What if you could go back 20 years and invest in Google or Apple? You would basically pour your life savings into buying the stocks of these companies. This is because even a small amount of investment would generate massive returns.
Blockchain and cryptocurrencies startups hold similar potential as some of the dot com companies, back in the era of the 1990s. However, for any beginner, to navigate the learning curve of investment in cryptocurrencies can be a bit overwhelming. Therefore we have compiled a guide for you to understand the strategies used by investors to earn returns from crypto.
Do Your Own Research
Investment in cryptocurrencies should not be made on a whim or because of trends. Any cryptocurrency investment requires thorough research from your side. This is because the industry is yet at a nascent stage. Furthermore, there are a number of cases of scams pertaining to crypto projects.
These are some of the key fundamental analysis that should be conducted before making any investment decision:
- Website: This is the place to start. Scan the details of the token, its purpose, the team members among other basic information.
- Whitepaper: Once you have skimmed the information on the website, proceed to its whitepaper. Moreover, read and analyze every single thing about the project and crypto token as well.
- Team: The next step is to scrutinize the team members and the advisory board. Some of the details that need to be checked include the experience, reputation, success rate, and if they have worked on a previous blockchain or crypto project.
- Roadmap: A roadmap gives you a fair idea of the timeline for each stage in the project and is usually defined on the whitepaper and website. Even if there are no specific dates, the timeline should contain a brief time frame and milestones.
- Community Outreach: Does the project have social media accounts and a certain degree of participation from its audience? This determines the future scope and interest that the token has managed to create.
Token Economics: This is one of the most important factors to evaluate the viability of the token. Does it gain its inherent value from a specific purpose for which it is used? Or it does not have a utility purpose? Also, research how tokens will be distributed among the general public and founders.
While fundamental analysis gives you a glimpse of viability for a crypto project, the technical analysis examines price movements in the market of cryptocurrencies. It studies historical trends and volume data using technical indicators so as to statistically analyze your trade and trading strategy.
The patterns of trading are decoded using mathematical indicators and the outcomes give an insight into future patterns. By examining the past and current activity of a crypto coin based on chart patterns, it helps to predict the future trends in price movements of the coin.
Technical analysis enables you to look at cryptocurrency investment objectively. It is not governed by psychological or emotional factors. It is purely based on mathematical statistics, patterns, and charts.
Crypto Trading Strategy
The nature of cryptocurrencies is inherently volatile. Even after a decade, bitcoin prices frequently experience ups and downs of nearly $1000 in a single day. Trading even in small amounts can potentially result in huge losses if not done with the appropriate tools. Moreover, unlike traditional markets, crypto markets run 24/7 round the clock. There needs to be continuous monitoring and a solid approach.
There are a couple of strategies that an individual needs to consider before making an investment in any cryptocurrency.
- Draw a plan on how much investment you are ready to pour. Play safe and only invest what you can afford to lose.
- Avoid the common hype that is an extremely common phenomenon in the cryptocurrency market.
- In case if you are investing for the purpose of short-term trading, take profits at regular intervals. This further ensures a certain degree of steady returns.
- Always keep a stop loss in any of your cryptocurrency trade. This ensures that buying or selling crypto is not affected due to external factors.
- Diversify your cryptocurrency portfolio by investing in multiple coins instead of a single cryptocurrency.
- Monitor and update yourself with recent news events as well as on-going speculations in the industry. It might be possible that bitcoin’s price will suddenly boost because it attained regulation in yet another country.
Trading With Cryptocurrency Futures
In recent years, the popularity of cryptocurrency trading has attracted traditional strategies into an upcoming industry. Futures trading, very commonly observed in traditional markets and forex, now has gained a place in the cryptocurrency industry as well.
Moreover, it is the interest of regulated exchanges for cryptocurrencies that have made it an even more popular method of trading. One of the advantages of trading with futures in crypto is that an investor can leverage the volatility of markets in order to generate profits from trades.
Using trading strategies like ‘buy long and sell short’, a trader can make profits even when the price of a cryptocurrency goes down. This is because traders bet on the volatility of cryptocurrency prices and price movements. Furthermore, futures trading also allows an individual to trade using leverage and spreads.
It is undeniable that cryptocurrency and blockchain investments are gaining mass adoption. It is also very likely that an investment in a blockchain project would probably be worth much more in the long-term.
But before you decide to take a plunge into cryptocurrencies, decide the trading rules for yourself. Bound yourself with defined parameters based on your plan of long term investment or short term trading. Most importantly, always conduct thorough research before choosing to make an investment.