How To Make Money Trading Altcoins

in #money7 years ago

Hello! I want to show one very useful and smart article about crypto-trading. There is a lot of interesting information. The source link is in the end.

Altcoin Trading Terminology

Here are a few common concepts and technical terms that you will need to know before you get started: 

  1. ICO / ITO: An ‘Initial Coin Offering’ or ‘ICO’  is the cryptocurrency take on an ‘Initial Public Offering’, when a  company’s shares are first listed on the stock market. It usually takes  place prior to the launch of a coin’s blockchain  and involves the public sale of a certain percentage of the coin’s  initial supply in order to raise funds for development. An alternative  name for this is an ‘Initial Token Offering’ or ‘ITO’.
  2. Market Cap: The market capitalization of an altcoin  is the total value of all its coins. It is common practice to use the  currently available supply rather than the total supply, and this may  exclude unreleased premines. Market cap is therefore calculated by  multiplying the price per coin by the number of coins currently released  onto the open market.
  3. Premine: When some or all of a coin’s initial  supply is generated automatically by the developer at, or prior to, the  public launch, rather than being generated over time through a form of mining,  this is called a ‘pre-mine’ or ‘premine’. Pre-mines can be used for  legitimate purposes: for example to crowdfund development through an  ICO, or to put into a fund for the continued development and promotion  of a coin. They can also be dumped onto the market, for a quick and easy  profit, by a developer who then abandons the coin and disappears in a  kind of exit scam.
  4. Insta-mine: Because some altcoin enthusiasts are  very wary of coins which have a premine, automatically suspecting a  scam, a number of developers have sought to find different ways to gain  control of a large percentage of a coin’s supply from the beginning. One  way to do this is to have very easy mining for a short period after  launch, during which the developers seek to instantly mine a large  number of coins for very little cost. The difficulty  then increases rapidly after a short period of time. Sometimes this  short and highly profitable mining period may take place before a coin  has even been announced to the public. This is known as an ‘insta-mine’  or ‘instamine’.
  5. Ninja Launch: A ninja launch is basically a method  for conducting an instamine. It involves announcing a coin suddenly with  no prior warning, with the mining beginning immediately as the coin is  announced. By the time other users have had the chance to set themselves  up to start mining, the developer may have already conducted their own  instamine. Another ninja launch tactic is to create an announcement with  only very basic information, conduct and instamine, then add more  information to attract interest only after a significant amount of coins  have already been mined.
  6. FUD: The acronym FUD stands for ‘Fear, Uncertainty  and Despair’. In cryptocurrency it is generally used to refer to  negative talk about a coin which is inaccurate or misleading, often  posted in forums and through social media. This kind of FUD may be the  result of a genuine fear response among the holders of a coin whose  value is crashing, or it may be deliberately spread in order to suppress  the price – either by competing coins, speculators looking to pick up a  bargain before hyping the coin later, or just by angry trolls with some  kind of grudge.
  7. PoD: Some coins have anonymous developers who do  not reveal their real identity. There may be good reasons for this, and  it may not hinder a coin’s adoption – for example Bitcoin’s creator  never revealed his real world identity. But if the developers are  anonymous then there is a greater risk that they will disappear, and  this can be especially risky if there is a premine that they may be able  to dump for an easy profit before they vanish. Several services have  emerged which verify the identities of developers in order to prevent  this kind of scam, and this is often known as ‘Proof of Developer’ or  ‘PoD’.
  8. Emission Schedule: The rate at which new coins are  generated and the pattern by which this changes over time. This may also  be described as the ’emission curve’.
  9. Ponzi Scheme: An investment scam in which initial  investors are paid returns from the capital of subsequent investors, and  an ever-increasing supply of new investors is therefore needed for  returns to be paid. If there is no reason for people to buy a coin as  anything other than an investment, or if its creators never intend to  pursue regular users, for example, then it may be described as a ponzi  scheme.
  10. Whales: A whale is a large holder, who owns enough coins to move the market by a substantial amount when they buy or sell.
  11. Bagholders: People who are left holding a coin  which has depreciated in value by a large amount, and who continue to  hold in the (often vain) hope of being able to sell at a profit later  on, are often described as ‘bagholders’.
  12. Bots: A casual term used to refer to automated trading software.

