Tips for Trading Cryptocurrency

Tips for Trading Cryptocurrency

  • Posted on 2222-0707-2021
  • by Gareth McCauley

The first half of 2021 saw cryptocurrency’s market value fluctuate, peaking in January and plummeting in May, then surging back up again in June. As the time of writing, the market capitalisation of the world’s largest cryptocurrencies (Bitcoin, Tether, and Ethereum) crossed $1 trillion after gaining $396 billion since the start of 2021.

It comes as no surprise that many traders are now very interested in trading cryptocurrencies. The market might be volatile, but the industry’s gains are so massive that savvy traders can benefit from the windfall.

If you’re interested in benefiting from the current market trends, here are some tips on trading cryptocurrency and a few things about the market that you need to know.

If you have limited capital, trade instead of investing.

Why engage in trade instead of investing in cryptocurrencies? It has the advantage of affordability: trading doesn’t require you to spend money as investing does. You only need to pay a minimal fee to access a broker’s platform and speculate on the price movement of cryptocurrencies.

In contrast, an investor must buy financial instruments (e.g., cash instruments, government bond issues, stocks and equity, shares, mutual funds, precious metals, commodities) that are expected to increase in value over time. Additionally, you need to spend more to gain more. Investing too little might not generate gains that are substantial enough to justify the money and time spent on letting an investment grow.

Set profit targets.

This is elementary and likely one of the first things you read about when you first read up on cryptocurrency trading. It is worth including in this list, however, because many traders lose sight of it when they get caught up in the excitement of the trade.

To reinforce your profit target, arrange a stop-loss order with your broker. It specifies a “stop price” which when reached will signal the broker to sell or buy the stock. As soon as a stock reaches its stop price, the stop order will be executed at the earliest opportunity.

The purpose of the stop-loss order is to limit your losses in case your position becomes a losing one. It’s very helpful when you’re taking a long position and the price of the currency drops.

So, if you buy at $100 through Fair Forex and set a stop-loss order at $98, we will immediately close your position at the stop-loss price or when the price decreases to $97.5, whichever can offer a better price to you.

Let us now discuss trading strategies for cryptocurrency which are widely practised among both amateur and seasoned traders.

tips for trading cryptocurrency

Day trading

Market volatility is one of the biggest risks in cryptocurrency trading. If you want to test the waters without exposing yourself too much to potential losses, you can try your hand at day trading.

One of the disadvantages of being unregulated new currencies is that price movements tend to be big. This explains why the dips and rises that the market experienced earlier this year are by hundreds of millions. Traders must, therefore, use risk management tools (hence our suggestion of using a stop-loss order above) and withdraw their position at the right time.

With day trading, you make profits from the small gains that your position earns within the day. You exit your position within the next 24 hours, taking advantage of market volatility to generate an income.

For example, a day trader for cryptocurrencies is on the lookout for currencies that are experiencing a surge in trading activity because of a promising news announcement. High volume and liquidity are also crucial for day traders to maximise profits (the latter is a must for executing quick trades). Once they’ve registered gains in their current position, they can decide to exit and not wait for another price movement. There’s no telling if the next big one will result in a huge gain or loss for the trader.

To earn from day trading, you have to make multiple trades in a day. As discussed, the gains are small per trade, but your total earnings can be high if you make many successful trades in a day.

Diversify your active trades.

Never put all your eggs in one basket. Yes, traders can earn millions from crypto trading, but they can also lose thousands of dollars in just a snap. You can reduce your risks by day trading or speculating on non-crypto instruments.

Bear in mind that Bitcoin affects the value of all other cryptocurrencies: if it declines, so do the rest of the existing digital currencies. Diversifying by trading more cryptocurrencies, therefore, will not work as well as diversifying by trading different financial instruments.

Keep in mind these four tips when trading cryptocurrency at Fair Forex. To get more helpful trading tips, reach out via our Help Centre or talk to other, more experienced traders via our telegram chat group.

Make the most of what cryptocurrency trading has to offer at Fair Forex. Contact us today.