How to Trade Altcoins for Profit? Simple Guide
Trading altcoins is gaining in popularity every day. If you want to know how to trade altcoins for profit, this article is for you. Besides the answer to the question “how to trade altcoins for profit”, in this guide, we will cover the points such as
- What are altcoins – a closer look at altcoin trading
- What are the best day trading strategies for beginners when it comes to altcoin trading?
A closer look at altcoins
Altcoins are digital or cryptocurrencies that were created as alternatives to Bitcoin. The name itself is derived from the concept of being an “alternative to Bitcoin.”
These altcoins may mimic the operational framework of Bitcoin, incorporating slight modifications, such as new consensus mechanisms. Alternatively, they may present entirely unique approaches by developing their systems from the ground up.
Some altcoins emerge from questionable Initial Coin Offerings (ICOs) with the primary aim of profiting their creators and contribute little in terms of innovation.
However, numerous altcoins have successfully carved out specific niches for themselves, offering distinct features and uses.
What’s interesting, there are numerous altcoins.
Among the most popular are Litecoin, Ethereum, Bitcoin Cash, Ripple or even Monero, Dash and Zcash.
The list of “altcoins” is constantly evolving (since anyone can create one via an ICO).
The largest ones are listed on the CoinMarketCap site.
Short-Term Crypto Trading Speculative Strategy
Many traders are drawn to the excitement of short-term or speculative trading. Interestingly, others prefer the long-term investment approach, allowing them to relax and watch the markets work over time. Short-term trading strategies, therefore, have a considerable number of enthusiasts.
While the fundamentals of short-term trading share similarities across various assets, trading cryptocurrencies necessitates extra considerations to tilt the odds in your favor.
Short-term trading is often referred to as aggressive trading due to the increased risks taken with the hope of securing higher profits.
The principle of investing lies in managing the delicate balance between risk and return. Higher returns are typically associated with higher risks. In the realm of short-term trading, especially within the highly volatile cryptocurrency market, there’s an inherent readiness to potentially lose your investment within that short timeframe.
Overall, the shorter the timeframe for trading, the greater the risk linked to that trade. This discussion leads us to explore the three most prevalent short-term trading timeframes in the cryptocurrency domain.
How to trade altcoins for profit: Define Crypto Trading Sessions
Since cryptocurrencies are traded internationally without borders, one way to define a trading day is to go through the trading sessions in the world’s financial capitals like New York, Tokyo, the euro area, and Australia.
This method follows trading sessions similar to those in the foreign exchange (forex) market. Certain sessions may offer better trading opportunities if the cryptocurrency you plan to trade has higher volume or volatility during that time.
For example, a China-based cryptocurrency like NEO may see more trading volume during the Asian session.
Be aware that day trading cryptos are different from other day trading assets.
While day trading traditional financial assets such as stocks or forex, you can follow fundamental market movements that have already been established, such as the next a company’s profits or a country’s interest rate decision.
The crypto market, for the most part, does not have a developed risk event calendar. This is why conducting fundamental analysis to develop a day-trading strategy is much more difficult for cryptos.
How to trade altcoins for profit – Set aside enough time for the trade.
Depending on your personal schedules, you may want to consider scheduling a specific time frame of the day to focus on your trades.
The aim of being able to trade around the clock is pretty cool in theory. You can simply access your trading app for an all-nighter and start trading. But that flexibility can backfire when you start losing sleep.
Staying alert during day trading, or night trading for that matter is very important as you need to develop strategy, identify trading opportunities, and manage your risk multiple times throughout the trading session. For many people, having concrete discipline pays off.
How to trade altcoins for profit: Start small
Day trading involves many risks. So, until you get used to it, start with a small amount and gradually increase your capital as you gain experience. Some brokers even allow you to start trading with a minimum of $50.
If you start trading small, be sure not to use margin or leverage to grow your trading potential. Leverage is one of those risky tools that is projected as an opportunity.
