The best trading tactics often come from years of investing in cryptocurrency markets. In the last years, cryptocurrency trading has become the new playing field amongst market players, especially day traders. We hope these genuine cryptocurrency recommendations can help beginners learn how to come up with strategies that suit them and avoid common cryptocurrency mistakes.
Investors are always looking for new crypto tips, hoping to discover new cryptocurrencies with the potential to explode, the best cryptocurrencies to buy in 2023, and genuine crypto trends that could generate 3 digits returns like in 2021. Here are the top crypto tips that informed investors should be aware of.
Crypto Tips Every Investor Should Know
#1 Crypto tips: Have a trading plan
A trading plan is a guideline for your trades. It assists you in identifying and executing trade opportunities. It covers different situations, such as how to find trade opportunities, which variables you should consider before buying or selling crypto tokens, which cryptos can be traded, what risk you are willing to take per trade, and how best to manage your positions.
A trading plan can also help you to manage your trading risks and achieve consistent results.
One of the best cryptocurrency tips for beginners is to test any trading plan on a risk-free demo account.
HODLing vs Trading
One of the easiest crypto tips to follow is to simply HODL, or, in other words, be in it for the long term.
Long-term investments, or HODLing (which originates from the misspelling “hold”), is a type of investment where people buy a cryptocurrency and then keep it for a long period. Investors can profit from the asset's increase in value over time.
Prices can rise and fall quite dramatically from day to day, and novice traders are often duped into panic selling when prices are low.
HODLing allows investors to take advantage of long-term value appreciation by investing for a longer period. HODL strategies are an option for conservative investors as they don't have to be subject to volatility in the short term.
Trading involves buying and selling cryptocurrencies more frequently aiming to make profits off the price swings. Trading involves more techniques, self-discipline, and rational decision-making processes.
However, if you are okay with the volatile nature of the market and your risk level is high, cryptocurrency trading could work for you. You need to acquire enough knowledge and expertise to invest in Bitcoin and Altcoins. Plus, you can always switch to hodling or long-term investment whenever you are ready.
Proper risk management
Cryptocurrencies do not have any intrinsic value attached to them; therefore, traders can ride a strong uptrend or downtrend with a proper risk management plan in place.
Risk management is about keeping losses small relative to your gains. Money management is about ensuring that loss per trade is small relative to your total account size.
One of the crypto tips you should learn as soon as possible is the importance of minimizing losses. It's no secret that the most successful traders worldwide use proper risk and money management tactics, which have helped them to be at the top of their profession.
Many famous traders and investors have stated that they look for asymmetrical risk/reward trades as part of their risk management strategy. A risk ratio of 3:1 means that you risk $1 to make $3.
The key elements you should consider for creating a solid risk management strategy are:
- Risk per trade. It should be expressed as a percentage of your trading account balance. This should only range from 0.1% to 3% per trade.
- Position sizing. This refers to the size of the position. Leveraged markets offer opportunities to open larger positions with less capital. However, losses can be very significant if the position is not managed well.
- Initial Risk Level. It is the place where the first stop-loss is placed after an entry has been triggered. If the trade is executed at a support level, you should place a long-entry limit loss below this area.
- Trailing Stop. The trailing stop refers to the way the stop-loss order moves when the trade is in the expected direction. If the market is in reversal, you want to lock in profits. There are many ways to track the risk, but the best indicators are the moving averages, relative strength index (RSI), and average true range (ATR).
- Profit goal. The profit target is the area where the trader will make the most of the position's profits. The profit targets should be asymmetrical in terms of risk-reward ratios, meaning that the potential gains will outweigh the risks.
#2 Crypto tips: Learn to predict crypto trends
It is a common misconception that cryptocurrency prices are linear. This assumption ignores the many factors that affect a coin's price. There can be sharp price fluctuations in cryptocurrencies.
Therefore, one of the best crypto tips we can give you is to learn to predict trends. How can investors forecast cryptocurrency prices? Forecasting requires analysis.
Fundamental analysis
Investors use fundamental analysis to study and evaluate the variables that impact value.
You can assess the intrinsic value of a cryptocurrency to determine if it is undervalued or overvalued. This can be achieved by analyzing qualitative factors like the state of the economy and cryptocurrency market conditions, as well as the management and market capitalization of crypto companies or projects.
