Cryptocurrency has become one of the most talked-about and volatile investments ever. It has been less than 15 years since Bitcoin hit the scene and there have been thousands of “altcoins” to hit the market since.
One of the best among the altcoins is Ethereum. Whether you are new to cryptocurrency or have a little bit of experience, there are a few helpful tips when it comes to trading Ethereum. Check out the guide below to find out more.
What is Ethereum?
Ethereum is actually a decentralized blockchain that has smart contract functionality. Its native coin, ETH, is a form of cryptocurrency that can be traded, bought, and sold as any other form of cryptocurrency can be.
Currently, Ethereum price is second only to Bitcoin. It is open-source software, allowing independent software developers to make modifications. It was initially conceived just a couple of years after Bitcoin hit the market, created by programmer Vitalik Buterin.
A Disclaimer Before Trading Ethereum
Before we get into the tips for trading Ethereum, it is important to know a simple fact. Cryptocurrency is perhaps the most volatile form of investing that there is. It has gained a lot of popularity over the last decade and is even gaining traditional support from large financial institutions. That said, it isn’t on as solid ground as traditional means of investment like stocks, rare materials, etc.
Dollar-Cost-Averaging
One of the first things worth considering when tracking the price of Ethereum is called dollar-cost-averaging (DCA). It is a popular method for trading Ether (ETH) and uses a wealth of research. The technique itself was first popularized by equity market investor Benjamin Graham.
Basically, DCA means investing smaller amounts but doing so at very specific intervals. An investor could put a specific amount at the beginning of every month. This helps to ensure that you get both the highs and the lows on a month-to-month basis, which helps to smooth out some of the volatility that comes with the territory.
This option is ideal for those who are new to the market. It takes no time investment or technical expertise. There is no research or statistical model to consider. It is a good baseline for creative investments and can be combined with seasonality (more later). DCA can help mitigate some of the volatility that plagues cryptocurrency markets.
Be Aware of Seasonality
ETH, like any other form of cryptocurrency, has months where it does well. It also has months where it struggles. For instance, Ether does its worst in March, June, and September, which would be an optimal time to get into the market as a buyer.
On the other hand, it performs best in February, April, and May. For traders, this is the most ideal time to issue sell orders. That said, buy-and-hold investors can just sit out those months in order to avoid buying high. There are also certain times of the day that wind up being more lucrative from an investment standpoint.
Being consistently active is necessary to notice those trends in seasonality. Active traders will notice these trends and save on increased fees as well. Seasonality is generally applied on a monthly basis, though it can also work quarterly as well. Anything longer than that will wind up mitigating the benefits of following those trends.
Cryptocurrency, in general, is about noticing the trends. If you can get a bead on those trends, it can wind up creating major savings and gains. There are no guarantees but those with the most information tend to do the best over the long run.
Understand the Factors Surrounding Price Movement
One of the biggest mistakes investors make when it comes to Ether is not knowing what impacts the movement of those prices. There are a few ways to analyze cryptocurrency prices and different valuations can be given depending on what kind of model you go with.
That said, you need to do well with weighting the conditions. Positive buy signals might tell you it’s time to do so but there are other factors that will send the market into a fall. The crypto market, in general, tends to correlate with what Bitcoin is doing. Institutional and hedge money investors trade Bitcoin, therefore leading the way for other cryptocurrencies to follow.
Deals with big firms can wind up having a major impact on the price of ETH. For instance, after a big European Investment Bank began offering a two-year bond on the Ethereum blockchain, the price of ETH shot up exponentially in May and November 2021.
Bitcoin’s price movement, institutional investments, interest rate decisions, and other macroeconomic conditions can play a role. Pay close attention to those developments and you will begin to notice trends. There is no foolproof way to invest in ETH but more information is never a bad thing.
