Financial markets are massive and incorporate several markets to invest. Traders can choose the one that helps them reach their desired goals. The stock market, forex market, metals, indices, commodities, and cryptocurrency market are the volatile markets that provide opportunities for traders. But, these markets also carry along market risks, which need to be managed.
For risk management, traders use various trading strategies that help them plan the trade in advance and invest accordingly. There are various trading strategies that could be used to minimise the risks and have a profitable investment.
In the article, we’ll be focusing on the cryptocurrency market. Readers will get an insight into the cryptocurrency trade and what all cryptocurrency trading strategy could be used to support the investment. So, let’s understand the cryptocurrency trade better.
Cryptocurrency Trading: A Brief Introduction
Technology has evolved so much that traders can now pay online through digital currencies and one such trade is cryptocurrency market trading. The market is into virtual currency trading, which could be invested and used for payment purposes. Working on the latest technology, the cryptocurrency market has the most advanced trading tools to trade.
The cryptocurrency market is based on two significant technologies, one is cryptography and the other is blockchain technology. Both together secure and protect the cryptocurrency trade with transparency. A great combination that traders require to invest with full market knowledge.
Cryptography is a verification technology that uses algorithms and mathematical formulas to verify the trade. The method helps traders in protecting the information and communication using codes. An encrypted process of sharing information for whom it has been intended. The algorithms generate keys, digital signatures and thus protect the data of the traders.
Blockchain technology is a decentralised technology that maintains the transparency of cryptocurrency trading. It is a ledger that records all the transactions online with private keys. Thus, traders can check their investment through the block created online. However, the blocks do not represent the names of the traders and display only the private key provided to the trader.
It is also referred to as a distributed ledger technology, which is quite useful for maintaining trade transparency.
In addition to all this, cryptocurrency trade operates on a decentralised system; that is, there’s no interference from the central authorities. Online trade with 24 hours availability to invest and monitor. Traders can invest in cryptocurrencies online through exchanges or online brokers.
How to invest in the Cryptocurrency market?
Investing in the cryptocurrency market is simple; traders have to follow certain steps and keep a few points in mind to be top-notch traders. Below mentioned are the steps but before jumping to that, let’s understand the points to trade cryptocurrency.
- To invest in cryptocurrency, traders have to be aware of the cryptocurrency market, what all the market has to offer and what could be done to make the most of the opportunities.
- Next, traders should use appropriate cryptocurrency trading strategy; without these, it is not possible to succeed in the financial markets. There are many options for traders that could be used as per requirement.
- Traders should regularly invest and monitor their trades to be aware of the market changes and have correct market decisions made.
- Trading platforms and tools should also be used to understand the market fluctuations. Online brokers offer a number of technical and fundamental tools to help traders analyse the market.
Steps to be followed for trading cryptocurrency:
- The initial step of cryptocurrency trading is opening an account to invest in the market. For this, traders can select a regulated and reputed online broker and visit the website of the broker to verify.
- Traders can open an account easily by first clicking on the tab open an account given on the website. Next, they have to register with the broker by filling a form. The form requires a name, email address, contact number, and password to be set for securing the account.
- After registration, traders move to the next step of the process that is information, where the broker lists some information that traders are required to fill. It could be related to documents, some personal information, etc.
- The fourth step is answering the questionnaire; it carries the questions relating to a trader’s previous trade experience.
- The fifth step is to upload the documents mentioned in the information step for verification.
- The last step is to select the account that the trader wants to begin the trade with and deposit funds. After which, traders can select their cryptocurrency trading strategy and plans to invest.
Cryptocurrency Storing: E-Wallets
Digital wallets, also referred to as e-wallets, are software and electronic devices that store digital currencies. Individuals and businesses use e-wallets to make transactions online electronically. There are different payment modes that are used for this purpose.
These could exist in various forms, such as in smartphones or on the desktop of a trader. However, traders use mobiles more frequently for storing virtual currencies due to their flexibility. A safe and secure trade method that ensures payment without much inconvenience than the traditional methods.
Traders or investors of the cryptocurrency market can use the e-wallet provided by online brokers, exchanges, or banks. Moreover, they can also go for a private digital wallet to store the virtual currency. For example, PayPal, google pay, etc., are digital wallets to store digital currencies.
The e-wallets are of two types specifically, hot wallets and cold wallets. Hot wallets are the tools through which traders can receive and send tokens. These are different from the traditional currency with no banks and physical wallets. These hold and store the digital currency using the internet.
Hot wallets are connected with the internet; they use public and private keys to facilitate transactions and secure trade as well. However, these are prone to hacking and fraud due to online working.
