Crypto trading is slowly but surely becoming a solid source of income. Considering that in 2020, more than 1 in 10 Americans invested in cryptocurrency, according to a survey published by the University of Chicago, crypto trading is clearly making its mark and shows signs that it is here to stay. 13% of people in the United States have bought and traded crypto over the last 12 months whereas 24% invested their money the old-fashioned way — in stocks and bonds.
Nobody is denying the rise of crypto trading and crypto usage. However, there is a general consensus whenever people are asked about cryptocurrency and trading that the topic is complex and very difficult to understand. It is extremely easy to get things wrong and end up losing the money you’ve invested.
With this article, we aim to show you three solid investing strategies that increase your chances of ensuring consistency with your crypto trading.
It is important to understand that when you are trading in crypto, becoming profitable is closely related to attentiveness. A common mistake with crypto trading done by many is to invest heavily in a particular coin simply because of its affordability. It’s like opting to trade in Ripple rather than Ethereum because the former is much cheaper.
Investing in a cryptocurrency should have nothing to do with its price but rather its market cap. Just like with conventional stocks, the standard formula of “Current Market Price X Total Number of Outstanding Shares” still applies.
Let’s take as an example a cryptocurrency that is priced at $10 per coin with a total of 1 million shares in the market, and a coin that is valued at $100 per coin with 100,000 shares in the market. In order to decide which crypto to invest in, it is perfectly justifiable to use a coin’s market cap as the main factor in deciding whether or not to invest.
As a rule of thumb, the higher a currency’s market cap is, the more suitable it is for investment. Applying this formula will ensure you end up with strong performers in your portfolio and it should increase your chances of earning a consistent income.
This particular strategy works best if applied over longer periods of time. The thinking behind it is very straightforward. You don’t invest all your money into one cryptocurrency at once. What you do instead is to divide it in smaller amounts and choose a particular time and day of the week when to implement your buying strategy.
Let’s take the example of Bob who has $10,000 to invest in Bitcoin. Instead of making one sizeable investment, he decides to go for the DCA strategy and takes the following measures to ensure a return on investment:
Rather than going all-in, Bob has reduced the side effects caused by the market’s volatile nature (prices falling and rising sharply). This means that, on average, Bob will get more Bitcoin for his money.
If you decide to invest the DCA way, it is important to focus on the following rule — only buy your chosen cryptocurrency at the set interval when the price of it is in the red. This means that the price of the coin is lower than it was 24 hours ago and it represents a safe investment. A great tool that can help you with implementing your DCA strategy is DCABTC. This is a Bitcoin-focused DCA calculator.
The Relative Strength Index (RSI) divergence strategy is more technical in nature and it can be used to great effect in spotting a shift in trend before it happens. Specifically, the concept helps you determine when a cryptocurrency is moving from a downtrend to an uptrend and vice versa.
The index is, in its essence, a chart indicator that measures where a coin is about to move. It does so by calculating the average number of gains and losses over a period of 14 days. The indicator line oscillates between 0 and 100 and it highlights when a cryptocurrency is overbought or oversold.
The values you need to focus on are the range between 30 and 70. If your crypto portfolio goes above 70, it means that your currencies are overbought and their price is likely to drop. Alternatively, if the level of your crypto is below 30 then this means that your currencies are oversold and the price will likely rise.
This is just an oversimplified explanation of how the strategy works. This tactic is more advanced and can be used to identify a change in price before it happens. We strongly advise you to always check for discrepancies between the price of your cryptocurrency and the RSI indicator. If the price is falling but the RSI indicator is rising, this is normally a subtle sign in the buying or selling volume that indicates the momentum is in the early stages of reversing.
The above strategies are just a few you can use to bring an element of stability and consistency to your crypto trading. It can be overwhelming or discouraging to implement them on your own, particularly if numbers aren’t your strong suit.
If you fall in this category and you have an interest in crypto, why not get in touch with us today, and let’s see how one of our programs can help you get started on your crypto trading adventure?