More general terms that you will often come across when dealing with cryptocurrency can be found in our glossary section. 


Altcoins: The Penny Stocks of the 21st Century

In  many ways trading altcoins is similar to investing in penny stocks, and  that comparison has been made many times in the past by other authors. But in other ways it is very different. In case you don’t know, penny stocks are the shares of smaller  businesses and early stage companies, which have a much lower value than  regular stocks. They are also much more volatile, often experiencing  gains of more than 100% in a single day – or disappearing altogether  overnight. There are some important lessons that can be taken from penny stock trading and applied to altcoins: 

  1. Don’t put all of your eggs in one basket: The  first thing you will learn about penny stocks is that you should spread  your capital out among as many different shares as possible, to reduce  the chances that you will lose everything. The majority of new business  will fail in their first few years, meaning that their shares will drop  in value to zero. The same is true for altcoins – many new coins will  completely fail within the first year of trading. It’s also true that,  although there is a lot you can do to make sure you pick the winners,  there are also so many unknowns that there is no such thing as a  certainty. It is often tempting to go ‘all in’ on an exciting  opportunity you believe could make 1000% returns, but this can easily  end your career as an altcoin trader before it has even begun
  2. Don’t believe the hype (or the FUD): The smaller a  market is, the easier it is to manipulate. Penny stocks have always been  subject to a large amount of professional hype, and this is certainly  true for cryptocurrency as well. Professional promoters will hype up a  coin, through newsletters and tip services, through social media and  blogs and even through advertising. They may be paid by the coin’s  developers who wish to increase the value of their holdings, or they may  wish to increase the value of their own holdings. In either case, the  kind of artificial price pump driven by this kind of hype is often  followed by a price crash as the people behind it cash out at the higher  price. This is sometimes called a ‘Pump and Dump’ or just ‘P&D’. In  a similar way, FUD can be deliberately spread in order to artificially  drive down the price so that the people behind it can pick up cheap  coins. It is always true in life, but doubly true when researching  altcoins for trading, that you should always be skeptical of what you  read, do your own research, and make up your own mind.
  3. Be Quick to Take Losses, Slow to Take Profits: One  of the biggest mistakes that penny stock traders make is to take profits  on winners too soon, but keep hold of the losers until they are  worthless. I have seen this a lot in cryptocurrency trading as well. In  both of these niches it is common for the majority of your picks to lose  money. When a trader sees profits of 50%, 100% or even higher in a  relatively short space of time it is very easy for emotions to kick in  and overtake any reasoned assessment. This may feel like a great profit,  you may fear losing it and want to lock in the profit, or you may just  get excited and impatient to realize your gains even though the price is  still trending upwards. But because in both penny stocks and altcoins  you are likely to pick a lot of losers, you need to get very high  profits on the winners to come out with a good profit overall – so even a  100% profit on a winning pick may not be as great as it might seem. At  the same time, many traders become emotionally invested in what they  buy, and find it hard to give up hope and sell even when it is clear  that the price is going down, and in this way they end up losing most or  all of the value of their investment when they could have cut their  losses much earlier if they had taken a more rational approach.

One key difference between penny stocks and alternative digital currency  is that the former may take years to realize a profit, whereas the  cryptocurrency world is very fast paced indeed. Retail penny stock  traders may be able to pick out companies with potential and then only  check back on them every few months – in fact from one month to the next  there may be little or no new information to use for re-evaluating your  position. In cryptocurrency this would not be a good idea at all. You  should only get involved in a market like this is if you are ready and  willing to spend a lot of time at your computer, regularly checking on  price movements and the latest news, and changing your positions  accordingly. 


Understanding and Analyzing the Altcoin Markets

There  are two main ways to understand the altcoin markets, forecast the  future direction of price movements and therefore pick good investments:  fundamental analysis and technical analysis. 

