Developing a profitable cryptocurrency trading strategy – guide
Trading and investing in cryptocurrencies are a bit different from investing in other classes of assets. Crypto trading extremely risky due to its high volatility, price fluctuations, and limited regulations surrounding it. However, trading cryptocurrencies can be extremely lucrative if a proper trading strategy is utilized. This guide will explain how to create a profitable cryptocurrency trading strategy.
Select a reliable exchange and a cryptocurrency
A cryptocurrency exchange is a platform where you can trade your cryptocurrencies, and choosing a reliable platform increases your profit potential. Choose a platform based on volume, trading fees, the safety of the platform, as well as its supported coins.
Do proper research
Doing proper research on the cryptocurrencies that you are thinking of trading is a no-brainer. You should trade cryptocurrencies that you believe in, but also those where you can get a quick profit by riding the hype train. The cryptocurrency market is different from other markets in the fact that its average investor is much more susceptible to the hype as well as fear, uncertainty, and doubt.
On top of that, doing proper research also translates to after you create the strategy you want to use. Each and every strategy needs to be backtested to see if it does well in bear, bull, or ranging markets. A strategy doesn’t have to be one-size-fits-all; you can rather have a separate strategy for different market movements.
Invest money that you can afford to lose
Crypto trading and gambling have a subtle similarity – they both warn the players about the limit that goes beyond the risk. In both cases, players (which are in this case traders) should only play up to the bankroll limit they are fine with losing.
Expect returns at regular intervals
It is common that the market sometimes doesn’t go your way, or that it goes better than expected. Traders should not be emotional when it comes to either gains or losses, but they should rather track their returns on a long-term basis in order to avoid the spread.
Only in the case that a strategy is unprofitable for a longer period should the trader reconsider changing it. Losses will always be a part of a trader’s life, even with the best strategy.
Utilize both fundamental and technical analysis
Traders should utilize every tool at their disposal in order to increase their profitability. Fundamental and technical analysis are two sides of the same coin, and they should both be taken extremely seriously.
While technical analysis may come as second nature to some traders, fundamental analysis of cryptocurrencies is usually not as easy. Since there are no clear ways of performing fundamental analysis with cryptocurrencies, one has to rely on knowing the coins they are trading inside-and-out from a tech standpoint, as well as to constantly track the investor sentiment in order to become a truly profitable trader.