How To Strategically Trade Cryptocurrency

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Cryptocurrencies are incredibly volatile, with massive price swings almost a weekly occurrence.

Cryptocurrency portfolio manager Jeet Singh tells Smartereum it’s normal for cryptocurrency prices to fluctuate by 70 to 80 percent. And while these wild fluctuations are enough to scare off many would-be crypto investors, the savvy traders recognize the opportunity that’s there.

As Claire Boyte-White points out at Investopedia, seasoned traders understand that it’s market volatility that provides numerous money-making opportunities. If you know what you’re doing, there’s a lot of money to be made.

But as you’ll find out, strategically trading cryptocurrency requires a different approach than you would take for many traditional assets.

This guide will cover some fundamentals for new crypto traders so you’ll know how to evaluate digital currencies and successfully buy and sell them.

Research Multiple Types of Cryptocurrency

When most people think of cryptocurrency, the first thing that pops in their mind is Bitcoin. That’s understandable.

Last Crypto explains that its market cap was at $145.1 billion as of March 2018 — well above its nearest competitor, Ethereum, at $52.99 billion. Bitcoin also gets the most publicity and has the most brand equity. While Bitcoin is certainly a viable option, it’s not the only type of cryptocurrency you can invest in.

There are numerous others to consider, and you’ll really want to do your research before deciding which specific type of currency to trade.

A good resource resource for learning about your choices is CoinMarketCap’s Cryptocurrency Market Capitalizations. This breaks down a massive list of digital currencies by market cap and includes other pertinent information like price, circulating supply and volume.

While this won’t necessarily tell you the whole picture, it’s a great starting point.

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How to Evaluate a Coin’s Investment Potential

Before investing, you’ll want to get a feel for what a cryptocurrency’s short-term and long-term potential is like.

A great resource for this is WalletInvestor’s Cryptocurrency Forecast. It supplies you with the 14-day, three-month, six-month, one-year and five-year forecast, as well as a price graph for all major digital currencies. Examining this forecast allows you to quickly compare a variety of cryptocurrencies side-by-side and is perfect for benchmarking.

Once you find something that looks interesting, you can learn more by plugging in the stock symbol into the search bar on TradingView. This will provide you with a chart where you can see how it has performed over time and what its current value is. You can also use an interactive chart to track its performance in real time.   

Scroll down, and you’ll get even more metrics from trading experts, including a technical analysis summary and news reports.

The combination of WalletInvestor’s Cryptocurrency Forecast and TradingView’s charts should give you an overarching view of whether a digital currency is trending up or down and what its future outlook looks like.

If you’re a long-term investor, you’ll want to pay close attention to how a coin has performed over the past year. This should provide clues as to what you can expect moving forward. While there will almost always be oscillators, you should analyze the overall trajectory and target cryptos with bullish momentum.

Factor in Transaction Time

The Cryptocurrencer team makes a great point that convenience is a big factor in determining a coin’s investment potential. They explain that the speed of transaction times and how easy they are to make have a significant impact a coin’s value.

After all, if the transaction time of a particular digital currency is sluggish, this could potentially stifle it’s long-term growth. Sean Williams agrees with this viewpoint and writes in The Motley Fool that if blockchain technology is unable to meet or exceed current networks, then its impact could be marginalized.

He also references a study by Howmuch that analyzed transaction speeds of some popular cryptocurrencies to see how they stack up against Visa and PayPal. What they found was that as of January 18, 2018, Ripple was the quickest with 1,500 transactions per second. That was significantly quicker than PayPal, with just 193 transactions per second.

After that, you’ve got:

  • Bitcoin Cash — 60 transactions per second
  • Litecoin — 56 transactions
  • Dash — 48 transactions
  • Ethereum — 20 transactions
  • Bitcoin — 7 transactions

JP Buntinx explains at The Merkle that Ripple succeeds in allowing lighting quick transfers for minimal fees, whereas Bitcoin tends to be slower, and this is likely to remain a problem until the scalability issue is addressed.

This doesn’t mean you should rule out a particular coin simply because of a slow transaction time, but it’s definitely something to keep in mind.
 

Look at Community Support

At Hacker Noon, Bruce Hunt speaks on the importance of evaluating a crypto’s community support. By this, he’s primarily referring to the reliability of its exchanges. After all, you don’t want to invest in a coin that’s only available on a handful of sketchy exchanges.

Some things to look at include the reliability of an exchange, the fees it charges, payment method and exchange rates. These can vary considerably from exchange to exchange, so do plenty of research and check out unbiased reviews from actual users.

Hunt also suggests checking out the size of a coin’s community — the more active the community, the better. Some ways to get a feel for this include looking at their social media followers (especially on Twitter) as well as the level of activity on Reddit and crypto-related blogs.

This resource from BitPremier offers a breakdown of some of the top exchanges and examines the pros and cons of each one.

Investigate Development Activity

Bobby Ong addresses another critical yet often overlooked aspect of cryptocurrency at 99Bitcoins: the level of development activity that’s currently taking place. He argues that you can often gauge a coin’s potential by how much development activity there is.

Ong adds that a promising coin tends to have developers who are continually performing updates and fixing bugs. In other words, they’re proactive and looking to keep improving.  

On the other hand, you should generally be wary of cryptos with minimal activity in this area because they’re likely to lag behind (or be scams).

How do you know what type of development activity is going on? You can usually find out by checking out a coin’s website, its social media, relevant subreddits and crypto news sites. We have a bunch of research resources here to help you get started.  

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How to Know When It’s a Good Time to Buy a Coin

There’s a certain level of subjectivity when it comes to deciding when is the right time to buy.

But the Blockgeeks team offers some sound advice, and that’s to buy when the price is stable at a relatively low level. As with any other asset, it’s not a good idea to buy at the peak of a bubble or when it’s crashing.

Crypto Insider offers their take saying that there is no “best” time to buy cryptocurrency. But as a general rule of thumb, you’ll want to buy during the dip of a bullish run. Although finding the absolute bottom of a dip can be difficult, analyzing the overall trend should give you a rough idea of when it’s likely to occur.

How to Know When It’s Time to Sell

Knowing precisely when to sell can be especially tricky with cryptos because of the level of fluctuation that’s seemingly always taking place.

Blockgeeks makes another great point that you shouldn’t compare crypto bubbles with traditional financial bubbles. 10 percent up may not be a bubble but simply daily volatility. 100 percent up can be a bubble but is often just the start of it.  

With the long-term future looking very promising for many coins, you’ll typically want to let your profits run for a while. As cryptographer Kyle Hill writes in Medium, it’s best to enter and exit gradually in case the lows get lower or the highs get higher.

He also recommends avoiding selling in “big emotional or reactionary swoops” and not trading more than a few time a week. Instead, you really want to give your coin a chance to perform.

This brings us to our final point.

Educate Yourself Before Jumping In

When you get right down to it, trading cryptocurrency is a completely different animal than trading most other types of assets. Its inherent volatility creates a certain level of risk and reward.

This is why most crypto experts agree that you really want to take the time to educate yourself and not treating it as a “get rich quick scheme.”

Crypto Insider summarizes it perfectly by saying no one should buy what they don’t understand, that it’s important to commit to perpetual learning and not to frantically chase “quick profits or parabolic price patterns.”

We have a few resources to help you get up to speed. These include:

  • A glossary of the most important terms you need to know as a trader
  • An infographic on how to assess an ICO before investing
  • A guide to what hardware wallets will keep your coins safe

Even if you’ve been trading stocks for years, it’s a good idea to take the time to get familiar with all the esoterica that comes with the various types of coins and their market patterns.

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