If you're interested in cryptocurrencies, you've heard about bitcoin vs altcoins.
Bitcoin is the major and the first cryptocurrency. On the other hand, altcoins are all the other cryptocurrencies apart from bitcoin. The other cryptocurrencies include Ethereum, Litecoin, dogecoin, among others. After many people missed the early stages of investing in Bitcoin, altcoins were created as an alternative.
In Australia, these altcoins are popular because they're affordable and more volatile, and their prices rise at a higher rate than bitcoin. Hence, traders have better chances of making quick profits.
But because altcoins are volatile, there's also a higher risk of realizing losses just as fast as making profits. That's why traders should have some tips and tricks in their arsenal when trading altcoins. Here are some of them:
Choose a reliable cryptocurrency exchange
There are many cryptocurrency exchanges in Australia that traders can use. But that doesn't mean you should sign up for all of them. Instead, you should research reliable Aussie crypto exchanges and choose the ones that suit you the best.
Here are some of the considerations to make when choosing a crypto exchange:
Trading fees and commissions: As you expect, there are always fees involved every time you buy or sell an altcoin on an exchange platform. Some exchanges charge a flat fee per trade, while others have a percentage-based structure. Ideally, you'll want to choose an exchange with low trading fees and commissions.
Payment methods: The payment methods available through each exchange vary greatly in Australia. Some allow you to buy cryptocurrency using cash or a credit/debit directly from the website. Others require you to connect with a third-party service. So, choose the one that has a deposit method that you prefer.
Liquidity: Another important factor to check is the liquidity of the exchange. As a trader, you need an exchange that allows you to buy and sell altcoins easily. Therefore, the exchange should be highly liquid. (1)
With a reliable crypto exchange platform, you can quickly enter and exit positions, buy crypto, and be assured of your funds' security.
Do your research
You need to learn everything there is to know about the altcoin that you want to buy before investing in it. Check out the company's website, read its whitepaper, and listen to what their team says about their product. Ensure the company has a solid plan and an experienced team behind its project. (2)
Also, you must keep track of the price movements of all the altcoins that you own or want to buy. There are many market scanners and websites where you can monitor price changes for different altcoins. You can set up alerts for when the price rises above or falls below certain points and see how different cryptos stack up against each other over time. (2)
Buy the dips
'Buying the dips' is a strategy that's commonly used in stock and crypto markets. It involves buying an asset when it's low and waiting for it to rise. In the world of cryptocurrency, there are usually two types of dips.
Daily Dips: These occur when Bitcoin's value drops and altcoins follow suit. The idea behind 'buy the dips' is that bitcoins will recover from this short-term dip, while altcoins may not. Thus, if you buy altcoins before they recover, you can profit from them once their prices rise.
Long-Term Dips: These are more serious and occur over several days or weeks. Usually, these drops happen shortly after a new coin has been announced or launched on the market. People who buy altcoins during these dips have a higher chance of profiting later. (3)
However, buying a dip doesn't mean that the coin will recover immediately. The only catch is that cryptocurrencies have a history of recovering from dips. So, you can hold the altcoins for long until the price recovers.
Diversify your portfolio
The best way to avoid losing money is to diversify your cryptocurrency portfolio (don't put your eggs in a single basket). Instead of investing all your money into a single altcoin, you should choose several different altcoins, each representing a small percentage of your overall savings.
This strategy has several advantages:
- It reduces the level of risk. If one investment performs poorly, you still have others that might do well.
- It also makes it easier for investors to decide where they want to put their money next. If they lose interest in one currency, they can put their money into another one that's trending at the time.
- It allows traders to take advantage of new opportunities as they arise without selling their current investments first. (4)
If the altcoins perform differently in the market, you can take the gains as you wait for the others to recover.
Use risk mitigation tools
The cryptocurrency market is highly volatile, and even experienced traders can get caught by price fluctuations. It may seem difficult to predict the direction in which an Altcoin will move, but some strategies can help minimize losses and maximize profits, like the following:
Stop-loss orders: A stop-loss order is a sell order that'll automatically execute as soon as a specific price point is reached. This means that if the price drops below a certain point, the trade will end automatically. You need to set up the order before you start trading to protect your investment.
Take-profit orders: The idea behind take-profit orders is similar to stop-loss orders but with the opposite effect. If you buy into a coin with the expectation that it'll go up in value, a take-profit order will automatically execute a sale whenever the coin reaches a certain price point. (5)
Altcoins may not be as stable as bitcoin, so trading them can be riskier but more profitable. In Australia, you can use the available crypto exchanges and brokerage accounts to purchase the altcoins and trade for profits. But you need to familiarize yourself with the trading tricks and tips discussed in the article, such as mitigating losses, diversifying your portfolio, and researching to maximize your earnings.
- "11 Things to Look for in a Cryptocurrency Exchange", Source: https://www.fool.com/the-ascent/buying-stocks/articles/11-things-to-look-for-in-a-cryptocurrency-exchange/
- "What Are Altcoins and Should You Invest In Them?", Source: https://money.usnews.com/investing/investing-101/articles/what-are-altcoins-and-should-you-invest-in-them
- "Buy The Dips", Source: https://www.investopedia.com/terms/b/buy-the-dips.asp
- "Six cryptocurrency tips (and five mistakes to avoid)", Source: https://www.thetimes.co.uk/money-mentor/article/crypto-tips-mistakes/
- "What is Stop Loss (SL) and Take Profit (TP) and how to use it?", Source: https://www.axiory.com/trading-resources/trading-terms/stop-loss-take-profit