At the time, some investors had already made a sizable profit, while others had only recently learned what a blockchain was. Because of their high volatility, cryptocurrencies are always risky, but as the saying goes, "Nothing ventured, nothing gained." I will walk you through the fundamentals of cryptocurrency price analysis and trading strategies in this article.
Because price fluctuation in the right hands frequently results in a profit, volatility is what has made cryptocurrency trading so popular. However, theoretical and practical knowledge is necessary to avoid blowing all of your savings on the cryptocurrency market on the first day.
The key to successful trading of any asset is to buy low and sell high. Cryptocurrencies do not stand out. Contrary to investing in cryptocurrencies, where profits are anticipated over the long term, trading cryptocurrencies requires you to forecast price changes over shorter time frames.
What Is Cryptocurrency Trading?
The exchange of cryptocurrencies on a cryptocurrency exchange is known as crypto trading. To make money, it is also necessary to keep an eye on the cryptocurrency market's price changes. You'll need a cryptocurrency wallet and an exchange before you can start trading cryptocurrencies.
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Methods for Predicting Cryptocurrencies Rates
While there are many ways to predict cryptocurrency prices, the following are the most common ones:
Fundamental Analysis
Stock analysts use fundamental analysis as a valuation tool to ascertain whether a particular asset is over or undervalued by the market. It takes into account a company's financial performance as well as the economic, market, industry, and sector conditions in which it operates. About fundamental analysis versus technical analysis, we have written a separate article. Fundamental analysis boils down to the following:
Any elements that have an impact on a coin's value are taken into account when calculating its internal value. Therefore, it is important to carefully research the cryptocurrency project, including its goals, originality, technical aspects, team, and roadmap.
An overview of the cryptocurrency market. It's important to keep in mind that the prices of the "biggest" coins, like Bitcoin and Ethereum, are related to how the market as a whole is doing.
News about cryptocurrency state regulation. The price of crypto is significantly impacted by prohibited activities.
Technical Analysis
Through the creation of mathematical models, this method involves identifying patterns and trends in the price. Finding the most likely scenarios for price change is the aim. Three underlying assumptions underlie technical analysis. As follows:
The market offers deals to itself. According to this supposition, the price of cryptocurrency reflects everything that could have an impact on it in the market. You can learn everything there is to know about a crypto asset from its price. To predict the price movements of a crypto asset, you don't need to take into account the fundamental variables that influence it. For instance, you might see that the value of a cryptocurrency asset is dropping. You can determine if it is best to invest in a particular coin at a given time by using the information in the chart, such as the candlestick pattern, the severity of the price decline, and other technical information.
Price trends as it moves. Whatever timeframe you use, price action always shows trends, even in seemingly random market movements. The price trend and direction are displayed by the green and red candlesticks. An established trend is more likely to be followed by a future price movement. See an illustration of a trend in cryptocurrency below. The (blue) trendline that serves as a support in an uptrend can be seen in this real-world illustration:
History is cyclical. The repetitive nature of the cryptocurrency market makes it possible to predict future market movements by looking at historical patterns. Market participants typically react consistently over time to market events. Some chart patterns that have existed for a while are still important because they could occur again.
Fundamental Analysis vs Technical Analysis
History repeats itself. The cryptocurrency market is repetitive, making it possible to forecast future market movements by analyzing past trends. Market participants typically respond to market events over time in a consistent manner. Some long-standing chart patterns are still significant because they might recur.
We can state that both approaches, fundamental and technical, are crucial and required. When purchasing a new cryptocurrency, pay attention to the basic procedure. Make sure to look more closely at technical analysis if the coin has been traded for a while. The effect of extraordinary events on the market must also be considered. The most recent coronavirus pandemic may be one of them.
Cryptocurrency Trading Methods
Day trading: Earn money from several quick deals throughout the day. To reduce the risk of volatility between sessions, the trader uses this method to open and close all orders in one daily session. Coinbase and Kraken are two of the top cryptocurrency exchanges for day trading.
Scalping: This involves many transactions throughout the day with a small value drop to lower risks. In this instance, the trader avoids playing it big by placing numerous small orders. Although there is little profit in each transaction, the overall outcome may be substantial.
Swing trading: make longer-term gains from price volatility. An investor buys cryptocurrency in this case and waits for it to appreciate before setting a profit.
Top Crypto Trading Mistakes
Investing in cryptocurrencies is risky, especially if you are unfamiliar with trading. This is uncharted territory in many ways. Furthermore, the fact that the cryptocurrency sector is largely unregulated makes it easier for scammers to prey on newcomers. Some inexperienced traders make costly, avoidable mistakes as a result of their ignorance. The severe errors a novice can make are listed below.
Take a Greater Risk than You Can Afford.
Make sure not to borrow money that you will eventually have to pay back or invest all of your savings in cryptocurrencies. This kind of trading results in rash decisions and unavoidable losses. So, only invest what you can afford to lose.
Failing to Diversify Your Portfolio.
A common rookie mistake is to put all of their eggs in one basket. They might only trade a small number of cryptocurrencies, or they might invest all of their capital in one. This is dangerous because if something happens to that asset, you might lose everything. You should diversify your portfolio by making investments across a range of asset classes to reduce this risk. In this way, you can balance out any value losses from one asset with gains from other assets. It's also a good idea to invest in a mix of well-established and emerging investment opportunities. This not only spreads out your risk but also enables you to invest early in projects that have the potential to generate large returns in the future.
The Lack of Plan and Strategy.
Even if other traders start panicking to sell falling coins, you must develop and stick to your own strategy. Any successful trader will tell you that they repeatedly "drained" their savings in the beginning of their career before they realized how to trade properly.
Investing Without Doing Any Research
Learning about an asset before investing in it is one of the most crucial things you can do. For something as complicated and unstable as cryptocurrency, this is especially true. If you don't know what you're investing in, you'll probably end up making poor choices and losing money. Spend some time learning about the project, the team working on it, the market opportunity it is aiming for, and the rivalry it will encounter. Making an educated choice about whether to invest in a specific asset or not is best done in this manner.
Give In to Emotions (Greed, Fear)
This phenomenon has a name, in fact. People are often motivated to act impulsively by the psychological force known as FOMO. When it comes to trading cryptocurrencies, FOMO pushes investors to purchase assets at sky-high prices in the hopes of not missing out on future gains.
While it is true that the price of some cryptocurrencies fluctuates so quickly that even seasoned investors find it challenging to control their emotions, keep in mind that the majority of trading errors are typically made while under the influence of panic, fear, greed, etc.
It is better to hold off until the price correction is over before investing in cryptocurrencies in the hope that the trend will continue. Instead of focusing on chasing short-term gains, try to take a long-term approach to your investment strategy and concentrate on assembling a portfolio of high-quality assets. Additionally, you need to be aware of the dangers linked to funding fresh cryptocurrency projects.
Forget to Learn from Mistakes
Everyone makes mistakes. However, it’s best to remember this great quote:
‘Only who does nothing is not mistaken! Do not be afraid to make mistakes — be careful not to repeat mistakes!’
Theodore Roosevelt
If you are wondering how to buy cryptocurrency for trading, you can always use the user-friendly CoinEx crypto exchange platform. Their crypto collection has more than 1800 different coins and you can do wallet-to-wallet transfers instantly and problem-free.
Just go to CoinEx and follow these easy steps:
Sign in to CoinEx.
Choose the pair and the amount you want to exchange — for instance, BTC to ETH.
Press the “Start exchange” button.
Process the transaction.
Receive your crypto coins.
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