Cryptocurrency trading is an activity that is becoming increasingly popular among retail traders as a means of increasing their income on a monthly basis. This is in large part to do with the low barrier to entry. More often than not, what is required of an individual to start trading is an account on a cryptocurrency exchange, which takes seconds to setup, and a small but respectable starting amount.
Many of these individuals have chosen to approach cryptocurrency trading in three separate but distinct ways: long-term, medium-term and short-term trading. The selected style that a trader will choose is very much dependent on a multitude of factors such as: risk appetite and desired monthly returns.
In this article, we’re going to walk through each method of trading so as to equip you with the knowledge needed to ensure that you select a style of trading that suits you.
If you prefer to trade over a time frame of years, then you may very well be a long-term. These traders tend to focus more on the fundamentals of a cryptocurrency when evaluating if or not they should invest. Some of these fundamental qualities include:
- The quality of the development team
- The dollar value of the industry the cryptocurrency is disrupting
- The partnerships formed by the team
Given a long-term trader’s investment horizon, these questions are critical because you want to ensure that any project that you invest in as a long-term trader will be around for the foreseeable future. You’ll also want to make sure that the industry the cryptocurrency is disrupting is a high value one, as this will affect any returns that you generate as a result of the progress made by the development team.
A long-term trader will also attempt to project where they think the price of a crypto will get to after a period of years. You won’t be concerned with the day to day price moments of a cryptocurrency and see any short-term fluctuations as noise.
Furthermore, you’ll also prefer to focus on the higher time frames such as 1-month and very rarely, 1-week. This allows you to get a solid understanding of which direction a cryptocurrency is trending and if there exist any potential opportunities.
Long-term traders very much tend to believe in the mission of cryptocurrency and the solution that it brings to an industry.
However, if you prefer to trade over a time frame of a few months, then you might be a medium-term trader. These trades will use a mixture of both fundamental and technical analysis in order to inform their trading decisions. The fundamental qualities that you’ll care about as medium-term trader is very much the same as a long-term trader, however, you would employ technical analysis tools to bolster your decision-making. Tools such as:
- Fibonacci Retracements
- Momentum & Trend Analysis
- Support & Resistance
- Chart Patterns
These tools will be key in helping you identify possible entry and exit positions that should be considered prior to entering a trade. Automation tools such as crypto bots and crypto signals are also useful in trade execution. Moving on, medium-term traders also tend to use low leverage such as 5x in order to mitigate the introduced risk that comes with trading on margin.
When it comes to time frames, you will typically find themselves using the 1-day, and at a push, the 1-week time frame if necessary. The key strategy here is to ride the wave on an ensuing up or down trend, with less of a focus on the overall direction the space is moving in.
In terms of risk-appetite, as a medium-term trader, it should be on the low side, with the sole intention of wanting to generate consistent and sustainable returns over the course of weeks and months.
If you’re still unsure about the style of trader you are, then it’s likely that you fall into the bucket of a short-term trader. Traders of this nature care very little about the fundamentals of the cryptocurrency that they’re investing in, and very much about the technicals.
As a short-term trader, you will use the typical technical analysis tools mentioned above such as: Fibonacci Retracements and Chart Patterns and will only seek to hold onto a position for a few hours, and at a push, for a day. Your risk appetite will be very high, and you may opt to use higher leverage leverage such as: 25x to 100x.
If you are ever considering employing the short-term trading mentality, then you’ll find yourself predominantly operating on the lower timeframes such as: 15 minutes and 4-hours. The aim of this is to get in and get out of trade as quickly as possible, whilst as the same time keeping risk to a minimum.
When it comes to the frequency of trading, short-term traders tend to place over 10 trades or more on a monthly basis. This method will yield an increased number of losses, but the rationale is that this should be offset by letting the few good trades run for as long as possible.
To conclude, trading cryptocurrencies is an incredibly viable method to add to one’s income on a monthly basis. Traders who trade crypto tend to fall into 3 buckets including: long-term, medium-term and short-term trader.
It is important to align your own personal trading goals with that of the style that you’re looking to trade. If for example you lack the time and energy to dedicate to trading, then perhaps going for a longer-term trading style is more appropriate.
Where retail traders tend to fall down and be unsuccessful, is when traders attempt to trade a style that does not suit their personal circumstances.
For example, if your goal is to make several thousands of dollars every month trading, with minimal effort to learning, and you decide to employ a short-term trading style, it’s likely you’ll fail.
So, when trading, always keep in mind the style that not only suits your risk appetite, but also the amount of effort you can dedicate to becoming a profitable trader!
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