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The cryptosphere abounds in stories of windfall-like gains and spectacular losses. One differentiating factor separating the winners from the losers is the use of powerful crypto tools and strategies.
As with investing in traditional assets like stocks and bonds, investing in crypto and managing your portfolio goes far beyond picking the right assets.
Similar to a stock trading platform, a cryptocurrency trading platform such as CoinSmart comes with a range of features, including crypto tools that customize your trading experience and provide strategic levers to maximize profits, cut losses, mitigate risk and make informed investing choices.
These features, available under the “Advanced Trade” tab on the CoinSmart platform, can also be the difference between discovering the next blockbuster coin and joining the FOMO-fuelled buying frenzy around overpriced cryptocurrencies.
This guide provides a list of handy crypto tools that could have an effect on your investing experience and help you take pre-emptive measures against erratic price movements in the cryptosphere.
A stop-loss order is an order to buy or sell a specific asset at a pre-determined price. When the crypto asset you want to buy or sell reaches the price you’ve set, this triggers the stop-loss order, and your trade is automatically executed.
Here’s an example: If an investor has bought solana at $180 but believes the price will fall, they can place a stop-loss order to sell their coin at $150. If the coin’s price drops to that amount, the order is triggered and the trade is executed, allowing the investor to exit their position and limit further losses.
A key benefit of stop-loss orders is that they can help take emotions out of investment decisions. Given that the crypto market can be highly volatile, a stop-loss feature can help prevent anxiety and panic from getting the better of investors.
“Stop-loss orders help manage risk and [they] don’t get triggered until the market hits a certain price point,” says Justin Chuh, head of trading at Wave Financial, an SEC-regulated digital investment manager.
Unlike equities markets, crypto trading works around the clock, which makes it impossible for investors to watch constantly. Using a stop-loss order allows you to buy or sell whenever your desired price is reached—even in your sleep.
To determine their stop-loss prices, seasoned traders use charting (meaning they follow the history of an investment—more on this later). “One can identify a key support level on a chart and place a stop-loss just below the support level, so once the level is lost, your downside is limited,” says Marcus Sotiriou, sales trader at GlobalBlock, a U.K.-based digital asset broker.
Investors set limit orders to buy a crypto asset for less than the current price or sell a crypto asset for more than the current price.
For example, if the price of a litecoin is $156 and you want to buy when it falls to $130, you can place a limit buy order at that price. On the other hand, if you’re in a long position—meaning that you hold the asset—and you think the price will rise, you can place a limit sell order at your desired price.
“When you set a limit order to sell your asset just above the current price, your position is automatically sold as soon as your limit order is hit,” says Sotiriou. “Having this automatically done for you means that emotions are taken out of the trade, and you do not have to constantly manage your position.”
Dollar-cost averaging (DCA) involves investing a fixed amount of money in a certain asset at regular intervals over a long term, with the aim of spreading out the risk. It reduces the stress of frequent price fluctuations, since the position is built up over a period of time, says Devesh Mamtani, chief market strategist at Century Financial, a financial services provider based in Dubai.
For example, an investor could buy $1,000 worth of bitcoin every month over a longer time frame rather than a larger amount in one shot. In doing so, they wouldn’t need to worry if bitcoin’s price drops suddenly, says Mamtani.
You can use dollar-cost averaging as a strategy for both buying and selling. “I don’t like entering or exiting all at once—I generally layer in or peel out,” says Chuh. This, he adds, is more of an art than a science. It takes time to learn when and how much to buy and sell. Splitting your investments up into smaller parts and spreading them across a longer time horizon “is particularly beneficial in a volatile market, when emotions can run high and impair your judgment,” says Sotiriou.
Charting is another potent tool in your investing arsenal. Commonly used among investors and traders, charts allow market participants to see previous price action and volume. “People start to recognize patterns, which help in making risk management decisions and marking entry or exit points,” says Chuh.
He likens using charts to driving, except that you’re looking in the rear-view mirror instead of through the windshield. “No one ever knows where the market is going, but charting can help identify risk-taking opportunities and provide guidance based on what’s happened before,” Chuh says.
Charting reveals if an asset tends to rise or fall around specific price levels. “Investors and traders may execute around that price level,” he adds.
In stocks, charts help identify patterns, supports and resistances, as well as the supply and demand zones at different prices. It works the same way for cryptocurrencies. Investors can use charting to interpret market data and get ahead of the curve. “By setting up efficient charts, investors will instantly analyze the information they need to make successful trading decisions,” says Mamtani.
The ability to analyze technical indicators can give investors a distinctive edge “because charts are representations of people’s emotions, which are fairly predictable,” says Sotiriou.
Crypto investors can set up customized charts on trading platforms, such as CoinSmart, which offers real-time charting among its Advanced Trade features for more experienced investors.
While volatility will continue to be a defining feature of the cryptocurrency market, these advanced trading strategies enable you to take early and proactive steps. They also provide investors the best shot at growing their investment, managing downside risk and making opportunistic moves in and out of the market over the course of their investment journey.