It allows you to manage a larger account with small initial investments by borrowing the rest from your brokers. If you’re just trying to test the water by starting with a small investment, using leverage will defeat that purpose.
How to trade altcoins for profit: Don’t take too much risk
Most successful day traders don’t put a large chunk of their account – 2% at most – into each trade.
In case you have a $10,000 trading account and are willing to risk 1% of your total capital on each trade, your maximum loss per trade is $100 (0.01 × $10,000).
You should therefore ensure that you have this money available for potential losses. It is important to take into account various factors.
How to trade altcoins for profit: Secure your crypto wallet
A significant challenge in day trading cryptocurrencies involves ensuring the security of your crypto wallet. It is better to use online wallets, especially when it comes to wallets provided by exchanges.
This poses a dilemma for traders who require access to their funds throughout the trading day, as leaving altcoins on an exchange’s online wallet increases the risk of cyber theft.
An alternative approach to mitigate this risk is to engage in speculation on the cryptocurrency market’s price fluctuations without directly purchasing or selling the cryptocurrencies.
It is possible to achieve the goal mentioned above through brokers who offer services allowing traders to speculate on crypto market movements, thereby avoiding the need to store digital assets in potentially vulnerable online wallets.
How to trade altcoins for profit: Stay away from scalping
Scalping is a trading strategy favored by certain traders. It involves making numerous trades over a short period, sometimes in just a matter of seconds. This approach requires entering and exiting trades frequently.
Engaging in scalping can lead to exposure to significant market risks, especially if each trade incurs a commission fee. Such costs can accumulate quickly, potentially depleting funds before any profit is realized. It’s uncommon for individual traders to secure profits through scalping due to these challenges.
However, the dynamics change for traders affiliated with companies that benefit from discounted commission rates and have access to large trading accounts. In such scenarios, scalping might present a more viable and profitable strategy.
Profit in a couple of days
If you’re interested in short-term trading but prefer not to be glued to your computer screen constantly, swing trading might be the ideal approach for you.
In the world of traditional trading, individuals who maintain their positions overnight fall into the category of swing traders.
A common strategy among swing traders is range trading. This involves looking for cryptocurrencies that have exhibited consistent price fluctuations within a defined range, rather than following a clear upward trend.
The goal here is to purchase at lower prices and sell at higher ones.
Alternatively, you could adopt a different approach by focusing on technical analysis to identify price ranges. Various technical chart patterns and indicators are available to assist in recognizing these trading ranges.
Opting for swing trading instead of day trading has its trade-offs.
Swing trading occupies a somewhat ambiguous position in tax regulations; holding positions for over a year may qualify you for preferential tax treatment.
For those who engage in trading based on the cryptocurrency market’s movements without actual purchases, it’s crucial to ensure that you’re not subjected to commission fees for maintaining positions overnight.
Profit in weeks
This trading approach is known as position trading in the context of traditional markets. It occupies a middle ground between long-term investment and day trading. It is a safer option than short-term trading strategies.
In position trading, traders aim to identify a market trend and follow it, either upwards or downwards, until the price encounters resistance or support levels.
Resistance is essentially a psychological market threshold that hampers price increases, whereas support represents a price level below which the market tends to resist falling.
Maintaining positions for several weeks may necessitate keeping your cryptocurrencies in an exchange’s online wallet, introducing potential security vulnerabilities.
For traders looking to avoid the direct ownership of cryptocurrencies while still capitalizing on market movements, utilizing a broker that offers price speculation services might be a preferable option.
A common strategy for position trading includes the following steps: Utilizing technical analysis to spot a trend, waiting for a price retracement, buying during a pullback in an uptrend, selling at resistance to lock in profits, and then patiently awaiting further developments.
We hope this guide to altcoins trading will be useful to you. The most important thing is to enter the market with sufficient knowledge, start small and manage the risk properly. We wish you good luck in your trading adventure!
