A lot of people understand the idea of investing in cryptocurrency, but what about trading? The two require different ways of thinking. For investing, it boils down to how well the technology will hold in the future. So if you’re looking to save up for your retirement fund, or want profit much further in the future, that’s where HODLing works well. That’s when you need to look at the fundamentals of a cryptocurrency and decide how you can benefit from it in the long run.
For those looking to make money now, you use a short-term strategy. That means looking for stable, high liquidity cryptocurrencies, buying when the price drops, and selling at its peak height. This is the main reason everyone touts when explaining why crypto is so lucrative, it’s much more volatile than trading stocks or traditional currency, so the potential profit (and risk) increases that much more.
This is what crypto trading is, and it does get complex, which is why there are so many crypto trading tools are out there. Here’s what’s out now and what’s coming up that can improve how you trade in crypto.
What are crypto trading tools?
There are a lot of tools out there, and yes, you’re going to want to use a variety of them in combination, whether you’re just investing, or trading. There are lots of types of tools, exchanges where you buy crypto, wallets to store them, tools that help you keep track of your digital assets, and then more complex tools that aid in buying and selling decisions.
“Strategy is everything in crypto and part of strategy are the tools in your arsenal.”
-Peter Borovykh, RoninAi Platform
Here’s a breakdown of the types of tools out there and what’s coming up.
Exchanges are the places where you can either exchange your fiat currency for cryptocurrency, or exchange your cryptocurrency for other cryptocurrency. There are already a lot of exchanges available, as it’s the first thing you need to get into the space it makes sense that these were among the first tools developed.
There are decentralized and centralized crypto exchanges. At the moment centralized exchanges handle the vast majority of transactions but this ratio will likely to be changing.
Trades on a distributed exchange are less vulnerable to hacking, but they’re more difficult to use. Examples of decentralized exchanges are Radar Relay and Ether Delta. For beginners, Coinbase is a solid choice, but you should always look up the differences between the exchanges before getting started. There are pros and cons to all of them.
Exchanges can be vulnerable to attacks, which is why a lot of traders choose to store their cryptocurrencies in a secure wallet. Some are free, some cost money. The ideal wallet is secure, accessible, hard to lose, affordable, and easy to use. You’re going to want to figure out which features are most important to you because the perfect wallet doesn’t exist yet, though this year has seen vast improvements.
This is the fun (and scary) part. This type of tool is going to let you track the overall performance of your crypto, in other words, how much money you’re making or losing. Some exchanges and wallets have built this feature into them, but if yours doesn’t have it you’ll want to get one.
Having a way to track your portfolio is going to become necessary if you have a lot of different types of coins, or if you do frequent trades. Although it’s always a good idea to know where things stand. For those greatly concerned with security, there are manual trackers, or if that’s not an issue, automatic ones that are more convenient. Make sure you track your crypto, and there is great nifty little tool for that TrackMyCrypto, it is a chrome add on and very straightforward. A trader should use something more advanced like CoinTracking.
You don’t need advanced tools to make crypto trades, but you will want them if you’re serious about generating short term and higher long term profits. These are tools that help you make smarter decisions and minimize risk as you explore the crypto trading space. A lot of the best advanced tools are new or coming soon, so keep your eyes peeled for these tools that’ll aid in making smarter trades.
Finding a good analysis tool is really tricky. What exactly is it analyzing and what is that analysis based on?
For crypto trading you want an analysis tool that can tell you the strength of a coin, assess the bullish/bearish sentiment of a coin, how updates to blockchain protocol will affect it, and so many other factors with the ultimate goal of figuring out if it’s going to go up or down in price. When a stable coin is down, you buy knowing it’s cheap now and going to go up in price later, when it’s up a lot, you sell, knowing it’ll inevitably drop again.
That sounds a lot like the stock market, which is why so many tools like TradingView run on the same premise as stock trading tools, but crypto isn’t stock. It’s much more volatile, harder to predict, and affected by more factors and more heavily. Also keep in mind that trading stock is already complicated and those tools were never meant for beginners so unless you have extensive stock trading experience with technical analysis tools, it’s going to be difficult to fully utilize at first.
Something easier to grasp is social sentiment. If everyone thinks it’s doing well and are positive about a coin, it’s likely to go up, and vice versa for when it’s bearish (negative). Ai and machine learning work really well for assessing that much data in a brief amount of time. Analysis tools for crypto are starting to get more sophisticated, and there are going to be better ones out there that can actually interpret data for you and self-adjust algorithms for changing markets.
Right now the only one that seems to analyze and interpret both technical, crypto specific, and social data are RoninAi whose saas platform is launching this summer.
“The opportunities on the quant side are very appealing, especially if you have a team that is strong on both crypto, quantitative trading, and machine learning. You can do arbitrage, long/short, etc.”
-Paul Veradittakit, Panterra Crypto Hedgefund
Some of the portfolio management and analysis tools have this built in, but there are tools strictly meant to notify you of market changes. It’s actually much more handy to have than it sounds, especially since can’t be looking at the market 24/7. These tools are usually associated with bots (not to be confused with machine learning Ai) and run on static algorithms to serve a specific purpose. While bots can’t interpret or adjust to market changes they are highly functional for simply reporting these changes.
For people that trade without analysis tools or limited tools, this can help you spot trends. When a coin dips a couple times, especially a big dip, it likely won’t recover immediately. It might be time to sell as the trend will continue for a bit. Same with when it goes up. But do keep in mind, this is not the optimal strategy. The theory is to buy as low as possible, sell as high as possible to maximize gains. Predicting this is hard though, so notifications are one way of spotting the patterns yourself.
You can also use a crypto news aggregator like CoinBuzz for the same purpose.
Some of the above-mentioned tools have risk management built in, which is really important. If you have a stop-loss of 5% for example, then you’ll sell a coin before you lose more than 5% when it starts to dip, minimizing loss. That doesn’t work if you bought during a dip and it kept going down though, because in that case you’ll want to hold onto it for when it goes up, and then sell. Knowing when to set up this sort of automation, or notification will be extremely helpful when you’re doing heavy trades or trading several cryptocurrencies at a time.
These advanced tools aren’t meant to make crypto trading harder, even though it does sound complex. Rather, crypto trading itself requires a lot of discipline and understanding, plus the time that most of us just don’t have. These tools are meant to make crypto trading easier, but always make sure it’ll be suitable for you. If you’re beginning, experiment with what works for you carefully, don’t go all in until you get a better grasp of what your strategy will be.
One thing is certain: if you buy and sell crypto even occasionally having an external set of eyes and understanding on your trading strategy (or lack thereof) using tools can help you enhance your trades and profit.
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