How to Ride the Crypto Trading Roller Coaster

Crypto trading – more than most other markets – is a wild ride of ups and downs with all sorts of unexpected twists. This is true for new traders and crypto veterans alike. Uncertainty is woven into the very fabric of markets, and building a robust risk control framework for successfully participating in these markets is essential.

This article briefly examines a few types of trading analysis used in different financial markets, some of which I write about on my trading psychology blog: Trading Composure. These tips should help readers along in their mental shift to produce better market analysis and ride the waves of uncertainty with more finesse and insight.

Building a Better Trading System

No trading system is magic or perfectly successful. Every profitable trader knows that all forms of market analysis have limitations – there are no magic wands or silver bullets in trading.

It’s impossible to understate how important it is (especially for readers who are new traders) to understand that every trading system has an inherent element of uncertainty that must be acknowledged and embraced. So, instead of trying to find a crystal ball, market analysts and traders are much better off looking for effective risk management tools, not predictive tools.

As a trader gets more precise with their execution, more comfortable with their risk management, and overall makes smarter decisions, they will become more profitable. This is the most basic way of understanding how to take advantage of the opportunities in the market. 

An Overview of Popular Trading Styles

There is no singularly best approach to trading crypto. Every trader works differently, and that’s okay. Two traders might take the same trade for two completely different reasons. Or they might take opposite trades for the same reason. Ultimately, every trader is looking at the same price chart and (generally speaking) has access to much of the same market data. The difference between winners and losers is consistency with a chosen trading system.

This section offers a brief overview of many popular styles of trading for the benefit of newer traders who may still be looking for their preferred trading style or for those who want to try something new.

Price Action and Chart Patterns

Observing how price behaves and potential patterns in price action can provide clues about trends, support or resistance levels, and potential future price movements. 

But these tools aren’t fortune tellers. They facilitate risk management. Where to set stop-loss orders, spot good entry and exit points, and adjust position sizes to protect from unexpected price moves can all be informed with this form of analysis.

Technical Indicators

Technical indicators aggregated mathematical calculations based on price, volume, and other data. These tools are also a useful way to manage risk by spotting trends, gauging momentum, and identifying potential turning points in the market. Ideally, this form of analysis is not used in isolation but instead is added in conjunction with other forms of analysis. 

Order Flows

Searching for granular insights into the buying and selling orders is the main reason some traders use this form of analysis. Lots of information is left out of order flow analysis – but it can tell a trader something about market sentiment and occasionally help to more easily identify potential shifts in market conditions. When an analyst sees signs of strong buying or selling on their order flow radar, they will most likely adjust their risk exposure, tighten or loosen stop-loss orders, and adjust their positioning accordingly. 

Volume Analysis

Volume analysis is like listening to the heartbeat of the market. It tells you how much trading is happening at any given moment. By monitoring volume, a trader can get a sense of market strength, potential reversals, and sudden shifts in demand. Adjusting risk exposure and considering defensive trading strategies whenever a trader sees unusual volume activity is not unusual.

Fundamental Analysis

Fundamental analysis is like digging into an asset to find its secrets. It often involves crunching trade metrics like market cap and circulating supply, studying white papers, economic indicators, and keeping an eye on industry trends. But even fundamental analysis will not give a trader a perfect plan for buying and selling. But it can help them manage their risk by understanding the underlying factors that could affect their investment. 

The Goal Is Risk Control

As a reminder: there is no form of market analysis that gives complete certainty to any trader. By nature, all markets are uncertain. A trader’s job is to take calculated risks and – if they’re right – get paid for it. But there will always be losses. Even the most successful traders lose money and are wrong.

Amid the inherent uncertainty of trading, risk management is a safety harness. Without it, a trader is relying on pure luck to be successful. That is an easy way to get wiped out.

Instead of chasing illusions of certainty, new traders must learn to embrace the reality of uncertainty and evaluate the forms of market analysis discussed in this article. Some readers will like many of them, other readers may only like one or two. Ultimately, they all provide various ways to glean valuable insights from market activity to make better risk-conscious decisions.

Embracing uncertainty is the key to trading successfully.