At this point, it’s evident that crypto is here to stay, whether we like it or not, although some like me may have significant doubts regarding the whole cryptocurrency rhetoric.
However, some have dived head-first into the crypto world, embracing its endless possibilities and perks. As much as cryptocurrency can be regarded as a digital asset that can appreciate over time, some prefer actively trading it instead of holding it long-term, like stocks.
Like forex trading, crypto trading has piqued the interest of traders globally, all with varying experience levels. As the crypto market continues to expand, it’s important to know how to select the right cryptocurrency for trading.
In this piece, I am going to guide you on how to select the best crypto to trade, so buckle up.
Understanding Your Crypto Trading Goals
Similar to forex trading, one needs to have a clear-cut objective for deciding to venture into the industry. The same concept applies to cryptocurrency trading.
Defining Your Crypto Trading Approach
The cryptocurrency that you decide to settle for largely depends on the duration for which you intend to hold on to a position.
1.) Long-Term
The crypto market is known for being extremely volatile, and the traders that keep open positions for years aren’t that many. Thus, crypto investors are advised to only focus on cryptocurrencies that have proven to have strong potential and solid fundamentals over time.
In this case, think of coins like Ethereum and Bitcoin.
2.) Medium-Term
This approach is ideal for traders who are experienced in anticipating medium-term events, trends, and project updates that could impact a coin’s value.
3.) Short-Term
Similar to day trading on forex and futures exchanges, this tactic can also be employed in crypto trading, and it’s suitable for traders who have a knack for taking advantage of volatile cryptocurrencies and are adept at identifying short-term price swings.
Risk Tolerance
Cryptocurrency trading is one of the most volatile markets that a trader can participate in. However, crypto traders have the liberty of choosing between aggressive, moderate, and conservative trading strategies.
The Top Criteria for Selecting Profitable Cryptocurrencies for Trading
1. Past Price Action
Crypto enthusiasts can make informed decisions when choosing a cryptocurrency for trading by evaluating the past price performance of the coin. This can be achieved by looking at the coins that generated the highest gains over an extended period.
However, it’s important to note that past performance doesn’t necessarily coincide with future gains, thanks to the dynamic nature of the market.
Provided you have some understanding of technical analysis, you can apply the same concept when trying to identify a suitable cryptocurrency for trading.
However, it’s important to note that past performance doesn’t necessarily coincide with future gains, thanks to the dynamic nature of the market.
Provided you have some understanding of technical analysis, you can apply the same concept when trying to identify a suitable cryptocurrency for trading.
2. Market Capitalization
The rule of thumb is to always lean toward cryptocurrencies that have a high market cap, which is a measure of the crypto’s value.
Market capitalization can be grouped into three categories, namely:
Large cap: This is the safest bet for beginner cryptocurrency traders.
Midcap: It has a relatively steady growth potential; however, it can be rather volatile and is not recommended for newbie cryptocurrency traders.
Small cap: These cryptocurrencies are susceptible to price swings and pose a great risk to traders.
3. Liquidity
The liquidity that cryptocurrency trading offers is attractive to most traders who are experienced in taking advantage of price fluctuations. So, beginners should choose cryptocurrencies with high liquidity.
4. Market Niche
It’s important to remember that cryptocurrencies have different niches. Thus, cryptocurrency traders should research the sub-sectors of the crypto industry to confirm whether the coin has the potential to grow over time.
5. Security
Security is an important factor to be considered when selecting cryptocurrencies, as they are extremely volatile because they are independent of any government regulations and restrictions.
This makes them susceptible to the risk of hackers. Thus, traders are advised to settle for coins that have robust security features like cold storage, encryption, and multi-factor authentication.