Authored by: @hetty-rowan
Are you ready?
Sunday again, which means my posting duty is starting again. I hope you are ready, and I will try again to throw some interesting posts for you on the blockchain. And while I've been writing about crypto trading and the technical indicators over the last few weeks, and of course there are a few more indicators to describe, today I'm going to look at a different aspect of trading.
Be proud of yourself!
Because trading is fun, it gives a lot of satisfaction when you can make that winning trade where you can take a profit. Regardless of whether it is a lot or little profit, as long as you close a trade with a profit, you have won, and you can be proud of yourself! And to be able to make winning trades you depend on the price fluctuations in the exchange rate.
And that is exactly the question, because what makes this price always move up and down. Yes always! Or did you think there would come a point when, for example, Bitcoin would only go up without seeing another fall? Then you are wrong. These fluctuations in the price are necessary. That is what you can use to make your profit.
The market decides
Simply put, the value of a cryptocurrency is determined by the market. Put more simply, supply and demand. That determines the price, and therefore also the rise or fall in the price. To compare it with the housing market, if there is a lot of demand, the price will slowly go up, but if there is little demand and so few houses are sold, then the price will have to move accordingly, and therefore go down. Now it works the same for cryptocurrency, but with cryptocurrency this is not as gradual as in the housing market. And in addition, cryptocurrency is much more sensitive to influences from the news.
Consider, for example;
- A cryptocurrency is added to a large exchange. This creates more volume and awareness, and a rising price
- A cryptocurrency makes a big announcement, like a partnership with a big company.
- A cryptocurrency releases a product that is on the roadmap (for example, a new functionality).
Check the news!
If the price of a particular cryptocurrency suddenly goes up or down very strongly, check the news to see if you can deduce anything that could explain this change. This also indicates how important it is to keep an eye on the news of the crypto you own. You want to be able to estimate these strong rises and falls in advance. Because getting in too late is not what you want, but getting out too late is certainly not what you want.
Take Cardano as an example here. The Mary hard fork happened on March 1. And Cardano has gone up really fast the week leading up to this Mary hardfork. This increase was due to the news and hype that arose when Cardano announced that their hardfork would take place on March 1. If you did own Cardano but missed the hype for not keeping up with the news, then you've missed an opportunity here. And this happens much more often. The reverse is also possible, bad news about a cryptocurrency can also put the price down in a dive. Think of XRP… (which is now on the rise).
Whales can influence the markets!
It is of course also possible, and this also happens regularly, that whales are busy. Because they too can often influence the market with their enormous quantities in the direction they wish it to go. Whether this is good for crypto in general or not, time will have to tell. But personally I don't like it when one or a few people can exert so much influence on a market that the entire market is 'bothered' by it. However, I fear that this will never be prevented in cryptocurrency.
In any case, you have several things in your arsenal to determine what to do with that particular cryptocurrency at a time of strong rise or fall. Namely technical, fundamental or sentiment analysis.
Now I have to say that ups and downs of 10, 20 or even 30% are very normal in the cryptocurrency. Yes, even a 30% drop is not a crash. If we suddenly go down by 50%, yes it is a crash. And I'd rather not talk about that in this blog… you get that!
The Technical Analysis can help you determine what to expect after the strong rise or fall of the cryptocurrency in question. If you are somewhat adept at this technical analysis you can recognize patterns… and from the patterns you can try to predict what you think will be the sequel to the steep rise or fall. Based on your technical analysis you make a decision about what to do. Now it is wise to remember that NO prediction is 100%. However good you may be at making technical analyzes, it also remains a kind of coffee grounds and only time will tell if you ist fed up with your prediction. But the fact is that often the same patterns are formed and if you can recognize them, you have a strong asset to capitalize on the rises and falls in the prices of the cryptocurrencies.
A Fundamental analysis, in which you look at the intrinsic value on the basis of the technology behind the cryptocurrency, their roadmap, any developments, the team etc… can also help you to see what will happen. If there have been changes that have not gone so well, it may have caused a decline, if someone has left a team that was important for the cryptocurrency in question, this could have an impact on the price. These changes can of course be both positive and negative.
And finally… if you are going to apply the Sentiment analysis you have one last aid. Take as an example that it probably would not have been very wise to ape All-in, in Doge when it was at 8 cents because Elon Musk sent out a tweet about Dogecoin being the future. That is sentiment that has cost many people a lot of money. Admittedly, there are also many people who have made a big bang profit with this because they had held their Doge for years.
Market sentiment is important
And if you think the market sentiment is not important, then you are wrong. Because it is very important. Especially if you are the one who CAN control his emotions. Then you can make a lot of profit. When others are afraid. The picture below shows that very clearly.
And to conclude with a quote from Warren Buffet
“Be fearful when others are greedy, Be greedy when others are fearful”
Thanks for reading through this post, wish you all a very Happy Sunday!
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