Cryptocurrency and cryptocurrency trading have swept the globe as average investors are turned into millionaires overnight. While it may seem easy to profit from cryptocurrency it’s not, at least, the easy money has already been made which means it will take more than luck to earn a buck in the world’s fastest growing market. Here are three concepts you need to master to make money trading cryptocurrency.
No short selling
Short-selling is a market mechanic that helps keep bulls and bears, buyers and sellers, in balance. Short-selling, by definition, is the practice of selling shares you don’t already own. To do it a market exchange like the NYSE (not currently supporting cryptocurrency trading) would “loan” you share that a short-seller would sell in the hopes of buying back at a cheaper price.
What it does for a market is provide a means to balance prices, without it a market rally could see astronomical gains merely because there is no-one to sell. What this means for BTC and other cryptocurrencies is that they make larger intraday moves, much larger, than assets that do allow short-selling which is an opportunity for day traders; if the market is making moves you can make money.
Expect big moves
Because there is no short-selling mechanism within the cryptocurrency market there is no means to balance bullish sentiment which results in exaggerated price movements, both up and down. An average price move for BTC is close to 3% and it happens just about every day.
A 3% move in a stock, index, commodity or forex pair is significant and would likely lead to a change of trend, continuation of trend or other “strong” trading indication. What this means for cryptocurrency traders is that it is very easy to lose your ass. If you don’t time your entry to perfection a random intraday event could cause you to stop-out.
What this really means for cryptocurrency traders is the need for tight money management. This means making small trades and using stop-losses. It also means that you may end up entering the same trade two or three times before it works (market action may stop you out of your position, even if it is a “good” trade, before it moves in your direction)
Cryptocurrency markets are highly technical
Because cryptocurrencies are more closely related to commodities than true assets (an asset pays you to own it, dividends yield etc.) it is hard to determine what the “true value” of each token is. Because there is no way to determine the fundamental value of each token traders rely on technical analysis and technical signals for their cues.
This means that you, as a cryptocurrency trader, can rest assured knowing that technical targets are more likely to result in price movement than not and that is the real opportunity for traders today. If you can pinpoint technical buy/sell targets and have the patience to wait for prices to touch them, you will profit often.