This article is not a direct recommendation to invest, buy or trade cryptocurrencies. It’s a very fragile market and it’s best to wait for regulation to finalize.
The crypto market has been through a lot in the past 6 six months. Here, we are going to provide you with an overview of those 6 months, and where the market stands now. The crypto boom, as investors put it, started somewhere around the middle of last year.
However, the true growth in total market capitalization of cryptocurrencies started late October 2017. At that point, the market capitalization of crypto tokens stood at roughly $150 billion US. By the end of October, it had reached $178 billion US. This staggering growth of about 28 billion marked the growing interest people had in cryptocurrencies.
Fast forward to December 21st, 2017, the market capitalization of crypto tokens hit a mark of $640 billion US. This set a new precedence for the market, which had been relatively unknown a few months back. Investors poured in from all corners of the world to enjoy the high returns of the market.
The market did not stop here, and the crypto market reached an all-time high of $830 billion US on Jan 7, 2018. This showed a market growth of more than 400% in almost 3 months. Some of the reasons to the fast growing is the rising number of upcoming ICOs. Such growth was a new phenomenon that had never been experienced by the world before. People became millionaires from this drastic growth in just 3 months.
The growth was somewhat propagated by amateur investors with a fear of missing out (FOMO). However, the growth was backed by the realization that an alternative, more fruitful investment market existed for investors.
The market went through severe corrections, and as the initial boom of interest passed on, the market capitalization lost a significant amount of its value. However, looking into the trend for April, it can be seen that the crypto market is picking up the pace again and the market capitalization has increased from a $244 billion US low on Apr 1st to $439 billion US on Apr 29th.
The following graph represents the previous discussion on global crypto market capitalization. The changes in the market are evident, and it can be seen that the market is regaining most of the capital that it lost over the last 3 months.
The volatility of the crypto market provides an opportunity for the investors both in the long and the short run. Famous investors, IT personnel and businessmen have made bets on the crypto market and Bitcoin.
John McAfee, the tech giant and the owner of the famous McAfee anti-virus software made a bet in July 2017 that Bitcoin will reach the price of $500,000 within three years. He is so sure of his prediction that he vowed that if he lost, he would eat some pretty nasty stuff on national television.
McAfee isn’t the only one betting on Bitcoin, a number of other famous people have been betting for and against Bitcoin. As normal traders, do your own research and go with your gut. There are opportunities for buying and shorting both in the short and long term.
Let’s discuss some important trading tips that might help in making more profitable trades, or at least minimize loses. Please note that crypto trading, just like trading stocks, is not for the faint-hearted. You need to study, gain knowledge and most importantly, be patient while trading crypto assets. Not all of your trades will be successful. When you’re a trader the equation is very simple — gain more than you lose.
Use of the Order Book
I believe the most important tool a trader has is their order book, which they can use to place orders for their crypto assets. The value of a given asset is calculated from its previous successful trade or from its supply and demand. This information is provided to the traders within the order book.
It is important to analyze the graphs correctly to understand where the support and the resistance areas lie (supply and demand). A trader should first identify where these regions are and analyze them before setting stop losses and sell levels. If the support level of a particular trade breaks down, then it is time to cut the losses and end the trade.
In order to set sell levels to take profits, we need to analyze the order book to identify areas of resistance, where a massive number of sell commands are present. To ensure profitable trades, we need to be one step ahead of the others and place a sell order below this wall of resistance. We do this so that if the demand eats away the supply wall, then our command is already in place and will execute.
The next step is identifying where to place the stop losses. We identify the points of support from the order books, and it is likely that there is a large number of buy orders placed around these points. This is where the stop losses should be placed, and ideally, they should be placed a little lower than the buy orders. Because the buy orders may eat up the supply and the price may go up again. This will act as a sort of protection level for the command.
Traders can analyze price charts to identify potential movements of the assets. Analyzing the price of the assets relative to USD or Bitcoin will help you identify the direction of the movement. This is an effective tool that traders can use to check the movement of altcoins.
Trading and Emotions
The golden rule for traders is to never bring in emotions while performing trades. Many people lose their capital just because they cannot make traders out of the fear of losing their funds. Bringing in emotions reduces the rationality in making trades, and this rule is especially applicable for the short-term traders.
To understand this in a better way, suppose there is a situation where a crypto asset may lose 30% of its value in 3 days. A rational trader with the right research will consider this an opportunity to buy the asset to gain in on the upcoming profit. However, an emotional trader will not proceed with the buy order because of the fear of suffering from a loss.
A good strategy for cutting out emotion from trading is that you should always follow a plan. After your trade hits its first goal, you should sell out half of your position and increase the stop loss to your initial trade position. This means that you lose nothing in the trade and you also made your profit. Then when the price hits the second goal, sell another quarter of the total trade and so on. Such a systematic process reduces the chances of suffering from losses, and you are simply playing with your profits.
Consider your expensive time for research
Unlike the traditional stock market, in the crypto world, situations change by the second. So, you have to be aware of the market every second of the day if you’re in it for day trading. You have to follow the news and the assets on an hourly basis to understand the movement of their prices. Not everyone can put in so much time, you have to evaluate your schedule and decide how much time you can put in.
It’s unnecessary for your plan to require you to trade on a regular daily basis, and sometimes it’s more fruitful to be a long-term investor than a daily trader. Another benefit of the crypto market is the fact that you do not need large amounts of capital to invest.
That’s why you can try out your methods and strategies on cheaper trades and test them to check if they work before making bigger trades. Trial and error is the best approach to check your trading strategies and protect yourself from significant losses.
One rule stays the same whether you are dealing with the conventional market or the crypto one. That is, diversification, it’s very important, especially when you consider the volatility of the crypto market. As we mentioned earlier, the total market capitalization of crypto assets went from $100 billion to $800 billion and back down to $300 billion within a matter of 6 months.
Therefore, diversification may not only help you improve your profits but also cut your losses. It may save you from total loss in case the market decides to crash. A good mixture of Bitcoin + altcoins, such as Ripple may help you save your portfolio from total loss.
These are all the tips we have for you this time, and if you want to learn more about trading Altcoins, then you can check out this article on altcoin trading tips. The article further discusses some strategies that you should employ while you’re trading cryptocurrencies. Lastly, I personally believe that the most important quality of a good trader is common sense.
If you’re smart and think rationally about your trades, then I believe that you will be on the safe side of the market. Keep your eyes and ears open and never stop learning. A quote by Colin Powell, “There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”