8 Best Tips for Short term crypto Investment

[TL; DR]

A short term crypto investment is an investment where investors get their profit in less than one year.

Trading is the main type of short term crypto investment.

In order to become a successful trader an investor should have a clear plan and diversify his/her portfolio.

Multi time frame analysis involves analyzing the performance of the cryptocurrency in higher time frames before focusing on the period one wants to trade in.

Introduction

Investing in the cryptocurrency sector brings varying returns depending on the type of investment. For instance, investing in yield farming and staking can have a return of between 1% and 30% per year. On the other hand, trading cryptocurrencies can lead to a return of 1% to 10% per trade. Yield farming, staking and liquidity provision are examples of long term investments. However trading is a type of short term investment. This article covers 8 best tips for trading cryptocurrencies.

Short term investment versus long-term investment

The investment people make in the crypto sector is classified into short term and long term ones. Long term crypto investment involves investing in a cryptocurrency with the hope that its price will increase over time. The investors expect to get their return on investment after one year.

Candlesticks- Binanceacademy

On the contrary, short term investment involves investors putting their funds in a cryptocurrency anticipating to get the returns in a short time such as one hour, a day, a week or several months. In the crypto sector, short term investments often refer to trading of cryptocurrencies where the return on investment is realized in less than one year.

Types of trading

There are several types of trading which include swing trading, day trading, scalping and position trading.

Day trading: As the name suggests, the traders enter and exit their positions within the same day. As such, they hold their positions for a few minutes or hours depending on the asset’s price action. Their aim is to make small profits which accumulate throughout the day.

Scalping: This is a short term trading strategy where the traders buy and sell the cryptocurrencies within a very short period such as 15 minutes or 1 hour. The aim of the traders is to profit from small price movements during the day.

Swing trading: In this case, the traders hold their positions for more than a day. In fact, the trades can remain open for several days or weeks. Therefore, the traders do not often monitor the price movements of the assets. Instead, they take advantage of major peaks and drops in prices.

Since trading is the major short term method of investing in cryptocurrencies, let’s focus on important tips for successful trading of cryptocurrencies.

Diversify your crypto holding

It is wise to invest in various cryptocurrencies because they have different risks. When you have a diversified portfolio it means that if the prices of some of the cryptocurrencies plunge, some of them will perform well. You may need to trade cryptocurrencies of different types. For example, you can invest in utility tokens for the gaming, metaverse and SocialFi sectors. It is also important to trade some of the top ten cryptocurrencies such as BNB, ETH and BTC.

Have a clear trading plan

A proper trading plan helps you to reduce risks.The plan should cover key aspects such as how to determine trade entry and exit points, the amount per trade, where to place the stop-loss and take-profit. Mostly, a trading plan prevents you from making impulsive decisions which may lead to losses.

Use automation in trading

Automation is part of the trading equation as it allows you to execute well-positioned trades. This includes using trading bots and software for algorithmic trading. The good thing about using automated trading is that you are not controlled by emotions and there is less chance for you to make biased decisions. Thus, the trades are based on current price action and scientific estimations. For example, at Gate.io you can have automated copy trading.

Copy trading bot- Gate.io

Make use of reliable trade setups

Before you enter a trade ensure that there are favorable trading conditions. The various technical tools and price action you use should indicate good trade entry or exit points. Technical indicators, chart patterns and support and resistance levels help you to determine the best trade setups. Therefore, your knowledge of these elements can help you to win trades or minimize losses.

Have an eye for reliable trade triggers

A trading trigger occurs when a specific chart pattern or indicator signal shows up. For example, if there is a golden cross or MACD bullish divergence supported by an element of price action such as a pin bar, a trader can enter a trade. The trigger also helps the trader to determine the size of the position and where to place stop loss or take profit.

Exercise proper risk management

Crypto trading has risks that arise from price volatility and changing macroeconomic variables. Therefore, a trader should adopt measures that hedge against these risks. For instance, a trader should use a small fraction of his/her investment on a single trade. A thump rule is to invest 1% to 2% of your total amount per trade. The reason is that if a trade makes a loss; you still have more funds to invest somewhere. Stop loss and take-profit orders also protect you from losing much of your investment or maximize your returns.

Use multi time frame analysis

Multi time frame analysis means that you start analyzing the performance of a cryptocurrency using higher time frames. This enables you to get a complete picture of the performance of a cryptocurrency. For example, if you are trading the 1 day time frame; you first assess the performance of the cryptocurrency using the 1 month and 1 week time frames. If the asset is performing well in the three time frames you enter a trade. Also, before exiting the trade check the performance of the cryptocurrency on these time frames.

Keep the trading simple

To keep your trading simple you should use a few indicators alongside the asset’s price action. Some traders opt to use price action only to make trading decisions. This is because using many technical analysis indicators can generate conflicting signals which can confuse you. It is wise to use one or two indicators at a time. However, it is very important to use support and resistance levels, trendlines as well as supply and demand zones together with the asset’s price action.

Using a few indicators when trading- Gate.io

Conclusion

In a nutshell, with short term investment you realize the return in less than one year. In the crypto sector, trading is the key short term investment opportunity. Therefore, crypto traders should behave in certain ways to increase their winning trades and minimize losses. For example, they should diversify their portfolios, use multi time frame analysis and institute proper risk management measures.

Author: Mashell C., Gate.io Researcher

This article represents only the views of the researcher and does not constitute any investment suggestions.

Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.