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Altcoin trading is extremely popular, with some traders seeing significant returns. To successfully trade altcoins, there are certain dynamics of cryptocurrency markets to consider since it can be a risky undertaking.
We, at CAPEX, want to help you manage the risks associated with trading altcoins, that’s why we have prepared this guide, as understanding the ecosystem is necessary before getting started.
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The term altcoins (short for alternative coins) refers to cryptocurrencies such as Ethereum (ETH), Bitcoin Cash (BCH) and Ripple (XRP) and others that have been introduced since Bitcoin (BTC) made its first appearance in 2009. There are now over 5,000 altcoins in existence; however, many won’t be found on reputable exchanges. Regardless, with so many options available, it has been predicted that the global economy will be made up of 10% in cryptocurrency-based assets within four or five years, which you can trade at CAPEX.
Trading any cryptocurrency means exchanging one for another on an exchange with a dedicated cryptocurrency solution, such as our platform as CAPEX. We offer powerful research tools in collaboration with highly regarded platforms, including Trading Central and TipRanks, which allow users to make better-informed decisions with their trades.
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Not to be confused with how to short altcoin, which you can learn with our guide on how to short cryptocurrencies, short-term altcoin trading is a method of trading through which individuals purchase digital currency with the intention of only holding it for a short period – minutes, hours, days or weeks. This is often the type of strategy day traders employ. As the name suggests, the goal of short-term trading is to own the cryptocurrency for a short time before selling it for a profit.
Short-term trading, or day trading, can be profitable if you correctly anticipate a quick increase in the price of an altcoin. However, it also requires the trader to be more focused on the markets and be ready to react to any change that occurs. Without having significant time to dedicate to a short-term strategy, it can’t be effective.
The main benefit of short-term trading is that there is a definite opportunity to see significant returns on the investment. In contrast to traditional currencies like the US dollar or the Euro, which often doesn’t see movement of more than 1% in value, altcoins routinely experience changes that occur quickly. In some instances, prices can double in hours or overnight, as you can see in the price charts that we have available at CAPEX.
Another advantage of short-term altcoin trading is that the cryptocurrency market does not follow the Pattern Day Trading Rule. This rule applies to traders in the US and caps those with less than $25,000 in their trading account to just three day trades each week. With altcoin trading, US-based traders, as well as those in other jurisdictions, can trade in any amount at any time.
Because of the high volatility of the digital currency market, altcoin prices can move up and down quickly. This means that, in order to make a profit through short-term trading, a considerable amount of time has to be allocated to analyzing and following the market.
Another disadvantage of short-term altcoin trading, for some, is that it requires a larger investment initially to begin in order to see substantial returns. Many just getting started in trading don’t have the financial capabilities to support a large investment or may not have the confidence to allocate a large amount of funds, something that we at CAPEX solve by letting you trade cryptocurrencies with a leverage of 1:2.
In day trading, picking when to enter and exit at tight spreads is crucial to maximizing satoshis, or SATs, the smallest unit of Bitcoin and is equal to 0.00000001BTC. Unlike position trading, the use of stop losses can be counterproductive in day trading. By reading and anticipating the order flow, it’s possible to exit a trade before it turns against you, leading to the loss of more SATs up to the stop loss. This is the same concept applied in high-frequency trading.
An order book will only show limit orders (“market makers” on futures platforms), while the market orders (called “market takers” on the future platforms) are only visible when a limit order is reached. Similar to the haggling over price between buyers and sellers that is found in a physical market, an order book shows the haggling that takes place over the price where one side is overwhelmed by too many sellers or too many buyers. The direction of the price will depend on which side can gain more ground.
A trader can use order flow to confirm the support and resistance levels that he has marked on the chart. Typically, you can expect a cluster of large orders around the technical levels you have selected on the chart to confirm your thesis.
However, this does not mean that these levels will hold. For example, be wary of relying on an oversized order acting as support below your price. It could be a spoof order, and instead of acting as support, it could dissipate into nothingness.
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Another altcoin trading strategy is the long-term strategy. This, as the name suggests, implies the purchase of altcoins with the intention of holding them for a long period, typically a year or more. A good example of this is someone who purchased BCH in 2017, when it was worth around $900. If the trader had purchased 10 BCH then and sold it this past May, when the price reached $1,542, there would have been a return of around $6,000 on the initial $9,000 investment.
