Aug 122018
 

This is a guest post by Mike McCormick

Investors venturing into cryptocurrencies are currently facing a significantly volatile market. The crypto trading market, which includes Bitcoin among other coins, almost crumbled on June 22 when most coin prices dropped by up to 10% after two exchanges in Japan were hacked within 11 days.

Losses in billions of dollars are not quite uncommon in the cryptocurrency market cap. In December of 2017, Bitcoin hit a high of $20,000 only to drop to $8,500 by mid-March 2018. Cryptocurrencies have seen significant losses mainly due to hacker activities and other security concerns. Investors seeking to dip their feet in Bitcoin and other cryptocurrencies including Ethereum, Ripple, Litecoin, Monero, should have a good understanding of the volatile nature of the crypto market and how to manage this volatility.

If you trade in crypto coins, expect volatility, in fact lots of it. For instance, while a 5% movement in a single day in other traditional equities such as stocks is quite a big deal, a 20% movement in the cryptocurrency market in a day is practically normal. That’s the nature of cryptocurrency trading. You can check the exact price of different coins at different times or days in a good online cryptocurrency converter to understand the volatile nature of this market. Keep in mind that blockchain technology is still at an experimental stage so the possibility of a digital asset rising or dropping value considerably should not come as a surprise.

Understanding Cryptocurrency Volatility

Volatility is one of the most common measures of investment risk. It is basically a dispersion of both upside and downside return of an investment. Without going into more complicated mathematical equations involving daily standard deviations and square roots, let’s just say that the higher the volatility, the higher the potential to make gains or losses in a trade. Most cryptocurrencies including Bitcoin have a volatility of 100%, some as high as 200% or more. The risk of high volatility can be beneficial in determining the success or failure of your cryptocurrency trades.

When you’re analyzing the expected direction of conventional assets such as ETFs and stocks, you can always rely on technical analysis and past behavior to base your decision on. However, technical analysis functions are somehow limited when it comes to cryptocurrencies. Fluctuating prices of Bitcoin this year so far have proven that the cryptocurrency market does not behave in a predictable logical manner. So how does an investor manage market volatility when dealing in Bitcoin and other cryptocurrencies?

Here are a few tips and insights to guide help you manage volatility:

Do Your Due Diligence Before Investing

While analyzing cryptocurrencies, you won’t find as much fundamental key selling points in websites, whitepapers, and other publications. The direction and momentum of the market are influenced by FUD and FOMO sentiments. FUD refers to the spread of Fear, Uncertainty, and Doubt (FUD) mostly through the media while FOMO is basically Fear of Missing Out on a lucrative deal. These are fear-based factors that should not be your friend in cryptocurrency trading. Given the significant influence of FOMO and FUD sentiments, market analysis in cryptocurrency trading is only meant to give you a basic idea of the direction and momentum of different coins so you don’t dive into the market blindly like a headless chicken.

It is therefore important to conduct your due diligence beyond the current hype on cryptocurrencies to make sound investment decisions. With due diligence, you’ll know if a coin has viable functionalities, usage, and demand to justify its survival on the market. You’ll also understand the reasons for its current volatility and whether or not it has long-term prospects.

Make Good Use of Stop Loss Orders

A stop-loss order is a setting found in some trading exchanges or platforms such as Coinbase. The setting tells the exchange to sell a pre-set maximum amount of Bitcoin from your account when the price reaches a specific level. You only need to specify the price level and amount of Bitcoin to sell from your account then activate the setting. The downside of stop-loss orders is that you will miss out on profits when the price rises again. However, it protects you from significant losses when prices fluctuate drastically.

Holding For Long-Term Benefits

If you are in the cryptocurrency market for the long haul, the daily price movements should not be a cause for concern or alarm. You’ll be able to easily check the upward or downward movement and make the right decisions along the way. For example, you could see a gradual upward movement in the past three months despite the prices looking shaky every day. You’ll be able to comfortably judge the trend according to a long-term analysis, unlike the trader who is constantly worried by fluctuating daily movements.

Use the Available Tools              

There are many traders who base their decisions on gut feelings and later wonder why things didn’t go their way despite their best efforts to judge the market. You can easily get the guesswork out of your trading activities by taking advantage of the available tools. The tools help you to make data-based decisions and even measure the performance of each decision you make. Use tools to set the limit of orders to minimize losses or even get a notification on your mobile phone when a given cryptocurrency goes higher or lower than your pre-set price threshold.

Conclusion

Volatility is inescapable in cryptocurrency markets. It is the nature of the beast. You can capitalize on volatility to make successful trades if you stay on top of the game. Avoid greed, the number one cause for failed cryptocurrency failures. The market is extremely fast paced where the price of a coin can go as high as 5 to 10 times in a few hours then drop considerably. It’s quite easy to get caught in a high-chase and end up making impulsive decisions in search of a high payout. Don’t forget that a quick reversal trend that could lead to outsized losses is possible as well. The important thing in managing volatility is to understand your risk appetite and manage it by treading the waters with caution.

Mike McCormick is the founder of CoinChiefs. He studies Business and Economic Reporting at New York University. He has a very good experience in crypto mining and loves to analyze anything crypto-related which makes him sit up and pay attention.

Photo Credit: CreditDebitPro

Aug 022018
 
How to Travel Using Digital Currencies

This is a guest post by Anupam Varshney “Like all great travellers, I have seen more than I remember, and remember more than I have seen” – Benjamin Disraeli We all love to travel. Some prefer a weekend getaway, others go out for a few weeks and then there are avid travellers who have been […]

Jul 272018
 
Ovrium: Managing Scientific Publications on the Blockchain

Ovrium is a new blockchain project aimed at helping the scientific community better manage the entire process of publishing scientific journals and papers. Although science per se has never been more popular today, the scientific process is constantly under review and scrutiny. The scientific community may be working on breakthrough projects and research, but the […]

Jul 262018
 
Trilliant’s Fractional Ownership: The Future of Cryptocurrency Investment?

This is a sponsored post from Trilliant. The cryptocurrency sector has remained an elusive proposition for seasoned financial investors for more than a decade. Despite the potential to achieve a highly favourable rate of return (provided that educated investments are made), market complexity and perceived precariousness of investing have long dampened investor enthusiasm. Additional contributing […]

Jul 242018
 
Professional Verification on the Blockchain with SpringRole

SpringRole is a new blockchain-based project that takes aim at the professional verification category. Think of it as an employee verification system on the blockchain, powered by its native token, the Spring token. The Spring token is used for various purposes inside the project, such as referring an employee or company to use this project, […]

Jul 222018
 
OEL Foundation: Blockchain Ecosystem for Enterprise Logistics

The OEL Foundation is an interesting blockchain-related project that is quite different from the other token sales that you may have seen. For one, it is a not-for-profit organization. Its stated goal is to provide “governance and resources for the development of the Open Enterprise Logistics blockchain ecosystem”. If you’ve ever encountered anything related to […]

Jul 062018
 
MobileBridge Momentum Platform: Bringing Crypto to Marketing Automation

The MobileBridge platform is bringing the power of blockchain and crypto to the world of marketing automation. Marketing automation here refers to how ordinary businesses retain customers and improve customer loyalty. This is an important use case for crypto in general. There have been many such companies in the past that tried to get customer […]