The returns and risks associated with trading serve as key factors attracting traders from traditional investment worlds and those seeking higher returns than conventional assets into the cryptocurrency market. However, this market presents unique challenges and differences compared to traditional investment markets. Let’s explore what preparations are needed before entering this market.
Traders familiar with traditional investment markets may be accustomed to designated trading hours and breaks for decision-making. However, the cryptocurrency market operates differently, remaining open 24/7 without market controllers. Moreover, there are no established guidelines to pause trading activities during periods of high volatility.
The non-stop trading nature of the cryptocurrency market necessitates risk management strategies even during periods when traders are not actively monitoring their screens, such as during sleep. This includes understanding techniques for preemptive order placement and portfolio risk management to mitigate exposure to market fluctuations.
Digital currencies represent a relatively new asset class, with even the pioneering cryptocurrency, Bitcoin, being just 15 years old. Most altcoins have emerged within the last few years, and the overall market capitalization remains relatively smaller than other asset classes. Consequently, the cryptocurrency market experiences considerable volatility, largely due to the predominance of active short-term traders over long-term investors.
Furthermore, the market is susceptible to risks stemming from unexpected news or events, leading to price fluctuations exceeding 10% within a single day. Such volatility is significantly higher compared to traditional assets, reflecting the dynamic and unpredictable nature of the cryptocurrency landscape.
In the realm of cryptocurrencies, almost all news and information can be found online, with minimal regulatory oversight. Anyone can have their own media platform and publish content, leading to the proliferation of fake news or sowing fear, uncertainty and doubt (FUD), that significantly impacts price volatility.
One of the essential skills for cryptocurrency traders is the ability to filter incoming information effectively. This involves critical thinking, analysis, and ability to discern facts from fiction, enabling informed investment decisions. Traders must also filter content to prevent information overload and avoid confusion when making investment choices.
Blockchain technology undergoes continuous evolution, and the cryptocurrency market is in a constant state of development. What we knew and understood in the past may not hold true indefinitely; they can change drastically over time.
Therefore, everyone involved in the crypto market must embrace a mindset of accepting and adapting to ongoing changes and continue learning new technologies. This is unlike traditional asset investments, which typically experience minimal fundamental changes.
Once you grasp the characteristics of the crypto market, traders must adjust both their mindset and trading strategies accordingly. With this adaptability, the likelihood of success in this market increases significantly.