Techniques on cryptocurrency trading are basically 2 and include day trading and hodling. Each of the techniques will be discussed including their advantages and disadvantages of each. As a beginner, you will learn about the best way to trade cryptocurrency depending on your interest and also learn the strategies I do apply so as to serve as a guide for you.
You need to understand this that I am not offering financial advice nor am I saying that cryptocurrency trading is the best; you need to know that you can lose a great amount of money trading cryptocurrency so make use of money that you will not be emotionally attached to the it.
Benefits of Trading cryptocurrency
- You may make large amount of money
- You get to learn how to trade not just cryptocurrency but will know how other trading products such as stocks works
- Trading cryptocurrency helps you to be part of the new technology
Cryptocurrency trading strategies
- Day trading
For you to understand how to trade cryptocurrency, you need to understand in simple terms what some words mean.
Terminologies used in cryptocurrency trading
An exchange in Cryptocurrency refers to a website where you will buy and sell Cryptocurrency coins. It is on an exchange that all the trading occurs. I personally use Binance Exchange because it has a very good mobile application that you can use to perform everything that can be done on the website.
Hodling in cryptocurrency is the holding on to a cryptocurrency coin with the hope that the price will go up or increase greatly in the future. The term is spelt as Hodl and you may think it was a mistake and ought to be Hold but it is not. There are advantages of hodling in cryptocurrency as well as disadvantages as you will see later in this article.
FUD in cryptocurrency means Fear, Uncertainty, Doubt. What FUD means is that when you start cryptocurrency trading, you will not want to lose money nor be trapped in a trade that becomes bad or buy a coin that does not go up in value or the one that the founders get you scammed. Because of theses emotional feelings, people often do things that make them lose and all these are caused by Fear or Uncertainty of how the future prices will be or the doubt of whether a coin is genuine or not. Those who spread Fear, Uncertainty and Doubt in cryptocurrency do so for the purpose of causing pannick selling so as the price of the specific coin to go down to enable them buy in bulk for little amount of money.
FOMO in cryptocurrency stands for Fear Of Missing Out. This happens when you see a coin going up in price and you do not want to be left out of getting your own share of profit.
Mooning in cryptocurrency is used to refer to when the price of a cryptocurrency coin keeps going up (increasing) continuously. Some people use the slang phrase To the Moon to refer to the same thing especially on reddit forums.
When the prices of coins seems difficult to move up or when they keep going down, the market is said to be bearish because people are skeptical to buy at higher prices.
In a bull market, the prices of cryptocurrency coins keep rising; that is, people are willing to buy even at higher prices.
Cryptocurrency Trading Techniques Advantages and Disadvantages of each
We will now go into each cryptocurrency trading technique and outline their advantages and disadvantages.
Day Trading Technique in Cryptocurrency
Day trading refers to the daily buying and selling of a specific type of coin with the aim of buying low and selling high, thereby accumulating a certain cryptocurrency coin before withdrawing it in the form of fiat (Dollars, Pounds, Naira, and Euros). Day trading is an awesome way to grow a specific type of coin even when the market is bearish. Before trading cryptocurrency, you should have known the type of coin you want to accumulate such as Bitcoin or Ethereum or any coin. Then you find a trading pair – that is, you will find another coin which you will use either the ethereum or bitcoin to buy such a coin when it is low and sell the coin to get back more ethereum when the price of the coin moves up. This is usually done on daily basis and this is the reason why it is called Day trading. This cryptocurrency trading technique makes use of the daily fluctuations of prices such that when the price of a coin is down, you will buy with Ethereum (or bitcoin) and when the price is up (you will sell to get more Ethereum).
Example of Day Trading Cryptocurrency
Lets say the price of Tronix (TRX) is 0.001 Ethereum (ETH); this means you need 0.001 ETH to buy 1 TRX coin. If you have 0.1 ETH in your Cryptocurrency Exchange account, it means you can buy 100 TRX at 0.001 ETH. You will then wait for the price to go up; let us say the price now gets to 0.003 ETH and you sell your 100 TRX. It means you will now have 100 X 0.003 = 0.3 ETH.
One thing you have to note about day trading is that you take the profit in small amounts because the fluctuations will not always be so high. The best way to fail in day trading is trying to be greedy to take large profit such as buying at 0.1 and expecting to sell at 0.9 (even if it happens, you will not always be lucky). What I normally do is that I look at the chart to see the highest and lowest values over 24 hours and then I will buy before the lowest value and sell before the highest value so that I am buying in the middle. This way, it makes things less risky than trying to time the bottom (least value of the day which is impossible) and timing the highest value of the day.
Advantage of Day trading technique in Cryptocurrency
The advantage of Day trading in Cryptocurrency is that you keep accumulating coins daily without waiting for months or even years for the value to go up before withdrawing. This means that if you can trade well, you can keep making profits multiple times than someone who is just waiting for years.
Disadvantages of Day trading in Cryptocurrency
- Just as you make use of daily fluctuations to make profits, you can also lose with the same fluctuations because sometimes you may think the price is low only for it to go further down when you have bought and when you wait for it to up, you keep seeing the price going down further and when you get emotional and sell at a loss you worsen the case; when you decide not to sell, it means you will wait for as long as the price will return to the level you bought or when it goes higher again.
- You are charged a transaction fee when you buy a coin and when you sell a coin whether you sell at a loss or not, you must be charged a fee. If you are not careful to allow the price to go up to an extend that when you sell you should make profit, you may end up selling at a price higher than what you bought but because the profit is not much, you may not even make profit because of transaction fee.
- You may spend countless hours trying to check the prices everyday making you obsessed
Holding Technique in Cryptocurrency Trading
Another form of trading is Hodling (not Holding). In Hodling, you do not trade based on emotions as in day trading and so you do not care what the daily prices are. All you care about is the future price of the coin you intend hodling. You will buy the coin and keep in a wallet for a very long time with the hope that the price will be very much higher than what you bought. The time frame of how long you keep the coin is dependent on you. Some may forget about it for many years while some keep for months.
Advantage of Hodling technique in Cryptocurrency
- No emotions attached and hence you are unlikely to have a loss
- You pay less transaction fee when you bought and when you sell after a long time
- You can focus on other aspect of your life without wasting hours checking prices
- The prices may sky rocket making you a millionaire with a very small amount of investment. Bitcoin was less than a dollar in 2009 but it reached 16,000 dollars in 2017
Disadvantages of Hodling
- The price you expect to go up after months or years may not go up, may remain unchanged and may even go down making you waste your money that you would have invested in something else
- You must have a wallet to store your coins because storing them on an exchange is risky as the coins may be stolen when the exchange is hacked.
- Your computer may be stolen, you may forget your password and passphrase and you may not have access to your coins again
Choosing the right Cryptocurrency Trading technique depends on your aim of trading. If you have no patience to wait for a long time, day trading is best but if you have nothing doing with cash and you just want to invest in something risky, you can buy and hodl.
Trading Cryptocurrency is very risky as there is a high chance of losing all your money so only trade using money you are not emotionally attached to it.