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Are you interested in becoming a crypto trader? Unlike traditional money, controlled and issued by governments, cryptocurrencies are decentralized.
The first digital currency ever created was Bitcoin back in 2008. Its introduction prompted the creation of a multitude of cryptocurrencies, referred to as altcoins or alternatives to Bitcoin. Given the volatility of these assets, many investors decide to try crypto trading in the hope of earning higher returns compared to traditional investments.
Nevertheless, beginners are advised to get educated on cryptocurrencies and trading strategies prior to trying their luck as traders.
We hope the following crypto trading guide will assist you in becoming a successful trader.
Crypto Trading Tips for Beginners
1. Understand Cryptocurrencies
When entering the world of crypto trading, beginner traders should first understand the nature of cryptocurrencies. These are basically digital currencies that aren’t related to any government or country. Ownership records are held on secure computerized databases backed up by blockchain technology. While these can be used for purchases in some stores, they are usually traded as forms of digital assets so as to profit from investment returns.
Although cryptocurrency exchanges can result in impressive profits, there is a high risk of losing money due to price volatility. In the same fashion as other financial markets, cryptocurrencies tend to increase and drop in value. Nevertheless, the volatility degree in the crypto market moves much faster compared to the volatility in the stock market.
These fluctuations can be rather dramatic, but market volatility is crucial for making huge profits. Consequently, investors have to understand what causes price movements. The leading catalysts resulting in price changes are media coverage, wider events, and integration. Positive and negative news about cryptocurrencies has an influence on the buying and selling actions of traders, which move the market at a rapid speed.
On the same note, government decisions and political events related to cryptos cause market movements. For instance, when China introduced stricter rules on Bitcoin mining, the price of this digital currency fell sharply. The process of integration that makes cryptos a mainstream exchange medium influences their value as well. The more integrated cryptocurrencies are in payment and banking systems, the more their prices rise. Check out the four major factors that determine cryptocurrency returns.
2. Get Familiar with Trading Strategies
In order for a person to become a crypto trader, he/she is supposed to gain knowledge about the most popular trading strategies. For example, day trading is a fast-paced strategy where individuals purchase and sell cryptos within the same day. On the positive side, this strategy results in faster profits and improved risk control, not affected by overnight market changes.
In contrast, the cons of this strategy involve the possibility of developing addictive behavior caused by the appeal of short-term gains. Traders, especially beginners, can lose money much faster, as well as experience plenty of stress because of the fast-paced nature of day trading.
A less risky strategy is swing trading, where traders follow short-term to intermediate-term trends, which can range between one and thirty days. This strategy is easier to grasp, less stressful, and less time-consuming compared to day trading. The risk is lower by making more informed decisions for the long term. Anyhow, more research and preparation are required for making better decisions. Traders must be more disciplined and successful at avoiding emotional attachments.
Hedging is another popular crypto trading strategy used by traders who wish to hold their investments but reduce exposure to volatile price movements. They use one of their investments to eliminate the risk of loss with another investment. Cryptos can be hedged by using certain financial instruments, like futures. As a result, you can bet on the future prices of digital currencies. See this URL, https://www.britannica.com/topic/hedging, to gain a better insight into hedging.
HODling is another crypto trading strategy that allows investors to keep hold of a cryptocurrency through good and bad times. This term seems like a typo because it was originally a typing mistake when introduced for the first time on a bitcoin forum. Conversely, trend trading is practiced by crypto investors who purchase and sell certain cryptocurrencies based on current price movements.
In theory, traders make purchases when the market is expected to rise and sell when the market is predicted to fall. While it sounds simple, difficulties arise when investors try to identify these times. While the cryptocurrency market seems complex, the concept becomes much simpler once you start understanding it.
The act of reading the market is basically a process of spotting trends over time and choosing which trends to act upon. There are two trends to follow, bullish and bearish. The former occurs when the price of given crypto increases steadily, whereas the latter takes place when the price gradually decreases. Irrespective of which trading strategy you choose, you should be aware of the numerous crypto scams present on the internet.
3. Choose the Right Cryptocurrency
Another important step in your crypto trading journey is choosing the right cryptocurrency to invest in. Bitcoin and Ethereum are the most popular alternatives for traders, as these move in a more predictable manner than altcoins. Nevertheless, individuals can choose from a selection of over a thousand digital currencies. Multiple factors should be considered when opting for the right one, such as risk management.
Moreover, risk management refers to the action of considering all the factors that might present a threat to your investment, as well as considering all the ways to eliminate the risk. Some traders have concerns related to the impact of certain digital currencies on the environment. The creation of some cryptocurrencies requires plenty of computing power, which is why you might prefer getting an eco-version.
Additionally, certain brokers provide a limited choice of cryptocurrencies, which narrows the choice down. Some traders decide to allocate a certain amount of their capital to small altcoins. Although these are riskier, the upside potential is much higher.
The Bottom Line
The crypto market is worth exploring due to its high potential for earning profits. If you are still waiting on the sidelines due to uncertainty, it’s time to get off your butt and start trading!
You can smooth your transition into cryptocurrency trading by first learning as much as you can about it. A little research goes a long way, especially in this rapidly growing industry.
After you’ve immersed yourself in cryptocurrency education, it’s time to put your education to the test by trying out some trading. Hopefully these quick tips help you to get started.