Apart from experiencing the growth in popularity, cryptocurrencies are also experiencing volatile swings in price for the last few years. Few crypto traders thrived, others did not.
Crypto Traders: Who are They?
Anyone who speculates the direction of the price of cryptocurrencies is referred to as a crypto trader. In other words, someone who is profited by the short-term changes in the fluctuating market price of cryptocurrencies. It goes without saying that the ultimate goal is to sell it when the prices increase and buy it when the market prices decrease. A crypto trader’s world is a lucrative one and there are a lot of individuals.
Things You Need To Understand About Succesful Crypto Trading
Technical analysis helps crypto traders in identifying changes and trends in the market price of cryptocurrencies. This information basically helps in identifying the best time to enter and exit the market after profiting from it.
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Trends define the general direction of a map for the cryptocurrency. An intricate analysis is inclusive of Bollinger bands, Fibonacci retracements, and moving averages.
Bollinger bands are lines above and below the simple moving average of a cryptocurrency map, measuring two standard deviations. Most traders believe it is time to buy when rates reach the “lower band” and it is time to sell when they enter the “higher band.”
A Fibonacci retracement involves taking two extreme points (usually the highest and lowest points) on a map and splits the vertical distance by the following ratios of Fibonacci: 23.6%, 38.2%, 50%, 61.8%, and 100%. First, it draws horizontal lines for possible levels of support and resistance.
The moving average is a measure of technical analysis used on a cryptocurrency chart to “smooth out” price action by separating random price fluctuations from the overall trend. The simple moving average (SMA) takes the average prices over a specified time period (such as days or weeks), while the exponential moving average (EMA) gives more weight to recent prices.
Relation Between Reward and Risk
Understanding the relationship between reward and risk is an important factor when it comes to crypto trading. Risk management tests uncertainty and the probability that a transaction will encounter negative results. Nonetheless, because risk and potential returns are positively correlated, a good crypto trader should never run away from the risk. The bigger the risk you’re taking, the better your reward will be if you come out on top.
Digital asset exchanges have a variety of tools that traders can use to prevent mistakes and avoid spiraling out of control from losing trades; these include stop losses and limit orders. Therefore it is important to understand the different order types and loss mitigation techniques. Unlike a standard “business” purchase order, limit orders allow you to decide the maximum price for a cryptocurrency that you are willing to pay. This strategy prevents you from paying more than you expected if the price increases during the completion of your order.
Keep a Track
Crypto-traders have to keep track of community discussion and news events, as this information influences the cryptocurrencies market price. News and rumors can have significant impacts on the economy and often generate lucrative trading opportunities. Successful traders take advantage of the power of knowledge by remaining active in the Blockchain community and keeping track of industry news.
A crypto-trader has to understand his or her own emotions, especially fear and greed. Emotional control is what distinguishes effective crypto-monetary traders from all others. Fear and greed are powerful emotional forces that can impair the judgment of an individual and cause them to make the wrong decisions. Successful traders stick to their trading strategy and do not give in to their emotions.
What Are The Risks Involved?
The volatility of the cryptocurrency market makes it a high-risk factor to bet on. Understanding the risks involved is very important when it comes to crypto trading as it can be the difference between a decision that may lead you to profits.
Listed below are some of the risks involved.
Due to the unstable nature of the cryptocurrency market, there have been a number of crashes in the history of crypto trading. One example is where more than $billion had been wiped off in the overall market cap during 2018 with almost every type of negative issue impacting it such as
- Tax evasion
- Money laundering
- Loose to zero regulation
- Excess speculation
- Exchange outages
- Cyber thefts
- Illegal initial coin offerings (ICOs)
The cryptocurrency market is highly unpredictable, which in a short period of time can lead to crazy price moves. Since there is no big real-world use of cryptocurrencies prices can shift irrationally based on fear and emotion rather than underlying fundamentals or technical trends of trading.
A long list of successful hack attempts on crypto-currency exchanges has been available.