In a field of over 900 altcoins, with more coming to market, cryptocurrencies are emerging as alternative investment options. However, given that the cryptocurrencies space is still in the early stages of development, extreme levels of volatility is the order of the day.
Cryptocurrency pairs do experience wild price swings daily. While volatility allows traders to make money over a short period, it is also a double-edged sword. While some people have made a fortune off making good use of volatility on offer, so have others lost all their hard-earned money in a matter of minutes.
How to Trade Cryptocurrencies to make money
Just as is the case in the stock or forex market, to trade cryptocurrencies, one must first open an account with a broker or a cryptocurrency exchange such as Coinbase, Binance, or KuCoin. Such exchanges provide platforms that allow traders to bet on the price of various cryptocurrency pairs. For instance, Coinbase offers a cleaner user interface similar to those provided in the mainstream financial sector that allows beginners to trade various cryptocurrencies.
Once you have opened an account with an exchange or a broker, the next step would be depositing some money in a trading account to participate in live trading. Once everything is set up, you would be able to bet on cryptocurrency pairs by either opening a long position, i.e., buying or going short, i.e., selling a given pair.
How to trade cryptocurrency for profits
Two options are commonly used to make money in the crypto world. Trading is top on the list, whereby traders open trades either long or short and profit from price differences depending on how the price moves on a given day.
Trading, as is the case in the mainstream financial sector, requires lots of skills to interpret price movements and price patterns and charts. Similarly, traders deploy a wide array of indicators, tools, and automated trading systems to identify ideal entry and exit points to generate optimum profits.
With Cryptocurrency trading, an investor does not need in-depth knowledge of blockchain or different projects. Instead, one needs to understand technical indicators as well as chart patterns to profit on how price moves.
Investing is slightly different from trading. With investing, traders don’t try to profit from short term price movements that occur during the day or week. Instead, traders try to profit from long-term price movements on the optimism that a given cryptocurrency can grow in value, say months, or even years. In this case, trades are opened and left to run for say months or even years.
Crypto Trading Tips for Making a Fortune
Have a Reason for Entering Trades
Given the amount of volatility that some cryptocurrency pairs such as BTC/USD and ETH/USD come with, it is crucial to have a motive for entering trades. In this case, define your trading strategy as either short term or long term. Being a zero-sum game, it is vital to have a purpose for opening trades.
If you want to make small profits throughout the day, it will be wise to engage in scalping strategies. Likewise, if you wish to make one big profit before the end of the day, then it is important to perform day trading strategies that make it easy to open trades in the morning and close them at a profit or loss before the end of the day.
Set Profit Targets and Use Stop Losses
Cryptocurrency trading is a double-edged sword. While it is possible to make a fortune trading various crypto pairs, it is also possible to lose everything in minutes. Likewise, it is essential to use a stop loss and a profit target to lock in profits and cut back on losses.
A stop-loss goes a long way in protecting the underlying capital by ensuring losses are kept at a bare minimum. Protecting the initial capital is the first step to growing capital and generating significant profits in trading cryptos.
Similarly, one must trade with a profit target to lock in profits whenever a given goal is met. A profit target order ensures trades lock in profits, thereby averting the risk of losing everything on price reversing.
Refrain from FOMO
Most people have struggled to make a fortune while trading cryptocurrencies on following other people and opening trades out of curiosity. Fear of missing out has caused most people to lose a significant amount of money following other traders blindly in the crypto market.
The cryptocurrency space is still in the early stages of development. Conversely, it is vital to carry out an in-depth analysis of various cryptocurrencies before opening trades. Likewise, it is essential to master the art of technical and fundamental analysis to identify ideal entry and exit points with each pair.
Diversification is an important attribute in the investment world. To make a fortune in the crypto world, it is important to refrain from putting all the eggs in one basket or betting every dollar of an underlying capital on a given pair.
The fact that cryptocurrencies are highly unpredictable makes diversification important. Thus, we need to invest in a multitude of cryptocurrencies. For instance, when Bitcoin is tanking in price, one can still make money on say Ethereum or Litecoin. That said, it is important to ensure a crypto portfolio has exposure to a wide array of altcoins.
The choice of cryptocurrencies that one chooses to trade determines a great deal, whether they will make a fortune at the end of the day. Bitcoin, Ethereum, Litecoin, Bitcoin Cash are some of the most traded cryptocurrencies given the amount of liquidity they offer.
Cryptocurrency trading is one of the fastest-growing forms of investments that traders are turning to diversify investment portfolios. While making a fortune trading cryptos, it is also possible to lose everything on a simple mistake. Conversely, it is important to rely on a backtested strategy encompassing risk management if one is to make a fortune in the nascent field of cryptocurrency trading.