Cryptocurrency Investment Strategy 2020
Making plans might be challenging, but you can’t go far in trading and investing without some solid plans. Unless you have a functional strategy of when and how you invest your money, you won’t be able to make money on a regular basis. What’s more, you’ll likely lose what initial capital you have.
A lot of beginners make one mistake – they dump preplanning in favor of their guts. Statistically, it’s not very profitable.
To create a viable strategy, you need to know what it takes to do it, how exactly it helps you and more.
What are strategies and what’s their point?
Investment strategies are combinations of decisions in regards to markets, assets and practical aspects of trading. They obviously change depending on what is happening or has happened to the market. Strategies try to make trading more predictable and less like betting. If you don’t like trusting the chance, you might consider learning a thing or two about them.
If something goes wrong, they always panic or start thinking when there is no use of this anymore. An investment strategy allows users to decrease the time they need to make a decision and keep calm in difficult situations.
Every trading strategy is based on these things:
- You need to write a trading plan before making investments and a list of unpredictable situations occurred while trading or investing (depending on the time the user spent on this).
- Traders need to think about how they can avoid these troubles in the future. It isn’t possible to do it without the previous step.
- Correcting mistakes or creating a new strategy.
After you’ve chosen or created a strategy, you still need to update it all the time and take notes because the markets change and the sequences change with them. It’s especially important to have an up-to-date algorithm if you’re using automated software to help you invest.
Kinds of trading strategies
There are three main kinds of trading strategies:
- They almost aren’t used in modern life because a lot of trading instruments are automated. This is especially true if we talk about cryptocurrency because it is the youngest trading instrument. You need to have certain personal characteristics if you want to use this type of strategy. You need to be disciplined and can keep calm in difficult situations. Unfortunately, trading robots can do a lot but not enough. Some strategies can’t be automated.
- Half-automatic. Some trading robots need a person to perform their actions but generally, they are autonomous. This is the most often used kind of cryptocurrency investment strategy. Only people have a flexible mind, robots can’t adapt to the changing reality. Also, robots don’t have a possibility to do fundamental analysis, they can only operate based on numbers and algorithms. Actually, the line between manual and automatic strategies is very vague because even in manual strategies, we can automate some simple operations.
- Automated trading strategy. This strategy was created for automated testing using special programs called robots. This program makes all operations autonomously. It analyses the market, opens, and closes orders. Trading robots need an algorithm to do their activity. They follow this algorithm very precisely and allow traders to save a lot of time with the same financial effect.
And whenever the market changes, you need to see how it affects the trend and update your strategy. Trading robots not only can save a lot of time, but they also have one more advantage. You don’t need to write down different trading aspects in a diary. You only need to use a strategy tester to find the best parameters. It makes work significantly simpler and increases the speed of the trading system.
That said, automated software isn’t a panacea, the manual method is still better in many situations.
For example, you need to have a VPS server to protect the robot from stops and make the speed of transactions faster. Maybe, the best kind of trading strategy is a half-automated system.
Robots can’t analyze news and other important events that can affect the market. Fundamental analysis is done by the trader and he can control actions made by the computer. Also, trading robots are often disconnected before important news.
Components of the trading strategy
If you want to create your own trading strategy, you need to understand which components it consists of.
- This is a period of time that is needed to form one candle on a special graph. It affects the level of how aggressive the strategy is and risks.
- Trading signal. This is a situation when purchasing or selling a coin is the most profitable. Signals can be any – reaching a certain level or an event that can affect the prices of a certain cryptocurrency. News can be positive or negative. Both can be used for making predictions for the prospects of cryptocurrency. There are two types of signals. The first says that you need to make an order. The second says that you need to close your order.
- Money management. This is the most important part of the strategy. You need to understand the real risks of a certain strategy. The maximum risk for one order must be 1%. If the risk is higher, trading becomes gambling.
A correct investment strategy is the main condition for profit if you want to become a cryptocurrency trader. It is very difficult to develop it, but the result will definitely be great. Don’t be a gambler, become a trader or an investor.