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How To Trade Cryptocurrency – Best Trading Strategy

What Are Cryptocurrencies?

Any cryptocurrency is a decentralised digital coin. It exists purely as data and is not a physical object, but has been designed to allow virtual transfers between people. In simple terms, owning a cryptocurrency means you have the agreement of collective users that the currency was created legitimately and is now owned by you. Cryptocurrency trading today is considered to be an exciting and profitable option. It has evolved tremendously since Bitcoin was established in 2009, attracting millions of investors worldwide. 

The cryptocurrency market has exploded over recent years, due to significant increases in value and the introduction of many new currencies. Today, Bitcoin, Ethereum and Litecoin are generally accepted to be the top performers, and the total market value of cryptocurrencies exceeds $500 billion. The cryptocurrency market is exceptionally volatile, meaning that many people have made massive amounts of money trading, but that it also holds inherent risks.

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How To Trade Cryptocurrencies

Investors differ in their objectives when it comes to trading in cryptocurrencies. Some will buy and store them for long periods of time, hoping to gain profits on them as a longer-term investment. Traders taking a shorter term perspective will buy and trade relatively quickly. They take advantage of rising and falling cryptocurrency values to buy, sell and exchange at the right time for a profit. Many experienced traders will even participate in day trading, where the currencies are traded after a few hours, or even just a few seconds. The concept is that they sell their assets before the day ends, hoping to make small, fast profits.

Where To Buy Cryptocurrencies

The easiest way to buy cryptocurrency is on a centralised exchange, such as Coinbase. Many online sites sell Bitcoin and other popular cryptocurrencies and then transfer them to a buyer’s digital wallet. It’s simple to open an account, and they accept a number of the popular payment methods, such as credit cards and PayPal. Alternatively, some cryptocurrencies are easily exchanged with cash on a P2P basis, and there are many decentralised P2P sites where you can make contact with like-minded people.

When you are ready to trade, there are many reputable online platforms to choose from which specialise in cryptocurrency trading, including Binance, Bittrex and Bitfinex. You should select one that suits your personal requirements and be aware that prices can vary slightly from one platform to another. Due to the strong demand for cryptocurrencies, many Forex brokers have now also made a number of the most popular currencies available to trade through their platforms in the form of currency pairs.

Which Cryptocurrencies To Trade

There are hundreds of different cryptocurrencies available. However, traders favour certain popular digital currencies for a number of reasons, including the market value, a high degree of safety and the volume of daily trading. Here are five of the most important and prominent cryptocurrencies.

  • Bitcoin (BTC): This remains the most popular cryptocurrency and the largest regarding its trading volumes and market value since it was launched in 2009. It’s decentralised, wholly anonymous and global. The most important feature is its growing recognition as a safe means of payment for stores and international companies. Investors favour it because it’s easy, has low associated fees and has risen significantly in value.
  • Ether (ETH): is the second most popular cryptocurrency after Bitcoin, and one of the top three used for payments and purchases. Its flexible Ethereum platform has attracted attention from international companies such as Microsoft. It also acts as the launch pad for any new tokens, making the platform useful to the community and extremely influential in future developments.
  • Litecoin (LTC): has achieved tangible success in a short period of time due to its unique technology system which is acknowledged to have massive growth potential. It has low transaction fees, a high trading volume and has shown consistent growth since its launch in 2011.
  • Ripple (XRP): Ripple blockchain technology is widely used to connect banks and payment services because of its speed, ease and security. According to experts, it is considered one of the best investments, and it has a highly volatile track record which attracts day traders.
  • Bitcoin Cash (BCH): is an altcoin, created by Bitcoin to speed up the rate of transactions. Although it uses the same technology, it comes with cheaper transaction fees and is seen as a robust longer-term investment opportunity. Its market value is high, but as it is relatively new, it is still extremely volatile.

Taking Advantage Of Market Movements

If you are considering shorter-term investments or speculation on cryptocurrencies, then you need to benefit from any volatility and fast movements in prices. To do this, traders analyse the market movements using a number of different ways to predict these market movements and trends. These usually include:

Technical Analysis

Technical analysis is considered to be one of the most important and accurate methods for predicting the price movements and trends of any financial assets. It is quite a complex area but basically involves studying charts from previous periods and trying to interpret the information. This is then used to predict current market movements or those in the near future.

Technical analysis can encompass various tools and methods. Amongst these are support and resistance, technical patterns, trend lines and trading volumes. Some traders rely on using only one method, while others combine a number of analysis tools and technical indicators. With these, they try to assess reliable signals about the nature and cause of any trend and the likely resulting movement of the market.

Market Capitalisation (Market CAP)

One of the most important methods used by cryptocurrency traders to predict price movements is market capitalisation. It is defined as the total market value of the cryptocurrency, which can be calculated by multiplying the current price of the currency by the circulating supply. (Market CAP = price x circulating supply).

Market capitalisation provides essential information to traders and is considered the classic standard for defining the strength of any digital currency. It is necessarily a number which reflects the number of coins that are circulating and their market price. If the value of it shows an increase, then it is a sign that there is a high trading activity, which can lead to increased confidence and increased prices. A significantly low or high market cap can also highlight a coin that is either vulnerable or resistant to volatility.

Fundamental Analysis

Fundamental analysis is used less frequently with cryptocurrencies than with other Forex investments. It involves analysing the social, economic and political events and trends that can affect the demand and supply of the asset. With digital currencies, there are no clear indicators to measure that are likely to have any significant impact, apart from important news from within the industry itself. However, traders must always be aware of significant developments and general information, like the total number of stakeholders, the currency’s market value and the number of businesses that accept the currency as payment.

Strategies For Cryptocurrency Trading

Cryptocurrency markets are extremely volatile, meaning they are an attractive investment opportunity but can be extremely tricky for trading. Learning how to optimise trading opportunities with strategies will keep you fully occupied.

These short-term and long-term strategies will enable you to look at both options and take advantage of price movements in any given direction. They are a great way to help you to identify opportunities or exit and enter trades at exactly the right moment. There are hundreds of them available, each with strengths and weaknesses, from swing trading to position trading.

Each trader must evaluate them and develop their own strategy dependant upon their personal situation and experience. Many websites offer paid strategies developed by experts, but there are also many that take advantage of beginners, so be extremely careful and do your research first.

5 Tips for Cryptocurrency Trading

All strategies are useful as decision-making tools, but they are not infallible. In cryptocurrency trading, there are also many other factors to consider. Success as a trader also encompasses your own experience, self-discipline and the ability to manage risk. It’s a good idea to find a mentor and benefit from the experience of a person who can guide you along the way.

  1. Investing in cryptocurrencies should always be within your financial capability. It is ideal if the invested money is surplus to your everyday requirements.
  2. Be sure to select a reliable exchange and reputable wallet, to ensure your investments are in safe hands, and always keep your private keys private.
  3. Carefully decide which strategies to use. This will depend on the psychological factors, availability of time and your experience. For instance, new traders with minimal time may decide that it is preferable to buy and store well-known cryptocurrencies.
  4. Monitor the news and information about cryptocurrencies from their real sources. Beware of being influenced by false news, from those who have little experience in this area.
  5. The psychological factors affecting trading are vitally important. Be aware of these, and act responsibly so that you take the right decisions; do not rely on luck, and do not expose yourself to unnecessary risks.