5 Tools that Every Crypto Investor Needs to Tackle Market Volatility
Part of the success story of Bitcoin and a few other cryptocurrencies through 2017 and early 2018 can be attributed to volatility. The exponential rise in the prices of these digital currencies made them a popular asset class among investors. The fact that the values of crypto asset go up and down seemingly randomly forms the very essence of crypto trading, making trading activities more interesting. An experienced trader, who understands this, is in a better position to make successful trading decisions.
But, it also makes the market very risky. Miscalculated decisions can generate catastrophic losses. Non-traders see crypto volatility as an enemy of functionality. They consider it to be one of the prime reasons why cryptocurrencies have failed to disrupt important sectors.
Crypto volatility is very pronounced, as compared to other assets classes, including fiat currencies and gold. The market is well known for volatility ranges above 10%. As an investor, it is critical to be armed with effective tools that can help you tackle this. Here are 5 such tools to consider.
1. Crypto News Aggregators
It is important to stay abreast of all market developments and movements, as well as crypto industry news. There are plenty of sites that can help you with this. News regarding various new blockchain regulations, cryptocurrency market uptrends and downtrends and new ICOs can be tracked through these aggregator sources.
It is necessary to know of different coin uses, their respective market capitalisations and price fluctuations before investors can put money into them. Of course, no site can guarantee good trading results, but they can definitely help you make educated decisions or know of market downtimes.
Some of the best sites to refer to are:
- Cointelegraph
- Blackwell Global
- Bitcoinist
- Hacker Noon
- CoinDesk
2. Crypto Indicators
One of the useful MT4 indicators is the Crypto Sniper indicator. It draws cross hairs on the charts, based on the percentage movements defined in the settings. You will be able to choose a timeframe and number of minutes in the settings. And the tool can indicate the high/low and the percent movement range. It helps traders analyse daily trading ranges and entry points.
The Crypto Sniper Indicator is available on the Blackwell MT4 platform. You simply need to go to the navigator on the left side of the screen and then drag and drop the indicator on your crypto chart.
Other indicators on the MT4 platform include the Crypto Compare Indicator. This is another useful indicator for traders who are interested in crypto pairs trading. You can compare the RSI (Relative Strength Index) of several coins at once, including Litecoin, Ethereum and Bitcoin. The RSI is a momentum indicator, which measures the strength of recent price changes to identify overbought and oversold conditions in the price of the chosen crypto asset. Traders can identify bullish and bearish market momentum with this tool.
3. Crypto Trading Diary
Developed by Chasing Returns, this tool helps traders record trading habits and results. This assists in identifying psychological tendencies and patterns of a trader, helping them avoid emotion-based decisions. Such tools are essential in the highly volatile cryptocurrency market, where emotions like greed, FOMO and general fear could result in significant losses.
The crypto trading offers useful features, such as:
- Playmaker: Allows traders to define rules and trading alerts and to monitor live trading performances. This can help inculcate discipline in your daily trading activities.
- Gameplan: Allows crypto traders to identify their strengths and weaknesses. Which strategies work best for which coin? Understanding the weak points of a trading strategy is critical to proper risk management.
- Profitability Analysis: Allows you to evaluate your gains and losses. You can see your winning and losing streaks, based on dates and strategies. This will help you understand which strategies and market conditions work best for you.
- Tag Trades: You can tag your trades, based on any criteria, including price, P&L and size. You can also tag trades based on your personal strategy choices.
4. Coinmarketcap.com
Get information about every tradable coin in the market, including its price gains and losses, market cap, rankings and more. You can also customise price charts to check coin performances, since their inception. This includes rise and drop in market cap, as well as price levels. Coinmarketcap.com is one of the most credible information sources in the industry. Moreover, it is a free and easy tool to use.
5. Bitcoin Volatility Index
This site tracks the volatility of Bitcoin price in US Dollars. These calculations are based on historical volatility, based on past prices of Bitcoin. Just like Coinmarketcap.com, you can customise charts according to date ranges and timeframes. It also shows results for the preceding 30-day or 60-day window. The site can also produce results for Litecoin and Ethereum. However, it does not give implied volatility results. With time and maturity of the Bitcoin options markets, it might be possible to estimate that figure.
Risk Management is Essential in All Cases
Managing downside risk is an important aspect of any trading strategy. Expert traders say that placing hard stop-loss levels before each trade can help. Soft-losses and small exit parameters are sufficient for traders who do not trade frequently. If there is no proper risk management strategy in place, a black swan event could wipe out entire accounts.
Common strategies also become trickier with volatility. At such times, it could be useful to reduce position sizes of trades on signals with lower confidence. The huge amount of leverage applicable in forex trades cannot be used in crypto trading. The risk/reward ratio of each trade is also an important factor in establishing a profitable trading system.
Cryptocurrency volatility will decline with improved regulations, widespread adoption, and the entrance of more successful applications and blockchain businesses, as well as institutional traders, in the industry. Of course, that will take time and until then traders will have to tread with caution.
