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Trading and investing in cryptocurrencies are different from investing in any other classes of assets. Crypto trading is a highly risky affair with factors like high volatility, Ponzi schemes, price fluctuations, exit scams and limited regulations controlling it. But if you know the basics of crypto trading, then it can be a highly lucrative means of earning money. Therefore, it needs the right trading strategies to get started with and to head towards generating a substantial return on your investments. Here are some crypto trading strategies basis discussed, have a look below.
Crypto trading strategy basics
Select a reliable exchange and a currency:
A crypto exchange is a platform where you can trade and exchange cryptocurrencies. Choosing the best cryptocurrency exchanges reduces the risks of falling prey to Ponzi schemes and exit scams. The next step after selecting the right platform is to choose a currency. Choose the one that has a high market cap. This will enhance your chances of getting a higher return on your investment. There are around 1500 cryptocurrencies, and it is advisable to make safe bets when you are making riskier investments.
Do proper research
Remember, it is your hard-earned money that you are investing in crypto trading. Therefore, do proper research on the currencies that you are thinking to buy and trade, see whether they are matching your objectives or not. This is because crypto markets are affected by a lot of hype always existing around cryptocurrencies. This often leads to people ending up buying coins at a high price, at a higher risk of losing them if the currency value suddenly drops, which often happens in the crypto market. Therefore, don’t invest in a particular cryptocurrency just by following the huge buzz surrounding that particular cryptocurrency; instead, do your own research first.
Invest money up to the limit that you can afford to lose
Crypto trading and gambling have this subtle similarity that it warns the players (traders in case of trading) about the limit beyond which it is risky to move. In the case of gambling also, players should bet only up to the limit, beyond which he cannot afford to lose money; otherwise, he will be left devastated. In the case of crypto trading also, the same principle applies. This is because the values of cryptos fluctuate rapidly. As such, cryptos and blockchain can be affected by hacks and viruses that decrease their value quite unknowingly. Therefore, the risk of losing money when you are trading cryptos is much higher. Do not invest money more than you can actually afford, is one of the important precautions to be considered when you are trying your luck with cryptos.
Expect good returns at regular intervals
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The value of cryptos can increase or decrease at any time. It is a common human nature to want for more even when they are getting enough. Likewise, short-term traders also often make this mistake that, when they see a huge spurt in the crypto value, they wait for the value to increase more. But it is to be remembered that if the value increases, it will also come down sometime. Therefore, by setting up a strategy where profits can be taken at regular intervals, there is a higher chance of getting good returns on investment.
Fundamental Analysis vs. Technical Analysis
There are two different methods of speculating assets, namely the fundamental analysis and technical analysis. Both methods are convenient in their own ways, with a sheer line of demarcation between the two. Both the methods are discussed as to how each of them can be devised to develop winning crypto trading strategies.
Fundamental analysis is used by the stock market traders, particularly those investing in individual stocks. The method focuses mainly on price-to-earnings (P/E) ratio, earnings per share (EPS), dividend yield, and debt-to-equity ratio. On the other hand, trading analyses are designed to evaluate the various trading opportunities and investment flows by analyzing statistical trends.
The fundamental analysis determines the intrinsic value of an individual stock. That is to say, if the price of the stock trades below the intrinsic value, then the investors might want to buy the stock. On the other hand of the spectrum, Technical analysis does not determine the intrinsic value of an asset. Instead, it focuses on the patterns derived from the various charting tools and price movements of the stocks. These tools are, in turn, used to evaluate the strength or weakness of the underlying asset class or securities and helps to determine the trading strategies for crypto or other assets.
Fundamental analysis is used with other asset classes like bonds, alternative investments, or commodities. On the other hand, technical analysis is used mainly with commodity or currency traders, though it can be used with other asset classes too.
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