Fundamental analysis is when you examine the fundamentals of cryptocurrency projects, such as:
- Market capitalization
- Total and circulating supply
- Token utility and use cases
- The project’s community size. This might give you a hint at the possible future adoption.
- The founders of the crypto project
- The coin's trading volume
- Listings on large crypto exchanges
- Partnerships with trusted institutions
- The most recent news about the coin
- Licenses and regulation
The fundamental analysis of cryptocurrency is similar to that of traditional financial markets with more traditional assets such as stocks. It is not as important to focus on the historical financial performance, financial statements, or balance sheets of a company.
It is important to remember that fundamental analysis can only give you an overview of cryptocurrency investments. You can better understand the project and the possible future changes in cryptocurrency prices by looking at all the information. To get a better picture, you can also refer to a project's whitepaper. Blockchain metrics can also provide crucial information about a cryptocurrency's technology and processes.
A hash rate, for example, is the sum of all computational power required to mine and process transactions on a blockchain. Bitcoin uses a Proof-of-Work (PoW) algorithm. Lower hash rates can indicate investors' loss of interest in mining bitcoin.
You can also use media coverage and user adoption rates to help you predict cryptocurrency movements when conducting fundamental analysis.
Information about cryptocurrency can be useful in providing information about the public perception of a cryptocurrency, as well as any plans or partnerships that could help to boost or decrease cryptocurrency growth. Any news regarding the cryptocurrency project or the wider economy can be used to help reshape fundamentally based estimates.
Technical Analysis
Technical analysis is the process of identifying statistical trends using the coin’s historical activity. This includes analyzing price movements and other vital indicators like trading volume. Financial experts believe that prices follow trends and that history repeats itself. They use their data to predict whether the price will rise or fall soon.
However, forecasting the price of any tradable asset is not an exact science. This analysis implies that human psychology tends to repeat itself and that statistical analysis will reveal the future price movements of a cryptocurrency, which might not always be accurate. But even so, it’s a widely used method to try to forecast prices.
By performing technical analysis for a cryptocurrency, you may find it easier to read the market and discover market trends and corrections, which might help you make a profit. This involves looking at price charts and graphs from different angles and trying to find patterns to help you predict the market's future
While conducting a technical analysis, you will run into:
- Candlesticks. A Japanese candlestick is a type of price chart that shows the opening, closing, high, and low-price points for each given period. Although price charts come in different styles, Japanese candles have become by far the most popular because they provide the quickest visual grasp of price action and the market sentiment behind it.
- Chart patterns. A chart pattern is a shape within a price chart that helps to suggest what prices might do next, based on what they have done in the past. Chart patterns are the basis of technical analysis and require a trader to know exactly what they are looking at, as well as what they are looking for.
- Time frames. A short-term downtrend can occur when an uptrend occurs over a longer time frame. Downtrends on smaller time frames might only be a correction and have no real impact on the overall trend. However, it is important not to ignore low timeframes as a reversal could start at the lowest timeframes. It is crucial to treat all timeframes equally and understand the impact of smaller timeframes on larger ones.
- Support and resistance levels. These are the areas of interest where orders are available and in high supply. This could be an area in which there was strong price action in the past. Traders and investors should buy support and then sell resistance until the other side breaks. The support and resistance levels can also be used to determine where to place stop-loss orders or where to take profits.
- Indicators. Traders use technical indicators such as moving averages (MA) and the relative strength index (RSI) to display data on a chart graphically. Moving Averages are useful for providing signals about when to buy or not, acting as support or resistance, and many other things. The relative strength index (RSI) can be used to determine if an asset's market strength is too high or low.
- Trading volume. The trading volume is the total number of asset units that have traded at any price on any day. This includes both buying and selling. Sometimes, trading volume can be used to forecast price changes.
#3 Crypto tips: Consider CFDs during bear markets
Bear markets are when cryptocurrency prices fall, usually over a prolonged period. This can be a long-lasting, devastating event for any crypto portfolio.
Derivatives are financial instruments that take their price from the underlying market. With derivatives, such as CFDs, you haven’t had to borrow a cryptocurrency and return it back – you are simply speculating on the market price rather than taking physical ownership of the asset.
CFD trading is available globally, providing a method to short cryptocurrencies. CFD traders speculate whether they believe the market will fall or rise, receiving profit for correct speculations and incurring a loss for incorrect predictions.
With CFD trading, you are agreeing to exchange the difference in the price of your chosen cryptocurrency from when the position is opened to when it is closed.
