Crypto – What is it?
Cryptocurrency is one of the most exciting and innovative technological developments in the modern world. Designed with unusual features, each cryptocurrency is powered by a blockchain ledger – which is a secure and self-regulating record of who possesses how much of the currency and is maintained by “miners” who receive rewards to keep it up to date. At its simplest, cryptocurrency can – like most currencies – be used as a way of buying products and services, especially on the internet, where the transactions can take place quickly and easily.
Cryptocurrency also has a distinctive social benefit as well: because it’s arguably more trustworthy than many major real-world currencies thanks to its decentralised nature and the absence of a major authority figure (such as a government or a central bank), it’s often used in community-focused schemes as a way of providing value-based rewards for specific actions. Thanks to the apparent high value that many cryptocurrencies have, meanwhile, they have quickly become investment objects as well as sources of purchasing power and ways of achieving specific social goals. By buying a unit of cryptocurrency in much the same spirit as an investor would buy a real-world currency, traders hold on to it in the hope that it will rise in value over time.
The History of Crypto
Cryptocurrency is now so well known that it feels like it’s been around forever. But it’s a relatively new development – it was only as recently as the 1980s that professionals in the computer science field began to discuss how this technology could be applied to the world of finance and payments. The 1990s saw a range of other institutions pick up on this burgeoning field, including governmental organisations such as the US’s National Security Agency.
- Discussion of crypto’s potential began in the 1980s
- Papers released by major organisations such as the US’s National Security Agency in the 1990s
- Bitcoin developed in the 2000s
- Now many cryptocurrencies are available
But the main milestone for the cryptocurrency world came in 2009 when an anonymous developer (or group of developers) going by the moniker Satoshi Nakamoto invented and released Bitcoin, which then went on to become by far the most well-known cryptocurrency of them all. Since then, developers in a whole host of different settings have produced new cryptocurrencies, and it’s believed that there are now almost 2,000 in existence. Each cryptocurrency has its own aims and its own community, and often each has a subtly distinctive technical make-up as well.
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CFD or Real? Trading Crypto
When it comes to trading cryptocurrency, you have two crypto trading strategy options. One is to purchase the actual asset through the best crypto broker services on the market – this way, you’ll own the piece of the currency that you buy. To find the right provider for this service, conducting a quick crypto broker comparison to find a good one is a smart move. The other option is to use a CFD (contract for difference) broker, which is a different way to go. Under this system, you won’t own the cryptocurrency itself, but because the value of the asset is derived from the actual market for your chosen cryptocurrency, you’ll be able to take full advantage of the market’s shifts – and it will seem like you’re trading as usual.
Each way has its advantages: CFDs, for example, allow for margin-based trading, which means you can leverage any gains you might make and walk away with a higher profit (or, unfortunately, a higher loss if the market nosedives). Deciding which of these options you would like to go for is an excellent way to start thinking about trading strategy. A CFD broker, for example, may offer you handy tools that help you to understand the way your investment is performing – but if you purchase a cryptocurrency as an asset, this may not be available. Outcomes like these can inform the rest of your crypto trading strategies, so it’s an excellent place to begin.
Why Strategy is Essential
When it comes to trading cryptocurrency, it’s possible to access profitable territories over the course of a few weeks or months. But the key to this sustainable success often lies in finding a way that works on a systematic basis. Treating cryptocurrency trading as a lottery usually doesn’t yield consistent results, because while you may experience a “win” here and there, it’s likely that these gains will be offset by the losses that a non-strategic approach often encourages.
- Trading is a skill, not a lottery
- Profits are more likely if systematic tactics are used
- Trying out strategies in a virtual environment is an excellent first move
- CFD brokers often offer this service
By opting for a broker that can give you the chance to try out your strategy ideas in a sandbox-type environment that uses virtual rather than real crypto cash, you can hone your strategies before you get started. This is another reason why trading cryptocurrencies as CFDs may be a smart move, as often a test area will be included for free as part of the broker’s platform. This sort of test space is also definitely possible if you trade an actual asset – it may just take more effort and planning to achieve it.
Choosing Crypto-Friendly Tactics
Some crypto traders begin their careers with wise intentions but end up falling at the first hurdle. Searching for and finding out information about potential strategies is something that most people can do, but novice traders may find themselves applying strategies that were designed for other asset classes – such as stocks and shares – to their crypto trading aims. Cryptocurrencies have some very distinctive features that make it difficult to treat them the same as other assets. Traders who buy cryptocurrencies as an asset rather than as a CFD, for example, may need to pay relatively high fees to cover the cost of mining the transaction, and they may also need to pay the exchange from which they bought the asset as well.
- It’s essential to select crypto-specific strategies
- Stocks, shares and Forex strategies may only be partly relevant
- Fees could cause a different approach to be needed
Depending on the exact fee level, this could have a significant impact on the trader’s profit margin – especially if the trader plans to sell on the asset in a short space of time to incur a small profit. Strategies that cover stocks and shares say, probably won’t consider this, given that many traders choose to build a long-term portfolio of these. Therefore, when selecting strategies, the crypto trader should always have the relevance of cryptocurrency at the forefront of their mind.
