It has been a mesmerizing journey for cryptocurrency. A couple of years back no one would have wondered cryptocurrency to be such a massive industry with a billion dollars market. Every passing day we see more and more investment coming into the crypto world.
There are several prominent assets that have seen massive gains in recent times. As the crypto market is still new, so users would often find it volatile. There is a lot of potential in the market and has a fair bit of opportunities for investors. So, what’s the way to approach trading cryptocurrencies, which has stood the test of time? And is that trading approach, the one which yields fruitful outcomes?
Cryptocurrency Trading Factors
Restricted Historical Data
Cryptocurrency is a new market and not long ago, it wasn’t there at the level of asset classes like stocks and forex. These are old markets and have enough historical data (both fundamental and technical) that can easily give a direction to an investor.
The crypto market has yet to be explored. The first and leading digital asset in the market, Bitcoin (BTC), has only been in business since 2009.
Applying quantitative analysis upon cryptocurrencies would rather not work 100% because of the fact that strategy backtesting and statistical modeling on cryptos have restricted importance due to the outcomes acquired from small data samples, which usually mislead and are unpredictable.
Delicate and Speculative Principles
Judging the market trends of cryptocurrency can be very hard to find at times because of its unpredictability. This is due to the fundamentals moving around concepts (both general and technical) which are not easily understood by everyone. So, is this a valid reason that traders should step away from this extraordinary market, just because of tricky principles? Obviously not!
The essence of Price Action Trading
Price Action is a great market barometer that is used to determine the short-term direction of the price of an asset.
The traders strongly believe in this concept (price action) and presume that certain key aspects play a major role in the changing of the price of an asset. These biases quite often thwart a trader when the price does either nothing or goes totally opposite of what was anticipated.
The fundamental triggers are usually ‘priced in’ by informed market gurus long before it’s officially made public. This, in consequence, makes it unproductive by the time it is published.
However, basic data plays a vital role in the valuation of an asset. The price action method is the ultimate and most dominant way that is taken into account while trading decisions are made. It really helps a trader what is going around with the price of an asset.
Different Asset Classes opt Price Operation
Does price action mean the same for different asset classes out there? And if so, then does it resemble similar patterns? Most markets function in the same manner generally due to the common characteristics and think thank of the individuals participating in these markets. So, with time, various market players respond to specific market conditions in a similar manner. This guides the price movements to show repetition due to the market psychology involved.
Demand, Supply, and Some Frequent Market Mechanics
Demand and supply are two fundamental features of any market and play a key role in shaping different markets in a similar way. To understand this concept, we look into a general example: in strong bull rallies, sellers are in limited.
There is a large number of investors who trade with-trend and usually end-up having problems while getting considerable buy orders filled at reasonable prices. Therefore, when these large market players experience pullbacks against the bullish trend, it provides them with chances to achieve their large orders at quite good prices.
Moreover, when the price drops, it clearly indicates that more selling liquidity is about to enter the market. This lets the ‘big players’ to move further up as greater supply of that asset is about to enter the market.
Some other market factors play their role in causing price action across most freely tradable financial tools to move in impulsive followed by corrective and then corrective followed by the impulsive i.e. Elliot wave sequences. This impulsive and corrective orientation is one among those few patterns caused by regular market behavior.
Common Aspects Between Crypto and Other Markets
So far, as things have gone in the crypto market, it seems that it is no different from other financial markets. Cryptocurrency has shown promising progress that resembles it with other markets price action characteristics.
It is anticipated that the crypto market will follow the same market trend and continue to make moves in accordance with the controlling characteristics of the traditional financial instruments’ price actions.
This all sums up that trading cryptocurrencies with ‘old school’ technical analysis and price action method is the way to go for investors and traders. The best part about following these conventional methods is that when it combines with prudent risk management, it would certainly end upbringing success.