What Is The Correct Way To Approach The Crypto Market?
There are various analogies I have used recently to describe day-trading cryptocurrencies. The simplest one is as follows…
Imagine going to a busy swimming pool, watching many, many people glide effortlessly through the water. At this point, you decide to jump in, right at the deepest point of the pool. Only at that point does reality hit you, quickly. And it is at this point, you remember…you can’t actually swim.
More importantly, you come to realise that all the people who seemingly are swimming effortlessly, did not just jump into the deep end because they saw lots of other people doing it successfully. They have all built their way up to this level, step by step.
There has been a lot of attention drawn to day-trading cryptocurrencies recently, and many of the truths and realities have simply been glazed over. Many people have seen other people’s profits and assumed they can recreate the same. Are they wrong? No. Do they all fully understand the risks and steps required to obtain such profits? Most definitely not.
What makes day trading cryptocurrencies so attractive? Due to the extremely high volatility of the space, a coin only needs to move a fraction of a cent, in order for significant PIPs to be obtained. Marry this up with up to 1:500 leverage, if you manage to catch any move just right, you may well be onto a big winner. However, if you get caught out by one of the many, many manipulative moves, you run a very high risk of your stop loss being triggered and/or your entire account being wiped out in an instant.
High risk, high reward certainly isn’t for everyone. When it comes down to investing and trading cryptocurrencies, we can break them down into three simpler approaches:
- Long term - HODL’ing - many people understand that we are very early within the crypto journey, they are early investors and have bought specific coins which they have researched, with the view that in around 2-5 years, their investments will be worth significantly more. This is by far the least risky method and means the individual does not need to keep regular tabs on the prices of their investment. They can sell their holdings at any point should they wish to “cash in”.
- Medium-term – inter-day trading – this is a very popular method where investors look at a daily or even weekly timeframe to buy and sell some of their holdings at low and high prices points accordingly. This is done via an exchange i.e. Kraken or Binance. By analysing price action on the charts, they can increase their holdings without having to inject any further fiat currency into their account. It also enables them to withdraw profits and either spend or re-invest accordingly. This holds a slightly higher risk than longer-term investing, however, if done correctly can give significant and constant returns.
- Short term – day trading – as I have already mentioned, high risk, but with potentially high rewards. By using high leverage, many traders attempt to profit off the price movements from a certain coin. However, the market is heavily manipulated, and there are constant, unexplained moves that look to catch out day traders. You may find yourself waiting hours, or even days to find that perfect set up, that’s if you haven’t already been caught out by market manipulation!
Much confusion has occurred around the differences between INTER-day trading and INTRA-day trading Simply put, inter-day is where one seeks to buy a certain number of coins at a low price point, and then sell the coins at a higher price. Intra-day trading is where one places a trade, (similar to Forex) via a broker, using leverage to profit off the price movements on a coin, without owning any physical currency.
Many novice traders have seen more experienced traders have some success with intra-day trading and assumed they can jump straight into the deep end. Unfortunately, they have at this point realised…they can’t actually swim! So what is the solution? What are the key points to take as lessons here?
Day-trading cryptocurrencies is a highly risky approach, even for a seasoned trader. For a novice, it is almost a kamikaze mission, that will eventually end in disaster. Yes, they may be significant wins, but they will be sporadic and most importantly, they are not sustainable. The definition of a successful trader is one who can be consistently profitable over a significant period of time, the volatile nature of cryptocurrencies does not make this feasible. What many novices must understand before jumping into the pool, is that the elite swimmers not only have spent years perfecting their craft…they also only showed you their best performances!
Yes, we all would love to make big profits on a daily basis, but we would also like to keep our accounts from being wiped out by one unexplained move. Slow and steady wins the race.