How to Paper Trade Crypto: Key Strategies for Successful Trading

How to Paper Trade Guide

Introduction

Trading is recognized as a greatly profitable activity. However, it is important to know that profits do not come alone, and that it carries some aspects we should be interested to understand very well.

In this piece we are going to take a general view of what it’s involved in trading and which are those relevant aspects you need to start learning and attending to during paper trading to get the most out of it.

Technical Analysis

Technical Analysis is key to identifying Trends that determine whether prices are consistently rising or falling (downtrend) or moving sideways (consolidation). 

Also, assess support and resistance levels that are key zones of supply and demand

Technical analysis utilizes:

Moving Averages are chart lines to follow price fluctuations, revealing the underlying trend. They also utilize other technical indicators to assess price and volume data to get signals for potential entry or exit trading points. 

For example, Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are powerful indicators to catch divergences and convergence signals.

Fundamental Analysis

What it is: Fundamental analysis focuses on the underlying bases of a financial asset, industry conditions, and future prospects to determine its intrinsic value. It involves analyzing financial statements, news, projects, and economic data.

While technical analysis concentrates on the what of price movements, fundamental analysis delves into the why. Fundamental analysts evaluate a project's intrinsic value.

Why it's important: Fundamental analysis will help identify the real characteristics of a project and its viability.

Fundamental analysis equips you to analyze a project's fundamentals, you can identify new projects with strong long-term potential that may currently be trading below their intrinsic value.

This type of analysis makes informed investment decisions: Fundamental analysis provides a holistic perspective of an asset, enabling you to invest with confidence based on its true financial health and future outlook.

Risk Management: What Is It?

Risk management is a set of trading concepts designed to identify, evaluate, and manage potential losses in an investment. 

It groups several strategies such as setting stop-loss orders, diversifying the portfolio, and determining the overall risk tolerance of a trader.

Perfectly designed risk management is essentially the key for safeguarding the capital and ensuring long-term investment success.

Trading Strategies

We can now point out some of the most used trading strategies and categorize all those into different approaches.

Short-term strategies:

• End-of-day trading is a strategy that waits for the closing hours of the market, its focus relies on analyzing the market at the ending hours and placing trades based on the last day's price movements.
• Day trading is a daily activity based on opening and closing positions within the 
• same trading day, taking advantage of short-term price movements. 
• Scalping is a fast-paced trading strategy that aims to profit from small price variations throughout the day. 

Mid-term strategies:

• Trend trading seeks for sustained trends in the market. These trends can be going up or down directions. Trend trading is the preferred strategy for investors who manage and hold positions throughout a portfolio.
• Swing trading opens and holds positions for days or weeks. It will try to profit from sustained short-term trends. Traders in this case mostly use 4h time frames in the charts.
  
  
  Events and long-term strategies:
• News trading waits for news releases and reacts to those events. Attempts to capitalize on economic data on major market price movements; in other cases, unexpected events like war, political speeches, and updates on projects or companies will move the price. Economic indicators like Consumer Price Index (PCI), labor market, and central banks announcements will move the price notably.
• Position trading is similar to trend trading and related to it, this involves holding positions for months or even years based on long-term trends and companies fundamentals. Ideal for investors minded traders.

Conclusion

Now that we have addressed the core aspects of trading, you are ready to begin this journey through paper trading. Remember that paper trading is a virtual environment but that should be seen as real to develop professional strategies to enter in the live market.

Technical analysis and fundamental analysis are the foundations for every strategy that assess the overall conditions of an asset in the market. However, the adaptation or usefulness of each of those will depend on the type of strategy chosen that we discussed previously.

You can Sign Up for free to Altrady and start paper trading. Use the library in the platform to dive deep in all of the concepts here exposed, and develop professional trading strategies. Check out our video how to make a free paper trading account: