Introduction
Post the Covid pandemic, with excess liquidity being injected into economies by central bankers, trading on crypto exchanges had reached an all time high. Bitcoin had rallied to its lifetime high in November 2021, before it gradually started witnessing downtrends. Crypto markets in 2022 have not had a good time, but trading of Bitcoin and altcoins still continues among crypto enthusiasts and other investors.
Since Bitcoin emerged in 2009, many other blockchain projects have been developed, with many such projects having coins and tokens native to them. These coins and tokens are actively traded on crypto exchanges and all such coins other than Bitcoin, are known as altcoins. The term ‘altcoin’ is literally made up of two words, alternative and coin, which directly indicates it being an alternative to Bitcoin. Ethereum, Binance Coin, XRP, Dogecoin are some of the altcoins with the biggest market capitalizations.
Altcoins may be of different types like payment tokens, utility tokens, security tokens, stablecoins etc. This blog would have different tips on trading altcoins, and also some precautions to take while trading them.
Types Of Trading Altcoins
The flexible crypto markets allow traders to buy and sell altcoins whenever they want. Traders have adopted different trading strategies, and some of them are listed below:
- Short-term trading strategies- As the name suggests, traders buy and hold altcoins for a short period in this strategy. The period can be for a few minutes, hours, days, or months. The core principle of this strategy is to gain a quick profit over a short time. Day trading is one example of this type of trading. While short-term trading may allow a few traders to earn huge profits quickly, it is often dangerous for amateurs since altcoins are very volatile and can wipe out huge gains in a few minutes. It depends on traders’ use of this volatility according to their benefit. Traders would also need to trade using significant amounts so that the short-term profits make sense.
- Long-term trading strategies- Traders who buy and hold altcoins for at least a year before selling them are generally considered long-term traders. Many traders bought altcoins years ago and became millionaires when the coins rallied to all-time highs. This strategy requires a lot of patience, though, as considerable returns are only achieved over many years. Traders may also miss out on short-term gains from a few altcoins if they don’t sell at the right time. But an added benefit of this strategy is that traders can keep investing small amounts of money in altcoins in regular intervals, which would give high returns and compound over the long term.
Choosing the right strategy for themselves is the first step for a newbie trader. One can choose to be either type of trader or also choose a trading strategy which combines the best of both strategies. This requires extensive research and an understanding of altcoins and the crypto markets.
Tips On Trading Altcoins
Here are a few tips on trading altcoins. One should be extremely careful while trading altcoins considering many frauds and several altcoins going bust in recent times.
- Invest after extensive research: Money is hard-earned for everyone. On top of that, considering the volatility of crypto markets, traders should be extremely careful choosing an altcoin to invest in. They should only invest in altcoins of the blockchain projects they believe in or have been associated with. Since crypto markets also are largely controlled by big institutional investors with huge sums of money, being a small fish in a big pond would need considerable research.
- Setting a stop loss: Setting a stop loss is important not to get carried away by emotions. A stop loss helps reduce losses and provides a way out of the trade. For example, consider you had bought an altcoin for $50. $50 could be your stop loss so that in case of a huge crash suddenly, you at least don’t walk away with a loss.
- Don’t be influenced by the media or friends: This is the most dangerous thing to avoid if one is a full-time trader. Media houses continue running opinion shows on the markets, while social media sites have people worldwide putting forward their views on crypto. This should be taken into account while making decisions for investments. Investing after listening to someone else’s ignorant advice often leads to staggering market losses. Others may seem to be making humongous returns while some may suffer losses, but trading on the crypto markets should be at the end, after careful personal research.
- Calculated risk: Considering how volatile altcoins are, one should always invest in them with sums of money they can afford to lose. Crypto exchanges have gone bankrupt, blocking investors’ holdings, while some altcoins have gone down to zero. It is not an ideal product where one allocates almost the entire investment portfolio towards altcoins.
- Diversify investments: While trading, the entire sum shouldn’t be allocated to only altcoin, which increases the chances of a loss. A well-diversified set of altcoins should be considered.
Other than the above tips, one should also explore the viability of a crypto exchange while trading through its account, consider its fees to avoid overpaying and be updated with the latest news and trends in the crypto markets.
Conclusion
Though altcoin trading may seem difficult initially, anyone can dabble in it after learning the basics of trading. New traders should note the various tips provided in this blog, and then they can start trading.
We wish you good luck as you head into altcoin trading!