In the previous two articles, I talked about the 2 most common cryptocurrency investment strategies: 1) Buy and Hodl and 2) Play like a venture capitalist. In this article, I will talk about the third most common cryptocurrency investment strategy in the cryptocurrency market, which is “Trader”.
In the previous two articles, I talked about the 2 most common cryptocurrency investment strategies: 1) Buy and Hodl and 2) Play like a VC. In this article, I will talk about the third most common cryptocurrency investment strategy in the cryptocurrency market, which is “Trader”.
In fact, in my personal opinion, this is the most common way for most of you to participate in the cryptocurrency market. However, most people do not realize that it is also a strategy when participating in the market.
What do traders do to make a profit?
As you can see, each strategy has its pros and cons and each requires a different level of time commitment and skill set. I firmly believe that the skill sets required for each can be learned over time, but one of the most important factors in choosing one strategy over another is personal preference or behavioral bias.
This is something that is extremely important to experience over a long period of time to see how important it is.
With strategy number 3 “The Trader” the time commitment is high and the level of risk is also extremely high. This strategy is for advanced traders rather than those new to the market. Because as a trader, most of your day will be looking at chart patterns, placing orders and setting up for future trades.
Currently Bitcoin (BTC) is of course the most popular currency for traders. Other popular coins for traders include: Ethereum (ETH), XRP (XRP), Bitcoin Cash (BCH), Litecoin (LTC), EOS (EOS), Tezos (XTZ), Cardano (ADA), and Chainlink (LINK).
Basically, you are trading these coins with the goal of making a quick short-term profit — usually within a few days. If you believe the price of a coin will go up, you place a buy order. And if you think the price will go down, you place a short sell order.
Note that “selling” and “shorting” are two very different things.
In contrast to the investor who uses strategy #2 — Play VC and aims for a 10X return on an investment over a period of 6 months to 1 year, the “Trader” strategy is happy with a quick 10-20% gain in a few days.
Technical Analysis vs Fundamental Analysis
Each trader uses different indicators to inform their decision-making process when deciding whether to buy or sell. Some focus entirely on technical analysis.
Technical analysis is the study of statistical trends and chart patterns to identify opportunities. Two of the most important pieces of data are the price action and trading volume of a particular coin. There is an art and science behind technical analysis that we will save for another article.
There are also traders who prefer to look at fundamental variables. Perhaps they are expecting a big news event that will move the price, such as an upcoming hard fork or a halving event.
There are dozens of other fundamental factors such as: investor sentiment, number of wallet addresses, NVT (Network Value per Transaction) ratio, development activities, inflows and outflows of the exchange and many other factors that traders will have to pay attention to in order to make a decision.
Of course, depending on each individual, you will have different ways to approach the market that you find most suitable for trading or predicting future trends.
And you should remember one thing that any legendary trader or investor advises to new entrants to the market: "No one can predict the future".
Editor: TonyCapital Team
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