How to choose a cryptocurrency to trade?
The first question that comes to your mind when you start trading is what cryptocurrency to trade. So, how can you choose a pair without making any mistakes? In this article, we'll look into this in detail.
What is a crypto pair?
First of all, let’s see what a crypto pair is. Each pair is made of 2 currencies, for instance, ETHBTC, where ETH is called the base currency and BTC is the quote currency.
The quote currency, BTC, is what you're ready to sell to obtain the base currency, ETH.
So what pair should you trade?
Perform technical analysis
Technical analysis is another thing that helps you define which crypto to trade. There are lots of technical indicators you can learn about.
These are some of them: Relative Strength Index (RSI), Parabolic Stop and Reverse (SAR) and Average Directional Index (ADX) and many more.
Define the trends
Before going for your first trade, do what professional traders do: try to identify the trends that move the market.
Which cryptocurrencies are going up and which are plummeting? If the coin’s price is increasing at the moment, will it continue to do so or it will drop right after?
For that, you will need to learn reading trend indicators, such as SMA or MACD.
Check the trading volume
To choose the right coin, you can also look at the volume of a cryptocurrency traded. If the volume of the chosen coin is low, you will have to wait for long to complete your orders.
Hence, it is better to select pairs with adequate trading volumes. You can apply volume indicators to determine how the volume varies along with the price over time.
Check the volatility
It is very important to monitor volatility as the spikes in prices give you more opportunities to make a profit. However, do not forget that high volatility can also indicate high risks.
The most popular volatility indicator is considered to be Bollinger Bands. It is made up of a moving average and two lines up and down that form the band. The volatility is low when the band is narrow, and it is high when the band is wide.
Read the cryptocurrency news
Every day something happens and this has got a great impact on assets' prices. Follow the news about regulatory decisions or actions related to the legal status of cryptocurrencies, track forks, announcements from issuers of coins and news from the largest crypto holders (also known as whales).
This news really affects the crypto market, so reading it can help you understand when the value of a particular cryptocurrency will increase or vice versa.
To sum up
Hopefully, now you know how to choose a cryptocurrency pair to trade. Perform the so-called technical analysis on the coin. Define the trends, make sure the trading volume is big enough, check the volatility levels and don't forget to read the news!
If you are interested in more articles like that, check out TradeSanta’s Blog.