Trader, Investor or Something Else? What Is Your Role in the Cryptocurrency Market?
On days when the markets are in a downtrend, and it is difficult to sort through a pile of contradictory information emanating from various sources, it is especially important to listen to your own reasoning and stick with your own strategy and make your own decisions.
Looking back, if I had relied more on my judgment, stuck with my trading and investment strategy, I would have earned much more from the markets.
But to create your strategy, I think, one needs to understand one’s role in the market.
Who are you? Trader, investor or someone else? That is a foundation of your financial decisions.
Many people are often confused or do not understand what trading is in the short term or middle term and so on. The following is a short primer on the various positions you can take while trading cryptos and virtually any other type of financial asset.
Intraday Trading Position
Intraday trading involves 100% of deposit in stable assets (USD or stable coin) and working only with day-to-day trades. All trades are opened in the morning and closed in the evening. Followers of the intraday trading style do not keep any cryptocurrencies or positions on the balance and strictly work within their risk management and stop-loss strategies. They usually work on short time frames like 5, 15 and 30 minutes. Sometimes 1 hour, though this is considered exceptional. The intraday trader tries to catch fast movements in assets.
Followers of such a trading style usually open trades from 2-5 days to a few weeks. They typically try to place trades by following the trend and avoid allocating more than 50% of their trading balance on positions. More use of fundamental analysis. Such investors usually work with medium time frames like 4,10 and 12 hours, maybe even 1 day and use 1-hour time frames only for order placement. Usually, they try to exit at the peak of the movement or when there is a downward movement after growth. Short-term traders try to catch part of the action or the entire movement of the trend.
A person who follows such a trading style opens trades with a time horizon of 3-6 months. This trader attempts to enter trades when assets are at the bottom and re-buys when assets go down to specific price zones. The usual strategy involves fundamental analysis of the asset and trend determination. Under such style, the trader can enter and exit one asset many times during the year. He can buy today and sell at the peak of the growth of the whole cycle in 2-3 months – then wait a month or two for the asset to fall and re-enter the asset before the next peak of growth. Usually, the deposit is 70% in active positions and 30% of funds in reserve. They often re-balance one asset into another. This often works with up to 20 assets and the time frames are usually 4-hour – 12-hour as well as 1 day.
This is more of an investor position. Such people enter into positions from 1 to 3 years. As such, this strategy is simple – buy and hold the asset for a longer time horizon. If there is an excellent opportunity, they purchase an additional volume of the asset. This is suitable for whales, large investors, and funds with large portfolios; smaller investors who do not have much time can also do it as well. Such investors usually prefer a certain basket of assets and invest only in them and do not consider other assets. They prefer fundamental analysis of asset value and control the situation with the asset using 1 day, 1 week and even monthly charts.
This overview is just an example of the most common roles market participants play when purchasing financial assets. The main point here is identifying which type of trader you are and adopting the psychological traits needed to succeed. Of course, this will be based on your current psychology, future goals and amount of capital you are able to invest. This allows you to focus your attention, strategies and tactics on trading methods that can enhance your performance.
As for me, it took me a while to understand that I work best with medium-term strategies. I like to analyze market fundamentals, look what is happening with the development of an asset, follow 20-30 assets andre-balance them intermittently. As such, I usually enter positions with a 3-6 month horizon.
Remember: no strategy is “right” or “wrong.” It depends entirely on the factors described above.
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