Cryptocurrencies can be a good investment, especially when you fully understand them. However, if you go in with a hit-or-miss mentality, things may not go as planned. Like any other form of investment, cryptocurrency requires you to have relevant knowledge. So if you are just starting out, this guide may be for you. Another thing you need to understand from the start is that cryptocurrency is not a get-rich-quick scheme.
Social media personalities can be a bad influence in this regard, and many people lose a ton of money following half-baked strategies that are sold on social platforms. While you could make some money trading crypto without knowing enough about it, your luck would only be short-lived. This guide will not only cover the basics of cryptocurrency investing, but also give you some valuable tips on trading strategies.
Cryptocurrencies are popular due to the blockchain technology behind them. Blockchain is a concrete technological innovation that allows these digital currencies to be safe to invest. It is due to blockchain that cryptocurrencies remain decentralized. There is no government or bank involvement in the process of minting, distributing and trading cryptocurrencies. Of course, dollar changes and fluctuations have influence when you have bitcoins in dollars, but that does not limit cryptographic decentralization. Furthermore, decentralization allows you to remain transparent.
Transactions are recorded in block chain, which itself is a digital ledger that records every purchase or sale. Since the blockchain supports multiple end users, it is highly secure and cannot be tampered with, unlike records that are stored in a central database. Lastly, the acceptance of cryptocurrencies is increasing all over the world. While there are many countries that try to restrict cryptocurrency trading, there are others that are increasingly promoting it. This reduces the need to transfer cash to another form of fiat currency while traveling abroad.
Cryptocurrency trading strategies
Like any other investment, cryptocurrency has its own set of trading strategies that you need to adhere to in order to be successful. Your priority in any form of investment is to minimize the risks you face. Trading recklessly can cost you big losses, and if you’re not smart about diversifying, you could lose everything you had in a matter of hours or days. The cryptocurrency market is highly volatile.
This means that it is extremely sensitive to external market factors and tends to go up or down frequently over short periods of time. Therefore, a little delay or rush could cause your investments to plummet. To avoid such cases, you need to keep a close eye on developments in the market. As a precaution to make the right investments, try to understand what you’re getting into. With that being said, here are some strategies to help you trade cryptocurrencies.
Learn about the market
Learning about the market is an essential prerequisite for this discussion and should be the first thing you do. Unless you are clear about market, you can’t be expected to make a smart move. You need to understand the patterns, trends and factors that influence the markets. Learn to read and watch the markets. To identify the patterns, cryptocurrency trading platforms have candlestick charts that you can read.
The charts are not easy for beginners to understand and require you to do some research on your own to understand what the red and green candles mean. The bullish and bearish trends on the chart are the barometers of the public perception of a particular currency. Without making an effort to understand those patterns, you would not be able to make any calculated moves. So start by watching the market regularly. See what factors influence public behavior and how that leads to the rise or fall of market capitalization.
follow the news
The second thing you need to do is keep up with the news. Every moment something is happening in the world. Political decisions affect the markets that interpret these events as favorable or unfavorable. If you keep up with the news, you will be able to see the patterns more clearly.
For example, when the US Federal Reserve raised the interest rate to counter inflation, it caused a crash in the cryptocurrency market. Those closely following the news divested their investments just before the ship began to sink, saving their investments and making a profit in the process. As the news spread far and wide, everyone else panicked and rushed to get rid of their investments, but it was too late.
Have a diverse portfolio
Having a diverse portfolio can help you minimize risks. A diverse portfolio mix should consist of 80 percent investment in established currencies and 20 percent in less established but promising currencies. This way, instead of putting all your eggs in one basket, you’d have them in separate baskets so that if one sinks, you can have the others as backup. However, if you have all your investments in one popular currency, price fluctuations can have a significant effect on you and you have a lot to lose. So be smart and minimize your risk by diversifying your portfolio.
act on time
Making the right decisions at the right time is key when it comes to investing in cryptocurrencies. If you don’t act on time, you could miss out on opportunities to win big or get in trouble for not being proactive. As mentioned above, by following the news, you’ll be well-informed so you know when to make the right decision. Understanding the market allows you to identify the right time to make your move, and this is exactly what sets good investors apart from average investor scores. For example, if the market falls and you have the capital to invest, you could invest it, since you expect the market to rise in the next few days.
The strategies mentioned above are the basics of responsible cryptocurrency trading. Of course, there are plenty of other tips and tricks when it comes to making investments and reaping the rewards from them, but if you know the basics, you’ll be way ahead of everyone else in the game.
Photo credit: The feature image has been made by Vitalik Radko.
Editorial Notice: This article is not investment advice. All investments have the potential for loss, and a profit is not guaranteed with any type of trading.
Did you find this article helpful? If not, please let us know what we missed.