The cryptoverse is full of stories of windfall gains and gargantuan losses. A differentiating factor separating winners from losers is the use of cryptocurrency tools and strategies.
Investing in cryptocurrencies is not limited to buying digital assets. As is the case with traditional investment vehicles, investing in cryptocurrency goes beyond picking the right assets and managing your portfolio.
A growing number of cryptocurrency trading platforms now offer a range of tools to enhance your trading experience and your results. These tools, when used wisely, can increase returns, minimize losses, mitigate risk, and help make informed investment decisions.
These characteristics, or strategies, can be the difference between discovering the next bitcoin and falling in love with an overhyped meme currency.
Given the continued free fall of the cryptocurrency market, these strategies have never been more relevant to preserving your wealth.
This guide provides you with information on useful cryptocurrency tools that could significantly improve your investing experience, as well as help you take precautionary measures against mercurial price fluctuations in the crypto sphere.
Stop-loss
A stop-loss order is a useful instrument that helps minimize your losses. It is an order to buy or sell a specific asset at a predetermined price.
For example, when a stop-loss is triggered, i.e. when the cryptocurrency asset reaches your predefined price, your position is automatically closed.
To put things into perspective, if someone bought Ether, the native coin of the Ethereum blockchain, at $2,000, but feels the trend is weak below $1,500, they can place a stop-loss order at this last price. When the price reaches the stop-loss limit, the asset is sold and therefore your loss is limited.
These orders help manage risk and are only triggered when the price of the asset falls to a pre-determined point.
Unlike stock markets, cryptocurrency trading operates non-stop, making it difficult to constantly monitor it.
Setting up a stop-loss order gives you peace of mind knowing that your buy or sell orders will be executed at the pre-determined price, even while on vacation.
Seasoned traders use this strategy in conjunction with charting (studying an asset’s price history) to determine their stop-loss price.
The idea is to identify a key support level on a chart and place a stop-loss order slightly below that level to limit any downside during market meltdowns.
One of the main benefits of a stop-loss order is that it automates the investment decision, which helps to eliminate knee-jerk emotional reactions to price fluctuations and prevent hyper-reactive investment choices.
Limit orders
A limit order allows investors to buy a cryptocurrency asset below the current price or sell it at a price level above the current price.
For example, if Solana’s price is $45 and you feel the current level is too high, you can place a buy limit order at $30, or lower, which will be executed when the price will drop.
On the other hand, if you are in a long position and you think the price may rise, you can place a sell limit order at $60 or a higher price of your choice.
Cryptocurrencies — in pictures
Once you have set a limit order to sell your asset above the current price, the sale of the asset is triggered as soon as the price reaches the price of your limit order.
This takes the emotions out of the trade and eliminates the need to constantly monitor your position.
Although a limit order is not guaranteed to be executed, it does guarantee that your order is executed at or below a specific price level. For buy limit orders, the order will be executed only at the limit price or lower, while for sell limit orders, the order will be executed only at the limit price or higher. .
Average cost in dollars
Averaging is a tactic typically used to improve a position.
In dollar cost averaging, a fixed amount of money is invested in the asset (in this case, cryptocurrency) at regular, longer-term intervals. It reduces the stress of price volatility as your investments are built gradually over a period of time.
For example, if you invest $500 in Ether every month over a longer period rather than all at once, you won’t have to worry if the price suddenly drops.
The cost average works effectively as both a buying and selling strategy. Instead of entering or exiting all at once, it is safer to enter or exit a position over time.
Dividing your investments into smaller parts and spreading them out over a longer period is particularly beneficial in volatile market conditions, when the risk of making rash, emotionally driven judgments can be high.
At its most basic, dollar cost averaging is a less risky strategy than investing using a lump sum.
It takes time to learn the skills to determine the points and size of each transaction, so the dollar cost on average is as much art as science.
Cartography
Another useful arrow in an investor’s quiver, charting is frequently used by more experienced investors and traders.
Price charts are an easy way for market participants to see historical price movements.
Seasoned traders and investors use charts to recognize patterns and use these data points to determine entry or exit points to enhance gains and reduce risk.
Although past performance does not guarantee future results, charting can help identify opportunities for risk-reward trade-offs based on how things have gone in the past.
In cryptocurrency investments, charting could reveal whether the price of an asset is likely to rise or fall significantly around specific levels. Investors can therefore execute around these price levels.
Similar to stocks, cryptocurrency charts can help investors recognize patterns, supports and resistances, and areas of supply and demand at different price levels.
By setting up effective charts, cryptocurrency investors can mine market data, analyze the information they need to make successful trading decisions, and ensure they are ahead of the game.
Keep in mind that the ability to analyze technical indicators is essential. Essentially, charts are graphical representations of people’s emotions, which are rather predictable, so they give cryptocurrency investors a definite edge.
Volatility is a natural part of the cryptocurrency market. Boom and doom cycles are two sides of the same coin and should be embraced by digital currency investors.
However, as this year’s sharp and steep fall in cryptocurrency prices from record lows has shown, there’s never been a better time to use advanced trading tools and strategies to avoid downsides. risks and uncertainty.
Investing is a long journey. These trading features could equip investors with the best tools to navigate different market conditions and grow their investment through timely asset buying and selling decisions, while limiting downside risk.
Updated: August 18, 2022, 5:00 a.m.