Cold wallets are the opposite of hot wallets, but both perform the same function. These do not require the internet for their work and are also referred to as hardware wallets or offline wallets. They store the digital currency and work on softwares to keep the private keys of traders safe.
It is much more secure than hot wallets because of its availability offline. Thus, fewer chances of being hacked.
Cryptocurrency Trading Strategy
Readers must have understood by now about the cryptocurrency market, how they can invest in it, and e-wallets to store the digital currency. Next, we’ll discuss the cryptocurrency trading strategy that helps traders plan their moves for having a secure trade.
Cryptocurrency trading strategy are the basic need for a well planned and secure trade that considers all the market risks and instruments before investing. Investors analyse and research the cryptocurrency market, understand the market, the factors that impact the market, and the risks involved before defining their cryptocurrency trading strategy.
Here, we have discussed the essential cryptocurrency trading strategy that helps traders earn good market profits and be successful traders in the market. A trader cannot have profitable trade by holding cryptocurrencies like bitcoin, litecoin, ethereum, dogecoin, etc.
They have to plan their trade using the cryptocurrency trading strategy to have a secure trade with complete market knowledge. So, let’s quickly drive in and understand the cryptocurrency trading strategy:
The cryptocurrency market is impacted highly by the price movements, to manage the risks associated with prices of the digital currencies, traders use technical analysis cryptocurrency trading strategy. The strategy helps traders predict in advance the market movements in the price of a particular virtual currency.
Investors use mathematical indicators and chart patterns to analyse the price movement. Thus, traders can understand in advance which direction the prices will make the next move, either they’ll move upwards, downwards, or sideways. Relative strength index, oscillators, etc., are the technical indicators that use computer generated programs to analyse the market.
In addition, traders also refer to the charts and patterns to understand the market moves.
A trader cannot only rely upon the technical movements; they have to consider the political, social, and economic factors that impact the market swings of the cryptocurrency. Fundamental analysis cryptocurrency trading strategy helps traders understand the changes in the market due to news and factors of the world.
The economic changes, social and political changes in the market also have an impact on trade. As the market depends on the position of the nation they are traded from, traders have to take into account fundamental analysis for proper market analysis and trade.
Cryptocurrency trading strategy is incomplete without the scalping strategy; traders who want to earn profits quickly use the scalping trade strategy. The users of this strategy are called scalpers, and they are experts in the market.
The strategy is used for short term trade positions in the market, such as for one minute or an hour and not more than that. Traders earn from the small price movements in the cryptocurrency and use leverage ratio to have double profits.
However, it is not that straight to use; traders require expertise and good trade skills. The strategy is best for high liquid markets; traders should be aware of the risks of the market as the cryptocurrency market is highly volatile.
Range trading is a popular trade strategy that believes that the prices move within a range. Traders of the cryptocurrency market use the range trading strategy to analyse the range of price in which the instrument is moving. This helps in investing in the cryptocurrency market.
Traders use the candlestick patterns and the support and resistance levels to understand the investment. They buy the cryptocurrency when the price reaches the support level and sell when it reaches the resistance level. So, based on these, traders decide their investments.
High frequency trading is the trading strategy that uses algorithms and trading bots to execute several trades quickly. Traders who have an understanding of the advanced trade strategies and programming are able to use such cryptocurrency trading strategy.
Traders do not simply rely on the trading bots for execution, but they keep checking with the market movements and the working of the bot to have a secure and profitable trade. These trading bots suggest strategies to trade with the cryptocurrencies with constant monitoring, backtesting, updating, and development of the algorithms. This helps traders to be with the flow of the market.
In the market, traders can find various trading bots and can choose the one that supports their trade requirements and desires.
A trader who wants to earn good profits within a day uses the day trading strategy. Investors of day trading invest in the market with the opening of the trade market and close their trade position with market closing. In addition, traders can have one market position or multiple depending on their trade knowledge.
Traders use technical indicators and are market experts to deal in a day; they use the indicators to find the entry and exit points of the market and accordingly open and close their market positions.
Day traders open their market position for a minute, an hour, for a few hours, or a whole day. Thus, the trade is confined within a day, and traders have to be quick with their trade decisions to earn profits.
Trading in the financial markets is not at all easy; traders have to be market savvy to have a successful trade. The cryptocurrency market is volatile and has risks that are required to be managed timely. For this, traders use cryptocurrency trading strategy; these help them plan their move by analysing the market in advance.
However, traders should properly set their strategies as if they are wrong; they may face huge losses.