Crypto Currencies Volatility, a Profitable Rollercoaster
This year we can observe that cryptocurrencies tend to move up and down already by 15% of value on a daily basis. Such changes of price are known as a volatility. But what if… this is totally normal and sudden changes are one of the characteristics of the cryptocurrencies allowing you to make a good profits?
First of all, the cryptocurrencies made it to the mainstream very recently, consequently all the news regarding them and rumors are “hot”. After each statement of government officials about possibly regulating or banning the cryptocurrency market we observe huge price movements.
Secondly the character of cryptocurrencies is more like a “store of value” (like gold had been in the past) – many investors consider these as backup investment option to stocks, physical assets like gold and fiat (traditional) currencies. The speed of move has in addition an influence upon volatility of the cryptocurrency. With the fastest ones, the move takes already just associate of seconds (up to a minute), what makes them excellent asset for short term trading, if currently there is no good trend on other types of assets.
What everyone should bear in mind – that speed goes in addition for the lifespan trends on crypto currencies. While on regular markets trends might last months or already years – here it takes place within already days or hours.
This leads us to the next point – although we are speaking about a market worth hundreds of billions of US dollars, it is nevertheless very small amount in comparison with daily trading quantity comparing to traditional money market or stocks. consequently a single investor making 100 million transaction on stock market will not cause huge price change, but on extent of crypto money market this is a meaningful and noticeable transaction.
As crypto currencies are digital assets, they are unprotected to technical and software updates of cryptocurrencies features or expanding blockchain collaboration, which make it more attractive to the possible investors (like activation of SegWit basically caused value of Bitcoin to be doubled).
These elements combined are the reasons why we are observing such huge price changes in price of cryptocurrencies within associate of hours, days, weeks etc.
But answering the question from the first use – one of the typical rules of trading is to buy cheap, sell high – consequently having short but strong trends each day (instead of way weaker ones lasting weeks or months like on stocks) gives much more chances to make a decent profit if used properly.