Cryptocurrency volatility, a profitable roller coaster ride


This year we can observe that cryptocurrencies are even moving up and down by 15% of their value every day. Such price changes are known as volatility. But what if … this is perfectly normal and sudden changes are one of the characteristics of cryptocurrencies that can help you make good profits?

First of all, cryptocurrencies only recently made it into the mainstream, so all the news and rumors about them are “hot”. After every statement by government officials about a possible regulation or ban of the cryptocurrency market, we observe enormous price movements.

Second, the nature of cryptocurrencies is more of a “store of value” (as gold has been in the past) – many investors view these as a backup investment option for stocks, physical assets like gold, and (traditional) fiat currencies. The transmission speed also has an impact on the volatility of the cryptocurrency. The fastest even take a few seconds (up to a minute) to transfer, making them an excellent asset for short-term trading when other types of assets are not currently trending well.

What everyone should keep in mind – this speed also applies to the lifespan trends of cryptocurrencies. While trends in regular markets can take months or even years, here they happen within days or hours.

This leads us to the next point – even though we are talking about a market worth hundreds of billions of dollars, it is still a very small amount compared to daily trading volume compared to traditional forex markets or stocks. Hence, a single investor making 100 million transactions on the exchange is not going to cause large price changes, but in terms of the cryptocurrency market, it is a significant and notable transaction.

Because cryptocurrencies are digital assets, they are subject to technical and software updates of cryptocurrency features or the expansion of blockchain collaboration that make them more attractive to potential investors (like the activation of SegWit basically resulted in the value of Bitcoin being doubled).

These elements together are the reasons why we observe such large price changes in cryptocurrencies within a few hours, days, weeks, etc.

But answering the question from the first paragraph – one of the classic trading rules is to buy cheap, sell high – therefore there is much more chance of having short but strong trends every day (instead of much weaker ones that take weeks or months persist like stocks) to make a decent profit when used properly.


Source by Mike Alexander