Trading with cryptocurrencies became very popular in the last few years, and the main reason lies in the great potential of digital currencies to become a standard method of payment in the future, and many of them are subject to frequent fluctuation on the market, which means that you can invest and trade with them like with shares of big corporations on the stock market.
While mining was the most popular method for getting cryptocurrencies for a long time, most people prefer to buy and hold them until they reach a higher value. However, you have to deal with a lot of analyses of the market to become able to predict in what course will that cryptocurrency go, and is there a chance to get a profit from investing in it.
After the year 2017, when Bitcoin reaches its peak price at around $20,000, people realized that this cryptocurrency, along with many others, represents an excellent type of asset to trade with on the global market. There are numerous online exchanges today where you can easily convert fiat currencies into virtual assets.
On the other hand, you have to be aware that successful trading requires some skills, and that are many factors that could affect the prices of cryptocurrencies. Moreover, there are many platforms for trading where you can read about those factors, and compare various trading options to find the one with the best potential. For example, you can choose an online platform to follow the value of Bitcoin.
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Furthermore, before choosing the type of asset to invest in, you must learn more about various processes, factors, and many other things related to efficient trading. Building your skills on time can be crucial for creating an income. A proper analysis is a major factor when it comes to choosing the right crypto. We have selected some of the most important price prediction tips for beginners that you should know before start investing.
1. Analyze the Economic Factors
When it comes to the economic factors that could affect the prices on the crypto market, most of them are the same as with other markets, while some are unique and special related to virtual assets. The most important factors are:
- Utility; This term is related to the value of some units on the market when it comes to its usability. The question that traders should ask is “Why do I need this product?” and you must rely on the functionality or other important attributes that describe and makes that unit popular and demanded. The best example is Ethereum, which is not only a basic cryptocurrency since it also offers an ability to use the benefits of its platform where you can create advanced contracts, create apps, and more.
- Mining Difficulty; The process of building cryptocurrencies is called mining, and it requires miners to share their resources on the platform to create blocks of codes. The efficiency of creating those codes can affect the value.
- Market Sentiment; As we already said, most digital currencies are highly volatile on the market, and if you want to trade with them more often, you must find a proper way to analyze which one has the best potential.
- Supply and Demand; These factors are one of the most important for the determination of value. The best example is related to Bitcoin and its significant fall in price after the peak in 2017. The reason for such a fall is because most people became interested in selling than buying this asset.
2. Analyze the Technical Factors
Besides the economic factors that are common for any type of market, there are also technical ones related only to blockchain and functionality of platforms related to trading with digital assets. The technical aspects can help you to determine when you should buy, sell, or stop trading with some unit. Also, there are many platforms where you can deeply analyze the structure of the market, and create a more accurate strategy according to that. The basic types of technical analyses are:
- MACD Indicator; This indicator shows you the current trends on the market in form of charts where you can easily see the positioning of some unit in terms of values.
- Relative Strength Index; With this index, you can determine the frequency of fluctuation and compare how many people are interested in buying or selling. There are two factors determined in this index, Overbought and Oversold.
There are also some advanced methods like Bollinger Bands and Candlestick patterns where you can get even more detailed data about the current structure of the market and price changes.
The Bottom Line
There are always cases where people are not able to successfully predict the price movement. Therefore, you can use methods like order book and stop-loss, to make your trading more efficient or to prevent losing too much. There are many exchanges where you can find the chart related to Order Book, and see if there is a chance to affect the price of some cryptocurrency if you decide to buy it. On the other hand, you can set-up a Stop-Loss function on your platform to automatically sell units in case their value starts dropping.
When you learn all of these factors, there is a much bigger chance that you can become a successful daily trader, which can bring much bigger profit when you find the right types of assets to trade with. According to many experts, a lot of cryptocurrencies have great potential to become much more valuable in the future. Also, the fact that people are interested in blockchain technologies and the use of e-wallets is an important indicator for that as well. Moreover, many governments are planning to find an efficient method for the implementation of virtual currencies in their monetary systems. In that case, values will surely become much higher. On the other hand, there is also a risk that some cryptos could become worthless if some country labels them as illegal.