Fundamental analysis attempts to determine the real value of  something in order to determine whether it is undervalued or overvalued.  When it comes to trading altcoins this is more difficult, because they  are generally very early in their development – so their value reflects  potential future success rather than their current position. You can  still look at a coin’s level of adoptions, the strength of the network,  number of transactions and so on, but this will only take you so far. To  a great extent you must rely on estimating the potential size of the  market in the future and the chances that this potential will be  fulfilled. 

Technical analysis uses price and volume data, and seeks to find  patterns and indicators which can be used to forecast the future  direction of price movement. For more information about how this works  as well as the latest analysis for both Bitcoin and some of the top  altcoins please take a look at our page on technical analysis for Bitcoin

Cryptocurrency markets are highly news driven. You are trading assets  in a very fast paced world of bleeding-edge technology, where new  developments are released every day and the political / regulatory  environment is still uncertain. If you want to make money trading  altcoins, therefore, you really need to make sure that you keep yourself  up to date about the latest news and developments, both for the coins  you are trading and for the industry as a whole. 


Altcoin Trading Strategies, Techniques & Tips

By  now you should have a good general idea of what cryptocurrency trading  is all about, but if you want to learn how to make money trading digital  currency then you will need to have some more specific strategies and  techniques in your arsenal. This section is not a comprehensive guide by  any means, but should give you a few ideas to get you started making  money as an altcoin trader. 


Getting in on the Ground Floor

Most coins will start off at a low price, and rise in value if they  are successful. Of course this is not always the case, especially for  ICO coins which may start off at a quite high valuation, depending on  the structure and success of the ICO. But, nevertheless, it is usually  true to say that the largest profits to be made often come from seeing  the potential of a newer coin early on, before anyone else, and then  riding the wave of success as other traders and users jump on-board. 

It is also true, however, that these very early days are the most  risky time to invest in something. The technology will be unproven and  may still be unfinished, and there will be little other objective  evidence to look at. Investing in cryptocurrency is a high risk, high  reward endeavour anyway, but this is particularly true if you buy very  early on. You should therefore take care to spread out your capital over  an even larger number of ventures if you take this approach in order to  hedge your risk. 

You may also like to get involved in mining if you are taking this  approach, as some coins will launch and be available to mine before they  are added to any exchanges for trading. To keep up to date with the latest launches you can follow this announcements board on Bitcointalk, this one on CryptoCoinTalk, or a dedicated website such as Altcoin Calender


Buy the Rumour, Sell the News

This is a contrarian trading tip which is very useful to keep in  mind. As I already mentioned, this is a heavily news-driven market with  big swings based on new announcements, feature releases, partnerships  and so on. You may expect a big announcement to drive up the price  immediately, but what you have to realize is that most of the time the  announcement has already been ‘priced in’ by many buyers, who expected  it to happen. Buying after the news has been announced can still be  profitable at times, so this is not a hard and fast rule you should  always follow, but it is certainly true that the best profits go to  people who correctly anticipate the news, buy early (on the rumour), and  then sell into any spike in the price as a result of latecomers  entering into the market after the announcement. 


Activist Investing

In comparison to stocks or forex or any other traditional market,  there is a unique opportunity within cryptocurrency for individual  investors to become involved in helping their investments to become  successful. Many people will become deeply involved in the coins they  support, being active members of their community of users, helping to  promote them, brainstorming and critiquing new ideas in the forums,  networking to develop new opportunities, setting up new sites and  services, and even getting involved in developing new code through open  source repositories on Github. 

If you have something to contribute then this can be a great way to  add value to your investment whilst also getting involved in something  that you genuinely enjoy and feel passionate about. It can also help you  to get the inside track on what is happening, improving your ability to  make informed decisions. You should be careful, however, as the more involved you become in a  coin the harder it will be for you to make objective decisions if the  market conditions dictate that the most profitable thing to do is to  sell your holdings. It is vital when doing this that you don’t let your  emotions influence your decisions about when and how much to buy or  sell. 


Don’t Fight The Market

When you are trading in smaller markets you may well notice that your  own orders have the power to move the markets. Even small offers placed  onto the books may push up the price, as others may move their own  offers upwards to beat your price. It is tempting, when you notice this,  to try to use this power to your advantage. Unless you are a true whale  and you really know what you are doing, this is almost always a bad  idea. 

