bybit, Should you trade Cryptocurrencies a long-term or medium-term?
Merits and demerits of long-term and medium-term trading in Cryptocurrency markets.
Medium-term trading vs long-term trading: which strategy to choose?
When trading on any exchange, a variety of strategies are used, depending on how long the asset is held by a potential investor. For novice investors, medium-term trading is the most popular, and long-term trading is already the lot of experienced players. Let’s try to figure out what these strategies are and which one is better to prefer.
Medium-term in trading
Exchange trading allows you to make a profit with a variety of approaches, depending on the experience and skills of a particular investor. Medium-term trading implies that the purchase or sale of an asset, it takes from several days to a month and several weeks. The medium-term is very often called swing trading from the English word swing, meaning “turn, swing”. This term contains the meaning of such trading – the ability to make money on changes in rates, including under the influence of momentary factors: changes in regulation, political speeches, news from the stock market, etc.
Medium-term trading does not require the trader to follow the quotes around the clock online, but it does require the investor to keep abreast every day, check the main news resources and understand the general price trends. Moreover, it also helps a trader to monitor the change in quotes within each day – this is necessary for understanding medium-term trends. The main task of a trader is to figure out the price support and resistance levels in order to properly set close orders. In other words, medium-term trading requires the ability to sell an asset on time.
In many ways, medium-term trading is similar to intraday trading. In both cases, the investor earns not on fundamental growth, but on the volatility of an asset. Traditionally, medium-term Forex trading, as well as medium-term stock trading, is the prerogative of investors who want to make money on price fluctuations. From this point of view, medium-term trading on a crypto exchange opens up many opportunities for the investor, because cryptocurrencies remain a consistently volatile asset. However, due to high volatility, medium-term trading in the cryptocurrency market also carries huge risks: the behavior of a particular currency can be completely unpredictable. Therefore, analysts advise novice investors to first follow the selected currencies for several weeks or months and only then start real trading.
To understand general trends, medium-term trading involves studying the candlestick chart, just like during intraday trading. This allows you to understand the resistance and support lines of a particular currency. The main danger for a trader in the medium term is to determine the wrong entry and exit points, that is, it is expensive to buy and sell cheap. These risks can only be mitigated through experience and constant monitoring in the cryptocurrency market.
An equally important skill in the medium term is the ability to wait out the dips and drops in quotes: you must not panic and not sell an asset, even if it is rapidly depreciating. The most important thing is to follow the chosen strategy and not make a decision under the influence of emotion. Moreover, you can compensate for the lack of experience by combining several strategies at once.
To do this, investments in even one type of altcoin can be divided into long-term and medium-term: do not touch the first under any market fluctuations, and trade the second depending on exchange rate fluctuations. Experienced traders also take profits in installments. For example, you can divide investments into three parts and by selling each of them with an increase in the rate, fix profits – 10%, 20%, 30%. Such a strategy does not maximize profitability, but it helps to minimize losses. For an experienced trader, medium-term trading can give from 10% to 40% yield per week – this is a very high figure, but to achieve it, you must definitely follow the news and analyze quotes charts.
As experienced investors say, medium-term trading develops a trader’s discipline and accustoms to the detailed implementation of the adopted strategy. If a trader has decided to initially sell a third of the total volume of a particular cryptocurrency upon reaching a yield level of 10%, he must do this – otherwise, there is a high risk of not returning his investment. At the same time, the trader learns to develop a trading plan, which allows him to think globally and, after some time, move on to long-term trading. By following the fluctuations of several currency pairs, a trader gains the necessary experience and learns to predict trends. Moreover, he acquires the skill to correctly place take profit and stop loss orders.
Long term in trading
Unlike medium-term trading, long-term trading usually lasts from several months to several years. This approach always involves investing in a sufficiently serious amount of instruments to maintain open positions. In the first place, long-term forex trading, like long-term stock trading, means buying undervalued assets, such as IBM shares in the early days of computers or Tesla shares before the demand for electric cars increased. The long-term works in the cryptocurrency market in a similar way.
First of all, long-term trading involves investing in some undervalued currency. For example, a trader can be sure that sooner or later the full legalization of bitcoin will lead to reaching the level of $20,000 per BTC . In this case, he may well acquire the world’s main cryptocurrency for $9,000. Another approach involves investing in a certain altcoin, which, according to its technical characteristics, can “shoot” after some time. In any case, long-term trading is primarily characterized by a lack of reaction to current exchange rate fluctuations. The reason for exiting the asset and fixing profits will be only a sharp change in the situation. For example, long-term trading in the stock market often means that the investor exits the asset after the IPO.
A long-term strategy on the stock exchange involves several mandatory factors at once. Firstly, a potential investor must-have resources for long-term investments, that is, he must have sufficient funds. Secondly, he must have experience in determining long-term trends, that is, the skill to find an undervalued asset. Thirdly, a trend for long-term trading in this market must be formed, that is, the asset must have a certain trading history, as well as fundamental factors that determine its changes in the future.
Based on these factors, analysts most often say that the long-term is the prerogative of experienced investors. As Warren Buffett once described his approach to investing, first you need to find an undervalued market, then an undervalued company in it and invest for several years. Long-term trends are much more seriously influenced by fundamental factors than momentary market fluctuations, that is, the investor is required to identify a truly valuable asset.
Therefore, long-term trading necessarily involves, first of all, fundamental analysis, which determines the behavior of the investor much more than technical analysis. And this primarily distinguishes the long-term from any other strategies. At the same time, this type of strategy remains much calmer than medium-term and, especially, short-term trading. To invest in debt, a trader does not need to follow the news around the clock or study daily market fluctuations. The main thing is to choose the right asset for investment and, no matter what perturbations occur in the market, do not leave it for anything, but only if there are fundamental growth factors.
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