Market Volatility: An Added Concern
But perhaps the main reason to ensure that the crypto trading strategies you select are specific to crypto is down to the market volatility that many cryptocurrencies experience. This happens for many reasons: because many cryptocurrencies are so new, for example, investment cycles can be prone to bubbles – and there’s not as much data available for backtesting as there is for other tradable asset classes, such as commodities. Crypto also has several purposes, such as company or startup fundraising (through initial coin offerings, or ICOs) and community-focused projects. As a result, there are many different players in the market, all with some slightly different aims, and this can contribute to volatility as well.
- Cryptocurrency users have differing and sometimes unusual aims
- These aims can include social projects as well as wealth management
- Crypto’s youth makes it more unpredictable
- Market volatility is more likely for all of these reasons
For these reasons, then, the sorts of strategies shared in the stock trading world that encourage long-term investment to smooth out any small peaks and troughs in the market may not seem relevant to you as a savvy cryptocurrency investor. Similarly, foreign exchange trading techniques that don’t have to incorporate consideration of the unusual cultural and societal uses that cryptocurrencies enjoy may not be the most useful either. You may prefer, then, to opt for strategies that explicitly take into account the volatility of the crypto market.
Selecting Strategies Based on Priorities
There are a whole host of major cryptocurrency strategies out there, and it’s crucial that you choose one that complements your goals. Whether you opt for RSI strategy and day trading or you prefer to mix and match components of Ichimoku and other methods, any decision about strategy should be made purely by how that particular tactic fits into your own goals and aims. It’s important not to wed yourself too closely to a specific strategy (perhaps one you’ve read about, or one that was recommended to you by someone else). That’s because of the precise aims and goals of the person who suggested it might be very different from yours.
- Your strategy setting starting point should be your priority
- Consider how large your deposit is
- Risk tolerance levels are also important
In the first instance, you should consider how much you have available to trade. Some crypto trading strategies are suitable only for vast deposits, while others are designed to help you grow a smaller initial investment into a much larger one over time. You should also weigh up your attitude towards the inherent risk involved in trading as well. If you have low risk tolerance and you’d prefer to keep your goals low, it may be wise to avoid high-risk strategies and instead stick to more dependable options instead – even if that reduces your overall potential yield.
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Don’t Forget Trading Volume
When it comes to finding a strategy for trading cryptocurrencies, you should always ensure that you consider the role that volume will play in your trading decisions. Many strategies revolve around one of two perspectives on trading volume. The first group of strategies encourage the purchase of several cryptocurrency units or CFDs, perhaps spread out over a range of markets and coins to encourage diversification. They can then be individually sold on if they lose value, while they can also provide areas of focus for future investment opportunities.
- Different strategies focus on different volume levels
- Buying many coins offers a chance for diversification
- Buying one coin may be more suited to long-term or small initial deposit investors
- It’s important to mould your volume choices around your own aims
The second group of strategies tends to focus on targeted investments, perhaps in one coin in particular, with the aim of holding onto it for a long time to weather any market storms that may arise. These strategies all deserve consideration in their own right, but it’s important to remember that they must benefit you. Some cryptocurrencies may require a minimum level of purchase for your trades to be viable, for example, and if you’re operating with limited funds, then a high volume strategy like this may not suit you.
Copy Trading for Crypto
The rise in cryptocurrency trading has coincided with the rise of another trading technology: copy trading. This is a new type of trading platform that allows the trader to copy the decisions made by a more experienced trader: when the trader they’re copying profits, so do you – but when they lose, you lose too. One of the most famous of these sites is eToro, although there are other similar services also available.
There are plenty of reasons to consider this route: the filtering systems on these sites mean that you can limit your trader choices to those who match your risk profile, for example, while you can also go back over data about their historical profit and loss levels to work out whether or not they seem like a consistently successful trader. But nothing is ever a simple and easy solution in the trading world, and it’s important to remember that sites like these are just another possible tactic rather than a guaranteed big win. If you do choose to mimic experienced traders, make sure that it’s an informed decision: outsourcing your trading and hoping it works should only be something you do if you’re certain that it’s the best option available to you. Also, it’s wise to look around the full range of copy trading sites to find one that matches your needs. If low risk is part of your chosen strategy, say, your chosen site should have comprehensive risk appetite filtering options available.
Why Crypto Trading Strategies are Must-Haves
Cryptocurrency in the tangible form that we know it today may be less than ten years old, but the idea has been around for decades – and the high level of interest in this blockchain-powered innovation means that many traders and investors have spied an opportunity to make some cash. Cryptocurrency does sometimes get a bad reputation for being a little volatile compared to other asset classes – but while volatility is an inevitable part of trading, it’s certainly more than possible to develop tactics that can help you mitigate the ever-present risks.
It’s clear, in fact, that having effective trading strategies in place is the primary way to give yourself a fighting chance of trading your way to a profit. A good crypto trading strategy brings a host of advantages to any crypto trader, ranging from methods of finding the optimal open position duration to specific ways to counter problems like competing aims on the part of crypto users. By thinking carefully about what your cryptocurrency trading aims are, you can quickly work out a way to give your trading game a boost. And with options like copy trading also available for those who want to get some external inspiration for their cryptocurrency trading tactics, the power of the internet also means that there are more choices than ever before when it comes to developing handy strategies.