The cost averaging, passive approach, can become an entry into full blown active trading, by adjusting the regular recurring investments based on an assessment of market conditions. If your research tells you that price will increase in the long term, your aim is to buy the dips on the way, making your entry points as efficient as possible.
With DCA you stick to regular recurring buying points, but you can start adjusting how much you buy each week/month based on an assessment of whether the market is oversold or overbought at that fixed point.
Thinking in terms of oversold or overbought conditions – essentially whether the market has become overly optimistic or pessimistic – is the first step toward technical analysis, which is a key part of trading crypto and an alternative perspective to the investment philosophy of fundamental analysis.
You can refer to indicators or models to guide your decision, but the more you research market conditions, the more time you’ll need to commit. If you want to unpack technical analysis further and move into active crypto trading, you’ll need to commit even more time.
Time will essentially be a limiting factor in the style of active trading that you should employ. Here is a summary of some of the most common, which are discussed in our section dedicated to all aspects of trading crypto.
News/Information Based Crypto Trading
Most cryptocurrencies have no fundamentals to analyse – such as revenue streams – so their value is based on perception of future value. Perceptions shift on news so the crypto market is heavily influenced by information as it emerges and is interpreted.
There is no simple way to be on the right side of this kind of news. As the saying goes ‘those who know are telling and those who tell don’t know.’ You can, however, put yourself in the best position to receive news as it breaks by following people on social media with reliable track records of breaking early news.
In your own way you need to curate valuable sources of news and put yourself in the best position to react before others. The most effective approach to news/information based trading for someone just getting started is to specialise in a few niche cryptocurrencies.
Dogecoin is a great example. Its price doesn’t really reflect normal fundamental factors – development team, product pipeline – but it’s hugely responsive to celebrity endorsement especially Elon Musk. His appearance on Saturday Live in May alone led to a huge rally, with the assumption he would mention Dogecoin. This also underlined the policy of buying the rumour and selling the news.
All the upside was in the phase leading up to Musk’s appearance, speculating on what he might say/do. His actual appearance, and mention of Dogecoin triggered the sell-off.
Get to know the people behind specific projects, find their social accounts and pay close attention to what they post. You may just pick up some nuggets of information with enough lead time to trade that news, but make sure you know how and where to trade the coin, and that there is enough liquidity.
Pros
- Finding news doesn’t require technical knowledge
- No specific barriers to entry
- Isn’t necessarily time intensive
- Allows specialisation
Cons
- Distinguishing genuine news from rumour is difficult
- Markets react instantly so timing is very difficult
- It still requires a technical assessment of how much a piece of news will move a market
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