Cryptocurrency prices have not done well in the first few weeks of 2022 as investors worry about the Federal Reserve and other central banks. After slashing interest rates to almost zero in 2021, most central banks have embraced a hawkish tone. Analysts expect that the Fed will deliver about 3 rate hikes in 2022. As a result, BTC and other coins have declined by more than 10% this year. So, how do you get the most out of crypto trading in 2022?
Learn about trading
Cryptocurrency investing is different from trading. Investing is the process of buying and holding an asset for an extended period of time. It is often known as hodling. Trading, on the other hand, is the concept of buying and selling an asset within a short period of time.
Investing and trading are both risky activities especially when the price goes against you. But in most cases, trading is a riskier process. Therefore, to get the most out of crypto trading, you should spend some time learning about how trading works and some of the best practices to use.
Some of the concepts that you need to learn are on the three main types of analysis: technical, fundamental, and price action analysis. Fundamental involves looking at news and other events while technical is a method of chart analysis that uses indicators like MACD and Stochastic Oscillator. Price action is a method of technical analysis where you focus on identifying chart patterns.
There are many free and premium materials that you can use to learn more about trading. For example, you can enroll in online courses and even watch YouTube videos.
Find a good broker
The next stage is where you find a good broker who will provide you with the trading platform to deposit and execute trades. Getting a broker is an important step. In the past, we have seen many people lose millions of dollars simply because they failed to get a good broker. For example, in 2019, Quadriga CX customers lost their cryptocurrencies when the company’s founder “died”.
There are several strategies to use to find a good broker. First, consider going for a mainstream broker that is regulated well. Think of companies like Coinbase, eToro, and Kraken. Second, read unbiased reviews from qualified reviewers and users. Click here to read some of these reviews.
Third, look at the fees that the broker charges. You want a broker who offers a good quality service at a lower cost. You don’t want to spend a lot of money on fees.
Approach leveraged trading wisely
There are two main ways of trading cryptocurrencies. The “old school” method is known as spot trading. It is where you trade coins at their current prices. Another way is trading cryptocurrencies using leveraged futures.
Leveraged tokens are offered by some of the biggest companies in the industry like Binance, FTX, and Huobi. For example, instead of buying Bitcoin, you can buy BULL/USD 3x Long Bitcoin token. This token seeks to achieve returns that are three times that of Bitcoin.
Leveraged tokens are mostly used by experienced traders. While they are good options to make money, they also have more risks. Indeed, most people who use these tokens tend to fail. Therefore, if you are a beginner, we recommend that you embrace spot trading for a while as you boost your skills.
Risk management
Another important concept as you seek to optimize your trading in 2022 is to embrace the concept of risk management. It refers to the process where you seek to maximize your returns while reducing your risks.
There are several strategies you can use to reduce your risks when trading cryptocurrencies. First, you should always incorporate stops in your trades. A stop-loss will automatically stop your trade when it moves to a certain loss threshold. For example, if you bought Bitcoin at $42,000, you could add a stop-loss at $41,000. The benefit of doing this is that it will protect you in case your trade goes south.
Second, you should avoid over-trading. While opening multiple trades per day can make you money, the reality is that it exposes you to more risks in the market. Therefore, open a few calculated trades per day and grow your wealth slowly.
Other risk management strategies are to understand the idea of currency correlations, avoid overnight trades, and not use funds you cannot afford to lose.
Summary
Cryptocurrency prices will likely be volatile in 2022 as investors reflect on the hawkish Federal Reserve. This volatility will be a good thing for traders because of the number of opportunities it will create. In this article, we have looked at some of the key things you need to know when trading digital coins in 2022.
