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- A Deeper Look Inside the World of Crypto. What are Successful Strategies?
A Deeper Look Inside the World of Crypto. What are Successful Strategies?
Curiosity is an integral part of our nature. Curiosity is what has been driving mankind into evolution for thousands of years. However, it can potentially be just as harmful when left untethered. Naturally, a subject as fresh and ambiguous as crypto trading has piqued the interest of the general public. The thin veil of mystery surrounding the general concept of cryptocurrency makes it all the more alluring.
Everyone is familiar with the saying ‘curiosity killed the cat’, but its sentiment is not only applicable to our feline friends. While it will obviously not kill you, getting sucked into the world of crypto trading unprepared, may prove to be deceptively dangerous.
Before taking up crypto trading, you should be asking yourself these questions:
Is crypto trading worth investing my time and money in? Is trading crypto actually profitable?
How you answer these questions is up to you, to a certain extent. There is no single, universal truth, but there are plenty of variables you could measure and numerous aspects you should be taking into consideration.
Cryptocurrency, as is the case with most investments, is risky. Realistically, you could see the value of your assets’ worth skyrocket or plummet in the blink of an eye. Studies show that most people are not very successful in their trading endeavours over the first few months. In a market as demanding and competitive as crypto trading, that is to be expected. The average trader will have to compete with more experienced individuals with access to better resources.
Nevertheless, these facts should not deter you from going after your ambitions. Most people will not be very successful at any task from the get go. As with any other hobby or occupation, trading effectively requires patience, knowledge and practice. Any content mentioned hereinbelow is purely for educational purposes and does not constitute investment advice.
How could one hope to cherish the sweetness of victory, without having tasted defeat?
In the end, your gains from crypto trading are only limited by your own limitations.
In this article, we will go through ways to overcome these limitations by analysing some of the most efficient trading strategies employed by millions of people. If you hope to come out of your crypto trading adventures unscathed, you should at the very least, be aware of them.
What is day trading?
Day trading is one of the most commonly implemented strategies by traders worldwide. It refers to the action of entering and exiting a certain position within the same day. Doing so, allows us to take advantage of the extremely volatile nature of crypto coins Successfully navigating market transitions can result in large gains in a very short amount of time. Even so, day trading is not as simple as it may sound.
Becoming an efficient day trader demands an in-depth knowledge of the market, patience, and strict discipline in your decision-making.
Is day trading crypto successful?
To put it bluntly, it can be. Very much so. We have already established that success is measured (mostly) by your own abilities. There is no luck involved in trading effectively. However, there are so, so many variables to take into consideration. Probably more than the average person could ever hope to keep up with. Inevitably, that leads to leaving certain aspects to chance. At the end of the day, it is up to you to do whatever you deem necessary to stack these odds in your favour.
We already went over day trading, a strategy best suited for quick gains because of its high risk - high reward nature. Now, let us take a look at the exact opposite of that, with Dollar-Cost Averaging. Dollar-Cost Averaging is a different kind of trading strategy, for those looking for a safer, long-term approach. It may not have the same potential as Day Trading, but it poses less of a risk.
What is called Dollar-Cost Averaging refers to the technique of investing a fixed amount on the crypto of your choice, divided into smaller instalments over a specific time period. Essentially what you do is, you decide on the amount you wish to invest in crypto, but instead of going all in at once, you break said amount into smaller pieces and invest them at standard intervals. What this strategy accomplishes is minimising the risk of each bet by lowering the amount of funds at stake, while also allowing us to benefit from potential market swings.
One major downside to Dollar-Cost Averaging is the possibility of missing out on potential big gains, because of the strategy’s automated nature. However in the long run, Dollar-Cost Averaging will help improve your discipline and composure. Both equally crucial skills for any aspiring trader.
It all started from a simple typo and it quickly became one of the most renowned strategies in the world of crypto trading. Implemented by beginners and veterans alike, HODL is a highly flexible strategy with all sorts of potential benefits.
But first of all, what is HODL?
HODL, which quickly came to serve as an acronym for ‘Hold on for dear life’, is the action of buying an asset with the intention of keeping it in your possession for extended periods of time. In doing so, pressures that would inevitably stem from the extreme volatility which characterises the crypto trading market are for the most part, negated.
The individuals who could stand to benefit more from utilising this strategy, are beginner traders. The extreme instability of the crypto trading market makes it especially hard to accurately predict and navigate effectively. While there are definitely opportunities to exploit in the short-term, an inexperienced trader will have a hard time identifying them, resulting in devastating losses.