One of the best crypto tips for traders aiming to benefit from a bear market is to learn about short-selling and leveraged trades.
Understand short selling
As a trader, it’s important to understand that the trading trend is your friend. Don’t try to trade against the market but choose to trade with the market.
Short selling is a trading strategy that lets you exploit the market's transition from higher to lower prices. New investors might find it harder to understand how it works, but it’s not as complicated as it sounds.
When trading CFDs, the trader doesn’t own the underlying asset, but he is free to speculate on its price movements.
During a bear market, you can make a profit if you choose to “go short”, and employ simple entry strategies, precise timing, and defensive trade management. However, even with a reliable shorting strategy, investors may experience unexpected losses from time to time since cryptos are extremely volatile assets, and nobody can accurately predict their prices.
Here are three crypto tips for short-selling digital assets:
- Short rallies. As a short seller, your first task is to avoid crowds and use their emotional energy to position yourself at the highest price. Countertrend bounces are ideal for short selling because you can know the price at which other sellers will reload. The risk is higher if the crowd purchasing the asset is larger than the crowd that bought it.
- Choose to go short on weaker markets. It’s recommended to explore weak market groups that are already in downtrends and use countertrend bounces for entry. These issues are less susceptible to squeezes than hot stocks, as they often have lower short periods.
- Avoid story stocks/digital assets. These assets are popular because traders love to sell them with interesting and controversial stories. The cryptos also attract high short interest, which can increase the chances of vertical squeezes, even in severe downtrends.
Use leverage appropriately
Leverage is a facility that enables you to get a much larger exposure to the market you are trading than the amount you deposited to open the trade. Leverage works by using a deposit, known as a margin, to provide you with increased exposure to an underlying asset. You are putting down a fraction of the full value of your trade – and your provider is loaning you the rest.
Your total exposure compared to your margin is known as the leverage ratio. Depending on the instruments traded as well as the trader's risk profile, the leverage offered could vary from 1:2 up to 1:30.
For example, let us say that you wanted to short Bitcoin via CFD trading.
You open a position to “sell” 0.1 Bitcoin CFDs at $20.000 through CAPEX.com. Your total market exposure is now $2,000.
CFDs are leveraged, meaning you only need to pay a deposit of the full trade amount to open the trade. The margin rate for cryptocurrency is 50%, meaning you have to deposit $2,000 x 50% = $1,000 margin requirement.
Leverage is a dual-edged sword that can work for or against you.
#4 Crypto tips: Diversify Your Portfolio
Another important crypto tip is to diversify your crypto investments. Portfolio diversification is not a new concept. It's an essential principle of investing money.
Diversification is meant to protect your portfolio from unforeseeable markets and could be part of your risk management strategy. Simply put, it may not be sufficient to only invest in Bitcoin (BTC) if you want exposure to the crypto market's innovations. Instead, diversifying your investments in a range of digital assets will allow you to profit from the growth in the crypto market. Diversification strategies can help you reach your investment goals. They may protect your money and expose you to more cryptocurrency assets over the long term.
The average accumulated returns for the diversified portfolio might show lower volatility than an all-Bitcoin portfolio and a higher average return.
What are the best ways to diversify your crypto portfolio? Think about crypto and blockchain stocks and crypto ETFs. Remember that stock trading and investing come with their own risk.
Stocks with crypto and blockchain interest
One of the best crypto tips for new and experienced investors is to find blockchain and cryptocurrency stocks. This cryptocurrency investing strategy involves buying stocks of public companies that hold cryptocurrencies or are somewhat related to the crypto industry. Unlike holding cryptocurrency directly, you invest in companies that may act as a buffer and present less price volatility than the actual cryptos.
Crypto or blockchain stocks are stocks of public companies that offer hardware, software, and payment services for cryptocurrencies or support the blockchain infrastructure. These companies are the most popular in their respective crypto fields. The major tech companies are aggressively pursuing crypto markets. Some companies offer direct crypto trading, such as Coinbase. NVIDIA and AMD provide crypto mining chips, while PayPal and Square provide payment services. These companies have a high potential for growth if the crypto market continues to grow in the future.