The biggest advantage to long-term altcoin trading is that it isn’t complicated. It only requires a little bit of time to make the initial investment, and, then, no additional interaction is needed. However, long-term traders still want to watch the market. Unlike day trading, which you can easily perform at CAPEX, long-term traders need to check the price movement only from time to time to see if there are any major changes. It’s important to avoid the trap of wanting to sell at every change and remember that the goal is to achieve long-term growth. Even if BCH, for example, falls, this doesn’t mean it won’t rise again. BTC has gone from $100 to $20,000, down to $2,000 and is now up to around $34,000.
Another advantage to long-term trading is that traders don’t need to invest a lot of money to establish trading portfolios. They can buy more altcoins as they develop their accounts, letting the amount build up as they look to generate better returns.
A disadvantage of long-term trading of altcoins is that it could potentially overlook the possibility of quick gains, which are often seen in the market. On occasion, digital currencies have added considerable value to their prices in a single day or a week before losing the gain. However, based on most analysis of the future of cryptocurrency, there is still money to be made with long-term trading. You can read more in our guide on day trading vs investing.
Novice and expert investors and traders are always willing to invest in the best available tools that can make their lives easier. Cryptocurrency trading can be very lucrative, but it can also turn out poorly if not done correctly. There are a number of tools out there that are designed to make cryptocurrency trading easier. Several examples include market watchers, portfolio managers, portfolio balancers, charts, crypto news aggregators and exchanges or trading apps.
To get the most out of investing or trading altcoins, it’s important to choose the best trading app that meets your needs. The best online broker for cryptocurrencies is often a CFD trading platform like ours at CAPEX, because it allows you to trade altcoins without paying commissions.
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The volatility of altcoin prices in the market can be a good source of profit, but it can lead to some losses. This is why it is important to understand the fundamentals of altcoins and how they work, as well as what drives some market changes. There are some other points that we at CAPEX recommend before getting started, as well.
Don’t be overly influenced by others when starting to trade altcoins. Because you are not the only trader trying to make a profit, try to avoid letting the input of others (especially non-experts) from impacting your decisions. There are plenty of examples on the Internet, through websites, videos and more, that portray “guaranteed methods to become a millionaire” trading cryptocurrencies – ignore them. Most of the content is generated by promoters who are only interested in driving traffic but who have no real knowledge or expertise in altcoin trading. The best strategy, as with any trading, is to conduct your own research and only make a decision if you feel confident about a possible shift in price.
You should also only invest what you are comfortably ready to lose. This is another tip that applies to any type of investment and is a crucial rule to follow. Never borrow money to get started trading altcoins because changes in the market could potentially result in losses and, consequently, debt. Don’t use funds that are earmarked for other purposes such as rent, mortgage or medical care. Instead, plan appropriately and allocate a certain amount of money to invest in trading. Also, using a crypto demo account to practice is always helpful. At CAPEX, you have access to a demo account at all times.
It’s not a good idea to invest only in one portfolio. Although you might have a preferred altcoin in the market, investments are emotion-free. Don’t put all of your investment money into one altcoin because you increase your risk. Instead, diversify the portfolio and target multiple altcoins by carefully analyzing their performance history and expected returns.
The previous tip goes hand-in-hand with the next one. Always make sure you are effectively managing risks when trading. This means that you need to understand all of the risks involved before getting started and integrate proper strategies to mitigate them. For example, although you anticipate the price of a certain altcoin to move up, it could still move down and you need to be ready with an appropriate stop-loss tool to prevent incurring losses if the price continues to slide.
Trading altcoins has become extremely popular as an investment opportunity because of the fast-growing popularity of cryptocurrencies. It is similar to Forex trading in a lot of ways but can also be more complicated because of the risks associated and the lack of decades-long histories.
Those interested in how to buy altcoin should begin by learning how to trade altcoin before making their first investment. It is also important to understand how to properly analyze market trends and adhere to strategies that have proven effective. Sign up today at CAPEX and start practicing in a demo account and learning more through the CAPEX Academy.