Entry and Exit Points For Cryptocurrency

Cryptocurrencies are great assets to invest and trade, there’s no doubt about it. Their fluctuating prices can open great opportunities for investors that buy them on platforms such as Paybis.

However, these profit opportunities come with huge amounts of risks. While their high volatility can be a boon to experienced traders, they can also be the demise of beginner investors that don’t know when to buy or sell them.

This article will try to demystify some of the reasons behind the cryptocurrency market volatility and try to give you some of the most common factors that influence their price. More importantly, we will try to teach you about some methods that can help you detect entry and exit points in the market, allowing you to maximize your profit potential.

Let’s delve in.

Why are cryptocurrencies so volatile?

Everyone has at least heard about the crazy volatility of the crypto market. Sometimes, people even refer to it as if it were a bubble, because of the incredible price hikes that are usually followed by huge corrections.

However, there are a couple of reasons why the cryptocurrency market is so volatile. Let’s have a look at what they are:

  • Market youth – cryptocurrencies are fairly recent assets, and even more so when we consider their mainstream reach. Bitcoin, the original cryptocurrency has been around for just over a decade, which means that its price action and valuation still haven’t settled.
  • Low liquidity – some cryptocurrencies have very low liquidity, which increases the price swings even further. A piece of news that could have moved the traditional markets to a fraction of 1% could have a serious effect on cryptos with low liquidity.

What influences the price of a cryptocurrency?

With that said, analysts believe that a wider range of factors can influence the price of cryptocurrencies, including:

  • Supply and demand – the crypto market functions on the supply and demand principle. The higher the demand and lower the supply, the higher the prices will be.  This is true for in the opposite case, as demand falters and supply increases, the price falls.
  • FUD and FOMO – consequently, the price follows market sentiment. As fear, uncertainty, and doubt (FUD) increase, so does the price. As good news starts coming in, fear of missing out (FOMO) is triggered, driving prices higher.
  • Regulations – because of their relative youth, crypto isn’t regulated in most countries. News about stark regulation measures can quickly drive prices down.
  • Project viability – if there’s a possibility that a coin could be a scam, it could drive the price of a cryptocurrency to the ground. At the same time, positive news about innovative projects and upgrades can bring prices sky-high.

How to detect when to buy or sell?

With all that in mind, you must be wondering how you can reliably predict when to enter or exit the market. Rest assured, this is quite possible, although it will certainly not be easy. After all, if crypto trading was effortless, everyone would be a billionaire by now. There are, however, some great methods on predicting entry and exit points, such as:

  • Technical analysis – TA is the science behind understanding price trends and representing these trends on a chart. There are hundreds of different indicators that can help you predict whether a coin is overbought or oversold, or if a price trend is about to reverse from bullish to bearish and vice-versa, etc. TA is essential if you want to become a trader that successfully speculates on the price of Bitcoin.
  • Fundamental analysis – FA is all about researching the background of certain projects and assessing their intrinsic value. Once you know the ins and outs of a cryptocurrency, you will be able to detect whether they are able to meet the community’s expectations. You can then invest at the right moment prior to an important upgrade of the protocol, or bet against it if you feel the team might come out short on their promises.
  • Sentiment analysis – as mentioned earlier, market sentiment (FOMO and FUD) is an essential factor when considering crypto prices. Fortunately, there are some good ways to assess market sentiment. First, you could scan the news to get a feel of whether there is more positive or negative news. Additionally, you could use social analysis tools like LunarCrush that will show you the popularity of certain cryptocurrencies and the amount of FOMO and FUD involved.

Conclusion

The cryptocurrency market can be quite volatile, risky, and unpredictable. But this volatility opens a lot of opportunities for investors to make considerable profits. By learning technical, fundamental, and sentiment analysis and understanding what may influence the price of cryptocurrencies, you would be taking a step in the right direction to becoming a profitable crypto trader.

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About Alejandro Arrieche PRO INVESTOR

Alejandro is a freelance financial analyst with 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing, macro analysis, and technical analysis. Other publications Alejandro has written for include The Modest Wallet, and Capital.com.