who prefer to do long-term trading assess that data along with more recent and current activity in the market to forecast how a cryptocurrency might perform in the long-run.
The strategy could prove particularly beneficial to investing in cryptocurrencies that have been around for a few years.
Short-term trading takes the opposite approach to long-term trading. It aims to generate a return on an investment in a short period of time. Ideally, you invest, the price goes up, you sell for profit.
Technical Analysis is a method of analyzing a currency by researching factors related to values of similar assets in the past and current marketplace by historical volume and price data.
Basically, it’s an approach built on the idea that the past will predict the future, so it uses past performances of an asset to predict how a stock will perform in the future.
You can do technical analysis on Liquid by using the range of charting tools available.
Fundamental analysis aims to identify the value of a currency based on fundamentals of the project.
The challenge with applying fundamental analysis to cryptocurrencies is that cryptocurrencies are not corporations. They do not have public financial statements. Their viability depends on the strength of the community in the network.
You can begin fundamental analysis by seeking our a projects whitepaper, which will outline goals and functionality. You can also look for content on the cryptocurrency’s blog or other community forums, like Reddit.
Developing a strategy for investing in cryptocurrency does not guarantee success. You need to stay up-to-date on the changing market and any relevant news, implement your strategy on a regular basis, and be sure you make the best, most informed decisions possible.
Good luck, trader.