Understanding crypto’s key differentiators
There are unique factors to consider when forming the optimal crypto investment strategy, even for experienced traditional market investors. While regular stock trading takes place during allotted time windows, crypto trading is available around the clock (including holidays) due to its borderless nature.
CoinDesk data recently revealed key aspects that can negatively impact trading. Therefore, selecting the best trading time to avoid extraneous costs could vastly improve the return on investment (ROI).
Factors That Influence the Best Time to Trade Crypto
Several factors can influence the ideal trading time in the crypto market. One of the key factors is market volatility and certain times of the day experience more significant price fluctuations than others. Additionally, the release of major news or announcements can also impact the market, creating opportunities for profitable trades.
We’ll explore the top influences on trade margins, including:
- Liquidity
- Trading volume
- Locality or Global Markets Activity
- Transaction fees
- Exchange activity
Liquidity
Liquidity essentially means availability of the desired coin(s). Whether a small or large trade is placed, the exchange’s supply must meet the demand to be fulfilled, or the order will be delayed. Prices can change rapidly due to crypto’s volatile nature, so depending on the platform and the size of the trade, plan accordingly or expect price variation.
Monitoring the trading volume throughout the day can help you identify the best time to enter or exit your positions. However, the trading period depends on whether you are focused on short-term or long-term investing. In fact, in order to see more overarching trends, some traders focused on long term investing, use longer trade windows such as a 30 days or weekly periods.
Trading Volume
The trading volume, or the number of times a certain coin is bought or sold within a time period, “has a direct relationship with how volatile it is,” and therefore the price. When more trades are being made, the trading volume increases and vice versa. Hence, when supply meets demand, price stability occurs.
While price stability can sound attractive, some investors believe price volatility “opens up opportunities for lucrative trades.” Examine historical trading volume data to determine the availability and popularity of the coins to determine if the spread, or the “difference between the available Offers (buyers) and Bids (sellers)” meets your investment requirements. Furthermore, it is essential to consider locality or global markets activity.
Locality or global markets activity
One influence on traffic load is locality. Earlier, we mentioned that the crypto market never sleeps due to its global nature. Today, standard U.S. market hours reflect the busiest time for crypto trades. However, during crypto’s brief history, trading dominance shifted from Asia to the West. The ideal trading time will vary based on tracking when regions are active.
As of March 2023, “smarter money” avoids early morning hours in the U.S. and weekend trading which is wrought with “algorithmic trading bots and market makers,” driving activity up. It’s important to note that active hours shift as clever investors adjust their strategy for the most lucrative trades. Monitoring any changes over a set period of time, such as a 30-day window, can help form a relevant strategy.
For example, Bitcoin often sees most of its gains while US traders are asleep. This phenomenon can be attributed to the fact that Asian markets, particularly those in Japan and South Korea, are highly active during the US nighttime hours. By taking advantage of this pattern, traders can potentially maximize their profits by entering trades before the majority of US traders have the chance to react to the price movements.
Understanding how locality or global markets influence the crypto market can help you determine the optimal trading time for your desired cryptocurrencies.
Transaction Fees
Newer investors may be unaware that “transaction fees, such as Ethereum gas fees,” impact the total cost of trade. Transaction fees vary based on network congestion, or demand, so trading during a highly trafficked time window could cost you in the long run.
Exchange Activity
As previously mentioned, where your trades take place can be as important as when. Trading activity can vary depending on which exchange you trade on. Currently U.S. trading hours seem to be similar across most exchanges.
Correlation Between Time Zones and Crypto Trading Profits
Time zones play a crucial role in crypto trading profits. As mentioned earlier, certain regions may experience higher trading volumes and price movements during specific hours of the day. By aligning your trading activities with these time zones, you can potentially increase your chances of profiting from significant price fluctuations.
For instance, if you are trading cryptocurrencies listed on Asian exchanges, it would be beneficial to be active during Asian market hours. By doing so, you can benefit from increased liquidity and heightened volatility, which often result in more profitable trading opportunities.
Strategies for Maximizing Profits During Specific Trading Times
To maximize your profits during specific trading times, it is essential to develop effective strategies tailored to the characteristics of those times. Here are a few strategies to consider:
1. Breakout Trading:
This strategy involves identifying key support and resistance levels. When the price breaks through these levels, it can signal the start of a significant price movement. By entering trades at the breakout point, you can potentially profit from the subsequent price momentum.
2. Trading Range:
Range trading involves identifying price ranges where the cryptocurrency has been trading within a specific period. Traders using this strategy aim to buy at the bottom of the range and sell at the top, taking advantage of price reversals within the established range.
3. News Trading:
Keeping track of major news and announcements can provide valuable trading opportunities. Significant news events can trigger sharp price movements, and traders who react quickly can profit from these price swings.
Remember, these strategies are not foolproof, and it is essential to conduct thorough research and analysis before implementing them. Additionally, risk management should always be a priority to protect your capital.
The Best Time Frame for Crypto Trading
Short-term traders often prefer smaller time frames, such as minutes or hours, to capture quick price fluctuations. On the other hand, long-term traders focus on daily, weekly, or monthly time frames to identify broader market trends and make informed investment decisions. Furthermore, Dollar Cost Averaging (DCA) is an alternative method that investors with a long-term mindset can use to take some of the stress out of investing. DCA lowers “the impact of market volatility by investing a smaller amount… on a regular schedule” and in exchange “may offer more predictable returns.”
It is important to note that the best time frame for crypto trading may vary depending on your trading strategy and goals. Experimenting with different time frames and analyzing their effectiveness in relation to your trading style can help you identify the most profitable time frame for your trading activities.
Conclusion
A number of factors must be weighed when forming a well-planned crypto investment strategy. But volatile price fluctuations occur daily if not hourly in the crypto space. Even the most thought-out plan can be taken off guard by an unexpected development. By understanding the various factors that influence the best time to trade crypto, analyzing market trends, and utilizing effective strategies, you can increase your chances of successful trades.
Regardless of whether you choose to time your trades or dollar-cost average, the world is advancing at an accelerated pace, especially when it comes to technology. Keeping on top of any significant influences, such as regulatory changes, is crucial to maintaining a relevant investment plan. Review charts regularly, noting any changes in patterns, and adapt your strategy to make the most of each trade for maximal returns. Remember, finding your optimal trading time may require experimentation and continuous learning. As the crypto market evolves, new trends and patterns may emerge, requiring you to adapt your trading strategies accordingly. By staying informed you can navigate the crypto market with confidence and maximize your profits.
Now that you have learned about the importance of timing in crypto trading, why not take the first step and open an account at BitcoinIRA? Start your crypto trading journey and explore the potential for profitable investments.
Bitcoin IRA is a platform that connects consumers to qualified custodians, digital wallets and cryptocurrency exchanges. The company is not a custodian, is not a digital wallet and is not an exchange. The information provided in this article is for educational purposes only. We encourage you to consult an adviser or professional to determine whether Bitcoin IRA makes sense for you.
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