It can be particularly tempting to do this when you see the value of a  coin you own going down. Many traders will be tempted to put extra buy  orders down – not because they have analyzed the price movement and  think its a good idea, but to ‘support’ the price and stop it gong down  further. Doubling down on a losing investment in an attempt to fight the  market is a sadly common mistake, and can be have a disastrous impact  on people who try to do it. 



Contrarian traders count on the fact that markets often overreact,  and then go through subsequent corrections. According to this logic if  everybody else is selling, then the price is probably ‘oversold’ and it  is time to buy. If everyone else is buying, then its time to sell  because a correction is just around the corner. This is perhaps best  expressed by a quote from Baron Rothschild, who said one should “buy when there is blood in the streets, even if the blood is your own”. 

Generally speaking contrarianism is a longer term strategy, and you  must be prepared to make significant losses and wait a substantial  amount of time for the correction to come and your positions to move  into profit. Due to this longer time horizon it can be a dangerous  strategy when dealing with something as fast-paced and volatile as  cryptocurrency, but nevertheless it can yield amazing returns when  successful. 


Trend Trading

Identifying trends and going with the flow of that trend is usually  best done over a medium term time horizon, but trends can be identified  at pretty much any time scale so it is very flexible in this regard –  just as long as your time horizon for trades is congruent with the  timescale of the trend you are analyzing. The basic principle is that if  there is a general trend upwards in a price, then it is reasonable to  suggest that it is more likely to continue upwards than to start going  downwards. Technical analysis is very useful for trading trends, and can  help you to identify potential turning points so that you can avoid the  number one danger – buying at the top of an uptrend or selling at the  bottom of a downtrend. 

Swing Trading

Swing trading is a short-term trading strategy which attempts to take  advantage of the fact that prices often spike up and down rather than  following a smooth path. The idea is to identify the bottom of  short-term price swings in order to ‘buy cheap’, and then sell quickly  for a small profit as the price swings back upwards again, and then do  the whole thing all over again.  In cryptocurrency markets there can  often be a larger ‘spread’ between buy and sell prices than tradition  markets, meaning that a swing trader can also act as a ‘market maker’ to  take additional profit from the spread. If the spread is larger as a  percentage of the price than the fees charged by the exchange then this  is worth taking into consideration – but you should also be aware than  in low volume markets you may not be able exit your positions as quickly  as you might like. 


Being a Whale

Some cryptocurrencies have a very low market capitalization – perhaps  even as little as $10-20,000. This means that even a fairly normal  amateur trader, with a few thousand dollars to play with, may find  themselves in the position of being a ‘whale’. Anybody can be a big fish  in a small enough pond.

Buying into a very low value coin which you believe has potential,  becoming a ‘big fish in a small pond’, can be a very profitable  strategy, but it is also a very dangerous one. You may well find that  just your own purchases can push the price of a coin up significantly,  meaning that they are worth a lot more than you paid for them  immediately after your purchase – but the problem is that there may not  be very many buyers around to take them off you, so you may be left  holding the bag for a very long time (perhaps even until the coin has  completely failed and been abandoned). 

One key thing to look for if you are going to take this strategy,  therefore, is volume. If you can find a coin which has a very low  valuation but still maintains a reasonable level of volume then this may  be the perfect opportunity for you to go in big and drive up the price.  Of course you should also look at the technology and other factors to  make sure that you are putting your money into something that has  genuine potential. You should also be aware that it is possible for  people to fake volume on an exchange by trading backwards and forwards  with themselves. 


Being Careful

Altcoin trading can be very fun, exciting, interesting, and  financially rewarding, but you should never forget that it is also a  very risky thing to do. I know I’ve already said that, but it is worth  saying again now that you are approaching the end of my article – please do not risk more than you can afford to lose! 

At the same time, don’t be put off if you lose money, especially in  your first few months. Most people will lose money when they first start  out, and even very successful traders will often go through bad  patches. Keep trading, keep learning and honing your skills, and you may  well re-gain what you have lost plus earn a tidy profit on top. 

Source: cryptorials


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