Transitioning from forex to cryptocurrency trading is simply integrating crypto into one’s portfolio and should come with several adjustments that are critical to keeping the trading performance on a smooth path. As relatively-new assets compared to traditional currencies, crypto is a more volatile market and is influenced by different fundamentals. In case you want to see what are the 4 most important things to consider, that will be the topic for today.
The forex market accounts for more than $6 trillion in daily volumes and close to $2 on the spot market alone. In contrast, the total market capitalization of cryptocurrencies currently stands at $575 billion, which means liquidity is smaller.
Traders need to consider that in a low-liquidity environment, volatility is much higher and this has plenty of implications. Trading strategies don’t have the same accuracy, daily ranges are larger, and the emotional impact all of these have on the trader’s mindset can dampen his/her abilities to make decisions objectively, according to an established trading plan.
This might not be a surprise for traders actively trading FX exotic pairs, but in the case of cryptocurrencies, markets will be choppy on numerous occasions. Regardless of the crypto trading platform used, trading when the price has no directional bias is a real challenge even for the most skilled traders.
Finding the right entry location as well as the direction the market is headed is like flipping a coin. Trading discipline and patience will need to be cultivated so traders will get involved in the market only when there are high-quality trading opportunities, avoiding the noise generated by the uncertain periods.
Risk management adjustments
Volatility in combination with price choppiness will require traders to adjust their risk management. Reducing exposure (on an account percentage basis) will allow them to place a larger stop loss and aim for more profit.
Placing tight stop losses when trading cryptocurrencies will get traders out of the market on the first small counter-trend move, even though in the end, the price might move in the anticipated direction. At the same time, finding strong support/resistance areas and trading around them will be key, even though the price might trade below/above them before moving in the direction of the dominant trend.
Although traders are persuaded by the increased volatility in the crypto market and are tempted to place large trades out of FOMO, in reality, more conservative risk management would be appropriate, especially for those that are new to cryptocurrency trading.
GDP performance and unemployment won’t have any effect on cryptocurrencies. However, blockchain developments, market adoption, new crypto trading instruments released, or crypto regulation can weigh on pricing.
Knowledge related to how each cryptocurrency under the radar works as well as blockchain-related information will be key for understanding the fundamental landscape on the market. These are just 4 of the things you will need to consider when transitioning from forex to crypto trading. Other small details could be relevant, but by keeping these aspects under control, the transition can be done without long-term financial damage.