Crypto Currencies Volatility, a Profitable Rollercoaster
This year we can observe that cryptocurrencies tend to move up and down even by 15% in value daily. Such price changes are known as volatility. But what if… this is normal and sudden changes are one of the characteristics of the cryptocurrencies allowing you to make good profits?
First of all, cryptocurrencies made it to the mainstream very recently, therefore 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 nature of cryptocurrencies is more like a “store of value” (like gold had been in the past) – many investors consider these as backup investment options to stocks, physical assets like gold, and fiat (traditional) currencies. The speed of transfer has as well an influence on the volatility of the cryptocurrency. With the fastest ones, the transfer takes even just a couple of seconds (up to a minute), which makes them an excellent asset for short-term trading, if currently there is no good trend on other types of assets.
What everyone should bear in mind – is that speed goes as well for the lifespan trends on crypto currencies. While in regular markets trends might last months or even years – here it takes place within even 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 still a very small amount in comparison with daily trading volume compared to traditional currency markets or stocks. Therefore a single investor making a 100 million transaction on the stock market will not cause a huge price change, but on a scale of the cryptocurrency market, this is a significant and noticeable transaction.
As cryptocurrencies are digital assets, they are subject to technical and software updates of cryptocurrencies features or expanding blockchain collaboration, which makes them more attractive to potential investors (like the activation of SegWit caused the value of Bitcoin to be doubled).
These elements combined are the reasons why we are observing such huge price changes in the price of cryptocurrencies within a couple of hours, days, weeks, etc.
But answering the question from the first paragraph – one of the classic rules of trading is to buy cheap, sell high – therefore 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.