In a way, HODL is an acknowledgment of a trader’s own limitations. Opting for a safer strategy that filters out the day to day noise of the ever-changing market, allows us to diligently study its quirks and trends. The luxury of being able to confidently ignore the hype, is a huge boost to reaching an objective understanding of how the market actually works.
FOMO (Fear of Missing Out) is a very common psychological phenomenon amongst inexperienced traders. Whether it is, panic selling when the prices start to decline or panic buying because of an asset’s rise in value, average traders are likely to let their emotions negatively affect their decision making. By holding on to your investments over a long period of time, you can take your time to learn and really understand the ins and outs of the market, while still being an active part of it.
It should also be noted that HODL is not a viable strategy for all coins. Due to its volatility, the crypto trading market is near impossible to predict in the long term. A fact which is even more true about minor coins. HODL works better with the most well established crypto coins, such as Bitcoin or Ether, because they are highly unlikely to plummet to zero, thus keeping your investments safe.
Arbitrage trading is yet another crypto trading strategy that could prove very fruitful. Crypto trading markets are not regulated by any authority and so, unlike flat currencies like the dollar or the euro, there is not one single, standard price for any coin. Prices may differ widely from market to market, which in turn creates discrepancies that could be exploited by experienced traders. In essence, arbitrage trading is the strategy of buying a crypto coin in one market and selling it to a different one for a higher price.
Most traders who are exercising arbitrage trading rely on some sort of software, designed to keep track of all market movements in real time and identify gaps in prices between markets. Another approach is going after less popular crypto coins, which tend to present better opportunities because of their extremely volatile nature. Their volatility is caused by the unstable flow of demand for them.
When trading these less popular crypto coins, you need to realise that your exchanges have a much bigger effect on the market, than they normally would in a Bitcoin exchange for example. Due to the relatively low demand for said coins, minor exchanges may lead to price movements, which ultimately defeat our purpose of trying to exploit the gaps in asset prices.
Every market is affected by those involved in it, which means the mental state of crypto traders is an important factor that should always be taken into consideration before making a decision.
There are several techniques that take advantage of human nature, in an attempt to make successful trades. But, most of these are highly speculative or require deep understanding of market statistics and constant monitoring of its movements.
Event-driven trading on the other hand, is a much more beginner-friendly affair. Big events such as a news segment on a certain coin, can reach millions of households and in effect swing their views towards said coin. Any public event that sheds light on a crypto coin, whether in a positive or negative way, serves as a tangible way to anticipate an incoming price change and quickly act on it.
One of the most common, short-term strategies employed by traders worldwide is often referred to as scalping. Scalping is the act of going after the tiniest price movement multiple times within the same day. Scalpers will buy an asset, only to sell it the moment its price goes up a cent. Due to the high volatility crypto coins exhibit, price movements are a very regular occurrence, allowing for traders to place bets with insignificant gains many times per day. Because of the high volume of exchanges, those previously insignificant gains could possibly pile up within a reasonable period of time.
Scalping is often complemented by other strategies for higher efficiency. For example, many scalpers tend to go after coins that are currently under the spotlight due to some kind of public exposure (as we mentioned in event-driven trading). Said coins tend to be in high demand, which of course increases the volume of exchanges, creating the potential for numerous upward price movements. Also, those who want to scalp optimally should always be keeping an eye out for the more obscure and niche crypto coins available. That is because these kinds of crypto coins are usually highly volatile, offering fertile ground for scalpers to sow the seeds and reap the much-wanted rewards.
Scalping effectively requires adequate knowledge of cryptocurrency and market trends, as well as very quick reactions and decisiveness. Even if you are not confident that you possess all of the above, practising scalping is one of the best ways to ‘unlock’ these qualities and achieve your full potential.
The Pursuit of Excellence
The road to achieving your crypto trading goals is not an easy or short one. There are no shortcuts or secret recipes. Finding your footing may prove difficult at first, because of its high ceiling in terms of knowledge and understanding. It is a long and arduous path, but with proper preparation and a will to improve every day, everything is possible. We have already established that as humans we all have our limitations. But our limitations are not what defines us. Those who, despite disappointments, will keep at it and persevere are sure to reap the rewards eventually. Rewards that should not be limited to financial gains, but personal ones as well. A healthy relationship with crypto trading will help improve your discipline, composure, adaptability and ability to thrive in the face of adversity. It is normal and encouraged to always be on the look for ways to improve the returns of your investments.
Risk Warning: Cryptocurrencies are highly volatile and trading can result in the loss of your invested funds. Before investing you should be aware that cryptocurrencies may not be suitable for all investors. You should therefore carefully consider whether trading or holding digital assets is suitable for you in light of your financial condition and not invest money that you cannot afford to lose.