The way companies invest in cryptocurrency and blockchain technology might vary over time, so researching the company’s current investments might always be a good idea. Here are the most popular crypto stocks:
Crypto and Blockchain ETFs
ETFs (Exchange-Traded Funds) can be described as a basket of tradable securities on stock exchanges. These ETFs combine the characteristics of traditional mutual funds with shares, or they can be traded in combination on the stock market. They are like shares. Crypto and blockchain ETFs offer investors exposure to cryptocurrency and public companies with crypto holdings. These funds invest in internationally listed companies that provide services and products to support the development and infrastructure of cryptocurrencies. ETFs are suitable investments for anyone looking to purchase a bunch of themed stocks, in this case, crypto stocks.
Investing in a Bitcoin ETF, which can be like gold or silver ETFs, is another crypto tip. Investors can now purchase ETFs with futures contracts linked to bitcoin. ETFs are easy to buy and sell through regular stock-market brokerage accounts, making them a great option for beginners in crypto. You may be able to start with a few dollars if your trading account has fractional shares.
ETFs, offer the possibility to diversify your portfolio by tapping into the crypto sector without leaving your traditional stock brokerage account. You can get broad exposure by purchasing a fund that tracks various digital assets.
#5 Crypto tips: Know your crypto lingo
Of course, one of the most overlooked crypto tips is to learn the crypto terms and phrases used in these markets. Here are the crypto terms you must know to understand the basics of crypto trading.
Altcoin
An ALTernative COIN is any other coin that is not Bitcoin. Since Bitcoin’s creation, thousands of new cryptos have been launched, and many have already disappeared. Some have a real use case, while others were created only for speculation. Regardless of their purpose, if it’s not Bitcoin, then it’s an ALTCOIN.
Crypto Exchange
An exchange is a crypto trading platform and crypto app built specifically for cryptos, which support a selected number of these digital assets. There are two types of crypto exchanges – centralized and decentralized. To use a centralized exchange (CEX), you must select an exchange and create an account. For a decentralized exchange, you must create a crypto wallet and then connect it to any available crypto exchanges.
ICO (Initial Coin Offering)
Similarly, to Initial Public Offering (IPO), the ICO is how a crypto project secures its funding. Anyone can be part of an ICO. This type of project launch was very popular in 2017, but many of those projects disappeared.
Blockchain fork
A blockchain fork takes place when the community behind a blockchain project can no longer agree on the same terms and decide to fork the blockchain, which effectively creates two different blockchains. The most famous forks are the Bitcoin hard forks, which led to many Bitcoin versions. However, the original one remains the most popular.
Market Cap
Market capitalization represents the price of a crypto asset multiplied by the circulating supply. This metric is often reviewed when performing a project’s fundamental’s analysis, and higher market caps are seen as attributes of a successful project.
Mining
Mining is the computational process that supports Proof-of-Work (PoW) blockchains to verify and add new transactions to the blockchain. The miner who can compute the mathematical puzzles fastest is rewarded with the block reward, a flat fee in that blockchain’s currency.
Blockchain
The blockchain is a digital ledger that records all transactions made. These transactions are composed of blocks. There are different kinds of blockchains, public or private, that use different consensus mechanisms to verify transactions. The most popular blockchains are Proof-of-Work (PoW) and Proof-of-Stake (PoS). There is no central place where the blockchain ledger is kept. It is instead copied on multiple computers and servers all over the globe. It is therefore considered decentralized.
More information
There are many more guides on CAPEX Academy to steer you through cryptocurrency markets and help you make more informed trading and investing decisions. These include:
- Lesson 1: What is Cryptocurrency
- Lesson 2: New Cryptocurrencies
- Lesson 3: Cryptocurrency Investing
- Lesson 4: Buying Cryptocurrencies
- Lesson 5: Cryptocurrency Crash
- Lesson 6: Bitcoin Investing
- Lesson 7: Cryptocurrency trading
- Lesson 8: Bitcoin Mining
- Lesson 9: What is Blockchain
- Lesson 10: Blockchain shares and ETFs
- Lesson 11: Crypto Stocks
- Lesson 12: Metaverse Crypto Coins
- Lesson 13: Crypto Apps
- Lesson 14: NFT Coins
- Lesson 15: Meme Crypto Coins
- Lesson 16: Cryptocurrency Arbitrage
- Lesson 17: Cryptocurrency Price Prediction 2022
- Lesson 18: Invest in Metaverse
- Lesson 19: Crypto ETFs
- Lesson 20: Crypto Trading Platforms
- Lesson 21: Metaverse ETFs