Once it is expensive than before, you can sell it at that price point to make a profit. People who do this all day long are called altcoin day traders or swing traders and many have made millions investing in this market.
People started investing in the altcoin market when they realized that the stock exchange and the commodities market was not a true reflection of free market economics and it had limited profit margins for day traders despite their utter dominance in the financial markets. Since cryptocurrencies were alternative currencies but also traded like stocks with no closing time, it become a very intriguing new market for all investors.
In the start it was just Bitcoin, Litecoin and a few early coins but later on, Ethereum, Ripple, Monero, Dash, NEM and BitCoin forks lightened up the market and its market cap and trading is now at record levels. The reason why it is at record levels is that people are now realizing the margins that are at offer in the altcoin world because of its volatile nature and they want a share of the pie.
Why do you need altcoin trading strategies?
But, because it is so volatile, you need to be careful and devise proper strategies for trading or you will end up with big losses. Remember that volatility goes both ways so while nobody can predict the crypto market at all, it doesn’t mean you can’t try and mitigate your losses so that your investment remains intact for the future even in the case of a loss.
The first batch of altcoin trading strategies evolved from the ones being used in the stock exchange markets but with modifications. The reasons for modifications are rather obvious as the stock market only runs nine hours a day five days a week while the altcoin market runs 24/7 and it never ceases trading. Now these strategies may or may not be crypto-specific. Let’s Discuss some popular cryptocurrency day trading strategies.
1. Moving Averages and Technical Analysis
The altcoin market is incredibly volatile as one minute the price goes up while the other minute, the price immediately goes down. Now beneath all this volatility, you have a certain shape the market is taking and you need to know this trend. The closer you are to understanding this trend, the closer you are to predicting the future price of the coin and thus you can make your buys accordingly. One common strategy used by many traders is the moving averages.
This ability to identify the trends in the cryptocurrency market charts is called trend identification. Following points need to be kept in mind while identifying the trend in the cryptocurrency trading charts:
- The current price and trend reflects the coin’s entire journey up till this point.
- Price movements even if they appear entirely random are quite likely to follow trends
- What’s happening is more important than why its happening. Its a market and you don’t need to rationalize its behavior and you have to catch up
- History repeats itself often in the coin market and historical behaviors repeat themselves again and again and you will be able to see it that way.
So, once we have agreed to universally applicable points on the market, we now move towards the main strategy itself which the moving averages.
Moving averages is a way to reduce the noise or fluctuations in the graph and make it smoother for our understanding of the current trends. While it is not that reliable as a whole, you can still observe it to understand the longish trend of the market. For starters, what you need to do is to calculate the price of the coin over a 20-day period.
Another more dynamic approach is called exponential moving average and is used to identify and more realistic short-term trends in the market. Like you can calculate 5-day averages and then compare it to the 20-day average.
If the 20-day average is less than the five day average then it is clear that the market is currently in a bearish trend and the price may decrease in the coming times. You can shorten the duration of the moving averages even on an hour level and you can predict where the market is really going in the short-term.
2. Support and Resistance
This is another fundamental yet useful technique in analyzing the market and predicting the future price point. The support and resistance method gives a good measure of demand and supply of any major altcoin in the market.
The support level is easily defined as the lower price level that traders are all ready to buy a currency at. The current rate of the coin is always above the support price as bitcoin traders are ready to buy it at that price and they would all buy if the support price wasn’t lower than the actual price. So, if price drops so does the support price.
The Resistance is the theoretical price at which coin traders are ready to sell the coin at. It is always above the current price as this price will mean that the traders are happy selling at it but won’t sell it since it hasn’t been achieved already.
This is just like a floor on the stock exchange and behaves similarly. So support and resistance are lower and upper price points in the dynamic setting of bitcoin and there is no actual measure of how to determine them but just by observing the market.
Now what the market does is that when it reaches the resistance price, it immediately bounces back up as buyer activity increases driving the price up. When it reaches the resistance point, the price immediately comes back because of increased selling trend.
Mostly, support and resistance are only used for short-term day trading and are very effective tools.
3. Volume trading
While most of the focus is on the price of the altcoin, the volume also plays an important role in the future of the altcoin. If the volume is low then the price would go down due to lack of investor confidence in a particular coin but if the volume is getting higher and higher than it shows an increasing investor and trading confidence and price is expected to increase in the coming hours. The volume of trading activity perhaps changes even more dynamically than the coin price itself and people are usually unaware of it.
The volume trading is when you keep in mind the volume trends of a coin and make decisions accordingly. If the price of the coin is surging a little according to the graphs, it doesn’t mean that it will necessarily continue going up. You have to account volume too.
Perhaps the traders are buying coins and holding it thus sucking up the volume of the market. If the volume is showing a negative trend, beware of buying that cryptocurrency especially if it is a minor one since their price is always tied to the volume as well. You can see what happens with them daily and monitor their volume and you will arrive at the same conclusion.
4. Bollinger Bands
The Bollinger band is a simple yet rewarding strategy that was devised from the stock exchange and modified for the cryptocurrency market. It was started by John Bollinger who has tasted success in both coin trading and stock exchange.
Bollinger bands are specifically for day trading and swing trading. They are curves on the coin’s graph accompanied with the moving average which is called the middle band which is accompanied with a lower and an upper band. Together they try to predict whether the current price of any coin is low or high at the moment and thus where it is expected to go.
The larger the difference between the upper and lower bands, the more it is likely that the price is stable and we wait for a crazy breakout to happen just like it happens with all major coins including bitcoin. When the bands suddenly breakout we have the opportunity to cash in on the current price by either buying or selling a particular currency’s tokens.
The Bollinger bands are seen as the real application of the resistance and support lines being used in coordination with the moving averages strategy. Every trades should use this basic strategy to do some common sense trading before moving to more complex strategies that are also based on it.