Cryptocurrency can be a good investment, especially when you understand it in its entirety. However, if you get into it with a hit-or-miss mentality, things might not go as planned. Like any other form of investment, cryptocurrency requires you to have relevant knowledge. Therefore, if you are just beginning, this guide can be for you. Another thing you need to understand from the outset 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 peddled on social platforms. While you could make some money off of crypto trading without knowing enough about it, your luck would only be short-lived. This guide will not only cover the fundamentals of investing in cryptocurrencies but also give you some valuable tips on trading strategies.
Cryptocurrencies are popular because of the blockchain technology that backs them. The blockchain is a concrete technological innovation that allows these digital currencies to be safe for investing. It is because of blockchain that cryptocurrencies remain decentralized. There is no government or bank involvement in the process of minting, distributing, and transacting cryptocurrencies. Of course, dollar exchanges and fluctuations do have a bearing when you have bitcoin in dollars, but that does not limit crypto decentralization. Moreover, decentralization allows it to remain transparent.
Transactions are recorded on the blockchain, which itself is a digital ledger that records every buy or sell. Since the blockchain is supported by various 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 across the world. While there are many countries that are trying to restrict cryptocurrency operations, there are those that are increasingly promoting them. This cuts down the need for transferring cash into another form of fiat currency while you are 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 succeed. Your priority in any form of investment is to minimize the risks you face. Trading recklessly can cost you huge losses, and if you aren’t smart about diversifying, you could lose all 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 within short periods of time. So, a short delay or hurry could send your investments plummeting down. To avoid such instances, you should keep a close eye on the happenings in the market. As a precautionary measure to making the right investments, try to understand what you are getting yourself into. With that said, here are some strategies to help you trade in cryptocurrencies.
Learn about the market
Learning about the market is a prerequisite that is indispensable to this discussion and should be the first thing you do. Unless you are clear about the market, you cannot be expected to make a smart move. You have to understand the patterns, trends, and influencing factors that make up the markets. Learn to read and observe the markets. For identifying the patterns, crypto trading platforms have candlestick graphs that you can read.
Graphs are not easy to understand for beginners and would require you to research on your own to understand what the red and green candles signify. The up and down trends on the graph are the barometers of public feeling for a particular currency. Without making an effort to understand those patterns, you would not be able to make any calculated moves. Therefore, begin by shadowing the market regularly. See which factors influence public behavior and how that leads to rising or decreasing capitalization of the market.
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 have a bearing on the markets that interpret these events as favorable or non-favorable. If you keep up with the news, you will be able to see the patterns more clearly.
For example, when the U.S. Federal Reserve raised the interest rate to counter inflation, it led to a collapse in the cryptocurrency market. Those who were closely following the news got out of their investments just before the ship began to sink, saving their investments and making profits in the process. When the news spread far and wide, everybody 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 of investment in established currencies and 20 percent less established but promising currencies. This way, instead of putting all your eggs in one basket, you would have them in separate baskets so that if one goes under, you could have the others to fall back on. However, if you have all your investments in one popular currency, then price fluctuations can have a significant effect on you, and you would have a lot to lose. Therefore, be smart and minimize your risk by diversifying your portfolio.
Making the right decisions at the right time is key when it comes to investing in cryptocurrencies. If you fail to act right on time, you could miss opportunities to win big or get yourself into trouble for not being proactive. As mentioned above, if you follow the news, you will be well informed to 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 the scores of average investors. For example, if the market dips and you have the capital to invest just lying around, you could invest it, given you expect the market to rise in the coming days.
The above-mentioned strategies are the basics of responsible cryptocurrency trading. Of course, there are many other tips and tricks when it comes to making investments and reaping the rewards from them, but if you know your basics, you will be miles ahead of others in the game.
Photo credit: The feature image has been done 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 kind of trading.