Crypto trading: Can it be profitable?

Crypto trading: Can it be profitable?

You’ve heard all the success tales of folks who invested early and sold at high prices to make millions of dollars. Everyone enters the Cryptocurrency industry with the intention of making money, but not everyone succeeds. Because they don’t fully grasp how to profit from crypto trading, many people either give up along the way or lose money.

The cryptocurrency market is still developing and has a long way to go. More individuals enter the business as the value of crypto assets rises. These newcomers are always attempting to understand how to profit from cryptocurrencies. The good news is that there are several cryptocurrency-based revenue streams. Here, we examine crypto income generation in more detail.

Index

97% of day traders lose money

Less than 1% of day traders make money, according to studies, and over 97% of them lose money over time. A day trader will attempt to profit in one of two methods. A day trader will buy a stock if they believe it will rise in value or if they notice it rising upward and believe it will rise in value that day. They will, however, lose money when they sell the stock if its value falls. Easy to understand!

Due to these frequent errors, the majority of traders lose money.

  • Poor or no education
  • Weak trading mentality
  • No trading plan
  • Flawed trading system and ethics.

Risks and pitfalls of crypto trading

Risks of crypto trading

The primary danger associated with trading cryptocurrency is its volatility. They are speculative and high-risk, so it’s critical that you are aware of the hazards before you begin trading.

They are unstable

Sharp and abrupt price movements might result from unanticipated shifts in market sentiment. Cryptocurrency values sometimes plunge sharply by hundreds or even thousands of dollars.

They are not governed

Right now, neither governments nor central banks have any regulations regarding cryptocurrency. They have, however, recently begun to get increasing notice. For instance, it is debatable whether they should be categorized as a commodity or a form of virtual cash.

They are prone to mistakes and hacking

Hacking, human mistake, and technical flaws cannot all be completely avoided.

They may be impacted by discontinuance or forks

Hard splits and termination are two additional hazards associated with altcoin cryptocurrency trading. Before trading these higher-risk items, you should become aware of these dangers. It may cease trading if you do not receive accurate pricing from the underlying market during a hard fork. Hard forks can cause significant price volatility.

Pitfalls of crypto trading

Here is a list of cryptocurrency dangers to stay away from or watch out for:

  • Disregarding volatility
  • Not understanding that transactions are irreversible
  • Not conducting research
  • Day trading or excessive trading
  • Giving your secret key or seed words away (even by accident)
  • Preventing the use of two-factor authentication
  • Allowing a malicious dApp to use your tokens
  • Investing unknowingly in a multilevel marketing or Ponzi scheme
  • Committing the “rug pull” scam error
Crypto trading

Risk management in crypto trading

There is no uncertainty that when trading cryptocurrencies, bad things will happen to you. Negative events include trades that result in the opposite of what you wanted, odd price surges, errors, and many more unpleasant occurrences. Every trader who deals in cryptocurrencies does so at some level of risk. Because they frequently employ leverage, cryptocurrency futures traders tend to assume more risks. Risk management procedures record your intended risk management strategy for trading. They shield you from the negative effects of your transactions and keep your losses under control. The following are some risk management techniques:

Start with a Good Trading Strategy

Trading relying only on intuition or gut feeling is one of the worst trading blunders you can make. While it is true that you can achieve some success in this manner, it can only be a matter of chance and nothing else. To minimize your risk and get consistent outcomes, you need a good strategy.

Just make investments you can afford to lose

The fact that many traders mistakenly think nothing can happen to them and that they have everything under control causes them to miss this important part of trading.

Why should you abide by this rule? Because you might lose your capital, to put it simply. Additionally, trading with money you cannot afford to lose will put you under strain and mental stress, which might affect your judgment and cause you to make additional mistakes. Since the cryptocurrency market is unstable, it could be wise just to invest a portion of your available cash.

Calculate your risk-to-reward ratio consistently

The risk-to-reward ratio compares the prospective risk and profit from a trade. A trade’s risk-to-reward ratio should be evaluated before execution. You are more likely to choose transactions with a high chance of success if you can weigh the possible reward against the risk.

Employ stop loss orders

The stop loss order aids in defining a market exit point. When a deal goes against your prediction, it minimizes your losses. You will experience losses eventually, and there is nothing you can do to prevent them. By utilizing a stop loss order each time you trade, you may limit your losses. Stop losses make it possible for you to avoid closing off trades too soon and losing out on potential gains. They also shield you from making incorrect decisions as a result of engaging in emotional trading and falling to cognitive biases.

