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Trading Virtual Assets

July 15, 2022 | Article

Cryptocurrencies and other virtual assets are traded just like any other ordinary assets would be traded. Crypto exchanges like Coinbase and Binance also offer similar services as regulated financial platforms do aswell. As such, there are countless ways that one can profit off of trading virtual assets. The two main strategies to consider is technical analysis (TA) and fundamental analysis (FA). 


Fundamental analysis is a method that is used to valuate an investment. Such an analyst determines if the current price is fair by looking at economical and financial factors. Such indicators can include macroeconomic indicators such as the general state of the global economy, industry conditions or the business related to the investment. In the case of crypto, analysts look at on-chain metrics which includes indicators such as the blockchain network hash rate, the number of wallet address, top holders of the asset and many more. Although fundamental analysis is widely used in the traditional stock market, some investors say that it is not so applicable in the world of cryptocurrencies as the market is mainly driven by speculation and narratives. 


Technical analysis involves looking at historical trading movement to determine how the price of an asset will change in the future. These analysts look at indicators like volume, chart patterns and may other charting tools to evaluate riskiness of an investment and the strengths and weaknesses of the investment. 


Day trading is one of the most popular trading strategies within crypto and in the regular finance world. Day trading regards capitalizing on intraday price movements. However, in contrary to traditional stock markets and forex markets, most virtual asset trading market platforms are open 24/7 all days of the year. Day trading cryptocurrency can be highly profitable but its regarded as a very arduous and stressful task with very high risk. 


Day traders will typical employ the following techniques:

  • Price action strategy: Analysing the movement of price over time in the short run 

  • Technical analysis: The theory that historical price action could indicate how the asset would behave in the future. 

  • Scouting inefficiencies in the market. 


Swing trading is a slightly longer term strategy which involves holding positions for a couple days or weeks. Swing traders try to capitalize on waves of volatility. Chart patterns and technical indicators play a big role in a swing trading strategy. This is more recommended for beginners as trades take longer time to play out, giving investors time to consider their investment and track its success. 


Position trading involves a long position of holding, typically for a couple of months. Position traders try to take advantage of general upwards/downwards trends in a market. Position traders take advantage of fundamental analysis and may incorporate techniques such as moving averages and trend lines to increase their profits. Trend trading involves a lot of research and risk management; however anyone willing to do the work can be successful in it. 


Scalping is one of the fastest trading strategies. As the name implies, scalpers exploit small moves repeatedly over small periods of time aiming to make a small profit margin. Scalpers commonly open and close their positions within a matter of seconds. Scalping can be a very successful strategy especially if a trader finds an inefficiency in the market such as bid-ask spreads or gaps in liquidity. Scalping is an advanced trading strategy which requires a high degree of skill. The profit margins are small, so traders have to risk trading much larger positions to make it profitable. 


Buying and holding is a beginner investment strategy where investors intent on holding an asset for a very long time, regardless of how the market fluctuates. The idea is based that any market will always have a general uptrend and with a long enough time frame, the entry price wont be significant. The buy and hold strategy is based on fundamental analysis and doesnt concern many technical indicators. As such, portfolios that are held over a long period of time do not need to be checked as frequently. Although virtual assets haven’t been around for a very long time. The HODL trend is often compared to this strategy. HODL is a term coined by cryptocurrency enthusiasts meaning ‘Hold on for dear life.’ As the name implies these crypto enthusiasts never sell their holdings; instead, constantly buying more crypto when they have the funds. However, cryptocurrencies have proved to be extremely volatile, with the risk of some altcoins even completely crashing such as TERRA did, many investors that were HODLing the coin were left extremely sad to see their coins become almost completely worthless. 


Similar to in traditional finance markets, ETF and crypto indices are availble to investors aswell. A crypto index takes a basket of cryptoassets and creates a unique token to track their combines performance. This basket allows investors to bet on sectors such as utility tokens rather than a unique token. This eliminated the risk of a single coin collapsing, making it a safer investment in the crypto space. 



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