7 Principles of cryptocurrency trading
Disclaimer: This article is not a crypto-currency trading rulebook or advice or a guide that promises definite result, rather it provides the aim of this article is to provide readers with technical knowledge related to the subject matter, based on the one that can better understand how cryptocurrency markets work. The readers are expected to apply this knowledge on their own end if they deem it suitable and worthy.
The history of cryptocurrency goes back to as early as 1996, when an economic enthusiast and a cryptographer named J Orlin Grabbe, published an article titled “The End of Money”, in which he optimistically wrote: “Cryptology is the future.” Of course, he was way ahead of his times and it was not until 2013 that Bitcoin emerged as a force that eventually disrupted the finance industry. However, in 2017, a major Crypto bull-run happened, and while some people earned a fortune from the crash, other people lost a considerable amount of wealth on the other.
This article will be pointing out the basic signs to understand the movement of the crypto-market and make timely financial decisions. This article will best serve beginners and/ or intermediate crypto-investors, as the information contained will do little or nothing for advanced and experienced individuals. The insights provided here are some of the base points that most of the economists are unanimous about (Shaw, 2019). So, let’s just dive straight into the learning points about trading!
1. Fundamental Analysis vs Technical Analysis
There is a basic difference as to how the price valuations of cryptocurrency changes in the markets. Most if not all of the fundamental factors that affect the price changes are commonly related to the hype surrounding the technology, the integrity of the team behind the project, major announcements, partnerships signed, and other developments that revolve around the promotion of that cryptocurrency technology. Fundamental analysis is a rough measure as to how the general community perceives the technology and how well accepted it is. The stronger the grip it has on the community is, the more strongly will it rise on the charts.
Technical analysis, on the other hand, is a whole different study that requires a full day’s study. One has to understand the basic principles that drive the markets, the different infographic parameters available on many cryptocurrency exchanges, the forecast line-graphs that shows the potential track the cryptocurrency is likely to follow on the market charts, etc. Where fundamental analysis can be used by traders to make their financial decisions, they should be properly backed by technical information interpreted by the price charts.
2. Understand Technical Parameters
While trading based on fundamental factors is like playing out in the wild and more or less testing your sixth sense, if one wants to make certain decisions, then he has to get into the technical nitty-gritty of the trading market. The decisions should not be influenced by any bloggers or twitter-experts, but a trader should be able to interpret markets on his own, to earn big in his trading endeavors.
3. Hold your investments
If you are new to cryptocurrency trading, it is very likely that you will be caught up in the emotion of the minute by minute market update and will be trying to score on the minor fluctuations of daily ups and downs, it is natural to feel the need to do that. But you are doing it all wrong!
The key to scoring big on your trades lies in patience. Give time to your investments to ripe. There’s a term popularly known in the cryptocurrency community as ‘’HODL’, which means to hold on to your crypto-tokens, and not sell them prematurely. The best strategy is to research different technologies, diversify your investments in a handful of them, keep updates, don’t panic and Hold On to your Dear Life!
4. Risk Management
Learning the technical aspects of trading is a never-ending process and there is always room to gain new insights and grab new information that will foster growth and improvement. One of the best practices of a good trader is that he knows what to buy when to buy and how much to buy. Also, there is always a detailed plan as to how much room is there for loss, and at what point exactly does one has to exit the trade by selling out. For this very same reason, it is recommended to ‘trade less often and hold more often’, to avoid making too many trading mistakes.
5. Avoid impulsive decisions
Speaking of mistakes, one common occurrence with a beginner level trader is that most of his decisions are based on pure emotion, which resultantly stops him from seeing the bigger picture. As the cryptocurrency starts to spike upwards, the buyer gets engulfed in the fear of missing out on the maximum price. Suddenly, the market crashes and price hit a downhill and the buyer instantly starts feeling remorse, afraid of losing everything that he has gained till now. In this dilemma, he sells his coins, and voila, the price shoots upwards once again, leaving the buyer with less money and no tokens. Once again, trade less often and no matter what you do, try to avoid being impulsive!
6. Create your approach
The market is a two-way street, there cannot be a win-win situation for everyone. Also, while one strategy might work for some people, it is not guaranteed to work for you as well. Therefore, learn from other traders’ experiences, be curious, do experiments but most importantly, come up with a unique strategy that works for you.
7. Again, Create your approach
While all the points discussed up till now have focused on a rather defensive strategy (which is best for beginners!), there is nothing wrong with taking profits on winning positions. This could only be achieved once a buyer has gotten comfortable with the trading market and has enough experience that he truly understands the movement of the market. If a trader has gotten accustomed to how the market works, there is a bigger chance that he will score more than he loses in trading, and that is essentially what separates the winners from the losers.
Finally, every advice and every decision in the trading world boils down to one thing i.e. “Buy Low, Sell High!” and make sure not to do it the other way around!
Shaw, G. (2019, May 18). Medium. Retrieved from Medium: https://medium.com/swlh/7-principles-for-trading-cryptocurrencies-414d11198e90