Whether you are one of those wanting to start trading cryptocurrencies, this material will definitely be helpful. Not only it will give you some specific online trading tools, but it will also help you consider some very important aspects from the start.
Generally speaking, people are seduced by cryptocurrency trading due to the high volatility, but beginners forget the fact that volatility does not necessarily equal guaranteed profits. Because of that, let’s see what anybody should consider before deciding to start trading cryptocurrencies.
Research before you start
Each type of financial asset has its own particularities and behaves in a certain way. Also, different fundamentals affect how prices evolve over time. Thirdly, the typical technical strategies used for stock trading, or commodities trading might not have the same expectancy when applied to cryptocurrency trading.
One of the most important online trading tools should be your strategy. More specifically, you should have a strategy that performs in a highly-volatile environment, enabling you to profit from breakout and false breakout formations.
An in-depth research and some backtesting should be performed before you actually start to invest your own money.
Liquidity – one of the main issues
At the time of writing, the global cryptocurrency market cap is $183 billion, according to coinmarketcap.com, considering that there are 2,000+ coins out there. More than 80% of the cryptocurrencies are bad trading instruments, mainly due to this thin liquidity which can generate unexpected price swings.
Focus on the most popular coins. The daily volumes for Bitcoin exceed a few billion per days, excluding OTC liquidity. Also, most online brokers offer reduced spreads for Bitcoin because of its popularity. Bitcoin Cash, Ether, XRP, and EOS are other good trading instruments.
Beginners usually ignore the issue of liquidity, but if you want long-term success and a smooth progress, it should be on your top list. That’s because each move that you see in the market, is backed by larger sums of money in case of very liquid instruments. It will take a much larger amount to reverse the trend, which is not the case for a low liquidity.
Risk tolerance
Trading cryptocurrencies imply you handling trades in periods of very high volatility. A tolerance to high risk is required in this case and unfortunately, that is something which comes as you accumulate more and more experience.
However, there are a few things which you could do to achieve it and it has nothing to do with trading. A low-sugar diet, healthy food, meditation, yoga, and other similar activities will help you regulate the hormones in your body and thus make you less sensitive to a high-risk environment.
