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How to take advantage of market volumes for investment strategies in cryptocurrency
The world of cryptocurrencies has drawn special attention in recent years, many investors and traders seeking to capitalize on potential yields. One of the key factors that can contribute to the value of a cryptocurrency is its market volume. Although some may consider the volume of the market as non-relevant or even an obstacle to investment in cryptocurrencies, understand how to take advantage of market volumes for investment strategies can be a precious asset.
What are the market volumes?
The volume of the market refers to the total amount of the currency transferred within a given time (generally one day). It is calculated by multiplying the number of transactions per minute (commercial volume) by 1,000. For example, if a cryptocurrency has a commercial volume of $ 10 million and there are 1,000 transactions per minute, its market capitalization would be $ 100 billion.
How to take advantage of market volumes
Although market volatility can make the forecasting of price movements difficult with certainty, understand how to take advantage of market volumes for investment strategies can help. Here are some ways to do it:
Use the depth of the market to your advantage
The depth of the market refers to the number of trades per minute within a given time (generally one day). A deeper market can be used to buy or sell a currency at a lower price, which makes you cheaper to enter and get out of the positions.
* Buy Low, Sell High : one of the easiest ways to take advantage of market volumes is to buy low and sell high. This implies using the depth of the market to buy cryptocurrencies at a lower price, then sell them when they reach a higher price.
* Next trend : Another approach is to use the following strategies that benefit from market volatility, such as low purchase during a slowdown and high sale when the market is recovered.
Use the decrease of time
The disintegration of time refers to the loss of value of an investment over time due to interest rate differentials. This means that the value of a cryptocurrency can decrease as it becomes more liquid or because there are fewer new trades.
* Cover strategies : One way to take advantage of market volumes is to use coverage strategies, such as purchase of put options or the sale of term contracts.
* Dollar cost of the average : Another approach consists in implementing the average cost in dollars, where you invest a fixed amount at regular intervals, regardless of market performance.
Use the lever
The lever refers to the use of capital borrowed to increase potential yields. This can be done via margin trading or using derivatives such as term contracts or options.
* Margin trading : Margin trading involves borrowing money from a broker to buy more actions than you have on your account.
* Spreads of options : The use of SPREADS options allows you to take advantage of the disintegration of time while hiding against potential losses.
Avoid over-optimism
Although market volumes can be an effective tool for making investment decisions, it is essential to avoid optimism. Market conditions are intrinsically unpredictable and can change quickly, resulting in significant losses if they are not carefully managed.
* Stay disciplined : It is essential to remain disciplined and focused on your investment strategy, even in the face of market volatility.
* Diversify your portfolio : Diversification of your portfolio by investing in a range of assets can help to mitigate risks and facilitate adaptation to changing market conditions.
Conclusion
Taking advantage of market volumes is only an aspect of the successful investment of cryptocurrency. By understanding how to use the depth of the market, the decomposition of time, the lever and avoiding it, you can create a solid investment strategy that helps you achieve your financial objectives. Do not forget to stay disciplined, diversify your wallet and adapt to changing market conditions to maximize your yields.