How to Trade Cryptocurrency?

As with any investment, learning how to Trade cryptocurrency requires thorough knowledge of the technology and assets involved. Because trading is a high-risk activity, it is crucial to evaluate economic and financial factors and on-chain and off-chain metrics. Here are some strategies for achieving success when trading in cryptocurrencies. Once you have these fundamentals in place, you can trade with confidence!

 Start by choosing the right platform

Choosing the right platform for investing in cryptocurrencies is an essential step. Most exchange platforms offer a variety of cryptocurrencies. Each platform has varying fees and features. Many exchanges also provide educational resources and deposit limits.

However, the best way to choose the right platform for you will depend on the type of cryptocurrency you are interested in crypto trading. Make sure the platform offers a diverse selection of cryptocurrencies. Alternatively, you can use a brokerage platform to purchase cryptocurrencies using fiat currencies such as the US dollar, British pound, and Euro.

Understand the technicalities

The most important aspect of cryptocurrency trading is understanding the technicalities. The price action of cryptocurrencies consists of two parties – a buyer and a seller. The market inherently involves a zero-sum game, and a thorough understanding of these two parties will minimise the risk of loss and maximise the potential for gain. Buyers place lower orders than sellers, creating two sides of the order book.

Be aware of the market trends

In order to avoid losses, cryptocurrency traders need to be aware of the market trend. They use support and resistance levels to identify a trading zone. As price breaks through a trend line, it tends to slow down. This indicates that the market is adjusting to a new trend. As a result, new support and resistance levels are formed. This can help you avoid losses while minimising your loss.

Understand the patterns

While trading in cryptocurrency may seem esoteric at first, it is essential to understand that the market is a complex system and requires a thorough knowledge of the assets and technologies involved. It’s necessary to avoid emotions in trading because whales will try to manipulate the market. The key to successful trading is understanding patterns and cycles and knowing your position with the entire market.

Know the risks involved and your expertise

As with any other kind of investment, trading cryptocurrencies can be a high-risk game. As with traditional investments, you should be aware of your level of expertise and avoid playing with fire. Inexperienced investors should always be aware of the risks involved.

Consider the liquidity of the cryptos

Liquidity is an important metric to consider when trading cryptocurrencies. Liquidity refers to how easy it is to buy and sell an asset. A liquid market has plenty of bids and offers and is often tighter than illiquid markets. When a market is not liquid, it’s challenging to sell an asset at a fair price. In this case, you should try to find a cryptocurrency with good liquidity.

Know about the governance risk

Besides the market capitalisation of cryptocurrencies, investors should also be wary of governance risks. Lack of transparency in cryptocurrency exchanges has resulted in investor losses. A notable example of governance risks includes hacking thefts in Japan and Singapore in 2018, the temporary closure of the Philippines Digital Asset Exchange in 2021, and the collapse of the Turkey exchange Bitmex in the same year. These events were caused by poor collateral management and the reliance on a small number of entities.

Trading cryptocurrencies involves evaluating on-chain and off-chain metrics

The most important element of trading cryptocurrencies is the ability to evaluate both the on-chain and off-chain metrics of the currency. The on-chain metrics, or transactions, provide information about the currency’s economics. These metrics are critical for determining the value of the currency since these are the factors that determine its value.

Trading cryptocurrencies

Analyse the number of transactions

To analyse the on-chain metrics of a currency, you should consider the number of transactions it has made and how much value it has gained or lost over the past few months. This is an essential metric because most blockchain transactions are done through exchanges.

The difference between on-chain volumes and off-chain volumes shows the flow of funds through the currency and tells you the total volume that has been transacted in exchanges and on the open market, which is where most of the transactions take place.

It helps you understand if it’s worth it

On-chain metrics are important because they can give you an idea of whether a cryptocurrency is a good investment or not. Here self-serving actors often send money to new addresses to give the impression of a sudden increase. The only way to protect yourself from such unscrupulous actors is to evaluate on-chain metrics carefully.

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