Strategies, Analysis, and Common Mistakes to Avoid in Crypto Trading

The world's interest in cryptocurrencies soared in 2017.

While some people had already made handsome returns on their investments, others were only now becoming familiar with blockchain technology. The high volatility of cryptocurrencies carries a number of inherent risks, but as the saying goes, "No risk, no reward." We will give you an overview of cryptocurrency trading strategies and provide information on price analysis in this article.

Cryptocurrency trading has become popular due to the cryptocurrencies' inherent volatility because careful management of price fluctuations can frequently result in profits. However, a strong foundation in both theoretical and practical knowledge is crucial to avoid losing all of your savings in the cryptocurrency market on the first day.

The golden rule of trading is to always buy low and sell high. Cryptocurrencies operate similarly. Trading requires forecasting price changes over shorter timeframes than investing in cryptocurrency, where long-term profits are anticipated.

Getting Started with Crypto Trading

A cryptocurrency exchange is used in crypto trading, which entails buying and selling cryptocurrencies with the intention of profiting from changes in market value. You'll need both a cryptocurrency wallet and a cryptocurrency exchange platform in order to start trading in the cryptocurrency market.

Forecasting Crypto Prices: Fundamental vs Technical Analysis

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 method of valuation to determine whether a particular asset is over or undervalued by the market. This strategy considers both a company's financial performance and the economic, market, industry, and sector circumstances in which it operates. We compare fundamental and technical analysis in a different article. Fundamental analysis basically entails:

  • Determining a cryptocurrency's intrinsic value by taking into account the variables that affect its value. This necessitates a careful analysis of the crypto project's goals, distinctiveness, technical features, leadership, and roadmap.

  • Carrying out a thorough analysis of the cryptocurrency market. Do not forget that the prices of popular cryptocurrencies like Bitcoin and Ethereum are influenced by the state of the market as a whole.

  • Keeping up with news about governmental regulation of cryptocurrencies. The value of crypto assets can be significantly impacted by limitations and prohibitions.

Technical Analysis

The goal of the technical analysis method is to forecast the most likely price change scenarios by using mathematical models to identify patterns and trends in price movements. Three fundamental presumptions form the basis of technical analysis:

  • The market offers deals to itself. According to this theory, all potential influences on a cryptocurrency's price have already been factored into the price at hand. As a result, it is unnecessary to take into account the fundamental variables influencing a crypto asset when forecasting price changes. For instance, you can use chart information like candlestick patterns, the magnitude of the price decline, and other technical data to assess whether it's the right time to invest in a coin whose price is declining.

  • Price trends as it moves. Regardless of the timeframe, price movements consistently show trends, even amid seemingly random market fluctuations. The trend pattern and price direction are shown by green and red candlesticks. An established trend is more likely to guide future price movements. You can see a real-world cryptocurrency trend in the example below, where an uptrend is supported by the blue trendline.

  • History frequently mimics itself. Due to the repetitive nature of the cryptocurrency market, it is possible to predict future market movements by examining historical patterns. Participants in the market typically respond consistently over time to market events. As a result, historical chart patterns are still relevant because they could occur again.

Many traders use technical analysis to help them decide what to trade, and some even believe in it exclusively. However, it is believed that a more logical approach to trading is to combine both technical and fundamental analysis.

Fundamental and technical methods are equally important and necessary. Pay attention to fundamental analysis when buying new cryptocurrencies. Consider going deeper into technical analysis if the coin has been in use for a while. Additionally, it's critical to recognize how extraordinary occurrences like the most recent coronavirus pandemic affect the market.

Cryptocurrency Trading Methods

  • Day trading - Profiting from numerous short-term transactions throughout the day is called day trading. This strategy aims to reduce the risk of volatility between sessions by having traders open and close all orders during a single daily session.

  • Scalping - which involves carrying out a large number of transactions each day with little variation in price to lower risks. Instead of making large bets, traders who use this strategy place numerous small orders. Even though the profit from each transaction may be small, the overall result may be significant.

  • Swing trading - which takes advantage of price turbulence over a longer time frame. Using this strategy, investors purchase cryptocurrencies and watch for price increases to realize profits.

Common Mistakes in Crypto Trading

It's risky to enter the crypto world, especially if you're new to trading. It stands in for much-uncharted territory. The fact that the cryptocurrency industry is largely unregulated and that many con artists try to take advantage of people with little experience complicates matters even more. Some inexperienced traders make mistakes that can be prevented because of their lack of knowledge, which results in losses. Here are some of the most serious errors a novice could make.

Increase Your Risk Beyond What You Can Afford

Avoid borrowing money or investing all of your savings in cryptocurrency. Only invest what you're willing to lose because hasty decisions can lead to losses.

Under-Diversifying Your Portfolio

Diversifying their portfolios is a common error made by new investors. This poses a risk because the failure of one asset could result in sizable losses. Diversify your portfolio across different asset classes, including a mix of well-established and up-and-coming investment options, to help mitigate this. This approach not only distributes the risk but also offers chances for early investment in projects that have the potential to generate sizable returns.

The absence of a strategy and plan

Even when others hastily sell falling coins, learn your strategy and stick to it. Successful traders frequently acknowledge that they initially lost savings while learning proper trading methods.

Accede to Emotions (Greed, Fear)

In cryptocurrency trading, the psychological phenomenon known as "FOMO" pushes investors to make rash decisions and purchase assets when prices are rising. Since most trading errors are the result of panic, fear, or greed, even seasoned investors struggle to control their emotions. It is preferable to wait for price reversals and concentrate on a long-term investment strategy with high-quality assets while being aware of the dangers associated with emerging crypto projects.

Making Investments Without Research

It's essential to educate yourself before investing in any asset, especially one as complicated and volatile as cryptocurrency. You can make wise decisions and prevent losses by having a thorough understanding of the project, the team, the market opportunity, and the competition. Better investment decisions are ensured by investing the time to learn.

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Don’t forget to do your own research before buying any crypto. The views and opinions expressed in this article are solely those of the author.