Opportunities in crypto trading

Crypto trading is risky as well as has disadvantages, but on the other hand, it provides a list of earning opportunities which can give you good profits, if handled properly.

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Day trading

Using this trading method, positions are opened and closed on the same day. When engaging in such a transaction, a trader’s goal is to book profits during intraday price fluctuations in the cryptocurrency of his choosing. Investors frequently use technical indicators to determine the best times to enter and exit a trade for a certain cryptocurrency.

Range trading

Market participants also rely on seasoned experts, who daily provide support and resistance levels. A resistance level is a price that is higher than the present price since “resistance” alludes to the limit where the price may climb. As a level below which a cryptocurrency price is not expected to fall, a “Support” level is always lower than the present price.

Scalping

Increased trading volume is used in this trading approach to generate profits. Even if there is danger, a wise trader observes the margin requirement and other key regulations to prevent negative trading outcomes. Scalpers examine the cryptocurrency asset, historical patterns, and volume before deciding on an entrance and exit point within a day.

Trading at a High Frequency (HFT)

Quant traders utilize a type of algorithmic trading approach called HFT. This entails creating trading bots and algorithms that provide speedy entry and exit from a cryptocurrency asset. Such bots require the development of complicated market ideas as well as a solid foundation in mathematics and computer science. As a result, experienced traders would benefit from it more than newbies.

Dollar-Cost Averaging

It is important to understand that timing the market is nearly difficult when trying to discover the ideal entry and exit points in a crypto market. Dollar Cost Averaging is a sensible strategy for investing in cryptocurrencies (DCA). DCA is the term for recurring, fixed-amount investments. By using this method, investors may avoid the laborious task of market timing and create long-term riches.

Exit strategy, though, might be challenging in the DCA approach. It necessitates researching industry trends and comprehending market cycles. Reading technical charts might also aid in determining when to leave. Before making a decision, cryptocurrency investors should keep an eye on oversold and overbought areas.

Automated trading vs. manual trading

Automated trading

The technique of employing software programs (also known as crypto trading bots) to purchase and sell virtual currencies is known as automated crypto trading, also known as automated cryptocurrency trading. This computer software is designed to respond to changes in the market and enable trading at the ideal time. Additionally, automated cryptocurrency trading eliminates the risk and emotion associated with manually purchasing and selling cryptocurrencies.

The majority of automated crypto trading platforms are still APIs, despite some more recent crypto bots that use smart contracts and function directly on the blockchain. The word “API” stands for an application programming interface, which enables your account to connect with a cryptocurrency exchange so that it may open and liquidate positions on your behalf based on predefined criteria.

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Manual trading

In contrast to automated trading, which involves computer programmes carrying out transactions based on predetermined formulas, manual trading refers to the procedure in which a trader opens and closes positions on their own. Trading terminals are used by those who engage in manual trading so that they may compile all of the relevant information. They also can set up notifications in order to ensure that they do not miss potential possibilities for profit. Without the trader’s authorization, the deal will not go through.

The strength of automated trading solutions

Utilizing automated bots has several advantages that may be realized:

Elimination of Emotions

Whatever they may claim, it is difficult for them to keep their emotions out of trading. After all, you are using your hard-earned money to play a game. It is logical to associate an emotion with the possibility of losing it. When it comes to trading, excitement or maybe even an excessive emotion might get you into problems. A premature plunge into a transaction might cost you hundreds of dollars in missed profits. Overaggressive efforts to recover losses can sometimes be a significant disadvantage. Crypto trading bots take away all emotions.

Trading Based on External Factors is Eliminated

Since each transaction must typically be coded when using algorithmic software, traders can avoid making rash decisions based on bad business or economic news or out of FOMO (fear of missing out) on valuable assets. Quick-finger transaction errors, such as unintentionally leaving off a zero on a sell order price, may be avoided using algorithmic trading.

Offers Possibilities for Back testing

Back testing in trading is the practice of an investor seeking investment guidance from the past. By using historical market data, you may utilize this technique to determine if a certain trading strategy will be successful based on prior performance. Then, rather than speculating and perhaps losing money, you may automate that strategy.

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