Cryptocurrencies, like Bitcoin, are well known over short periods of time for significant price swings. These events are turning away many investors because they believe these volatilities pose a risk to potential investment. But is this high volatility always to be seen from a negative perspective?
We’re going to talk about different aspects of Bitcoin volatility to teach you how to make the most of it without forgetting to protect yourself.
What is the volatility of an asset?
An asset is highly volatile when the price range it is traded into is too large. For example, if a currency unit costs $100 and ranges between $95 and $105 throughout the day, we have a fluctuation of 5 per cent, both up and down. Bottom. Of course this is very severe volatility, yet we can discover days with ups and downs of 10%, 15%, 20%, 25% and even more in Bitcoin’s quote history.
As much as price swings above 1 percent can terrify some traders, particularly those addicted to the modest returns on passive investments, we must understand that one of its particularities is the expressive price movement of Bitcoin, which is not necessarily a negative attribute.
How to protect against Bitcoin volatility?
Considering this market’s extreme uncertainty, it is important to study how prices have changed in recent days–and even in previous weeks–in order to avoid inputs at times when the signs of a decline in price levels are greater than the chances of increasing. In this respect, it is essential to understand the technical analysis, even the basics.
Understanding how the order book operates and the types of orders purchased and delivered is another key component to remember. Without it, you’ll probably be selling bitcoins at a price that is far from what you want, turning leverage against you.
We also need to find ways of protecting our capital against variations that could lead to greater losses than we’re willing to lose. To do this, we use the stop-loss order to exit the trade once the price reaches the level at which you think it is fine to stop losses than to risk becoming even worse.
Remember not all exchanges offer the function of stop-loss but FairBit offers this tool. So make sure yours has that feature at your disposal. Alternatively, going to a better broker is best so you don’t take unnecessary risks.
So don’t let the violent protests be an obstacle to cryptocurrency buying. As we have seen, Bitcoin volatility can be advantageous if we have well-defined goals and understand the best techniques for protection.
These properties are very similar to those of precious metals, such as gold. The amount of gold available in nature is limited unlike fiat currency, which can be issued without limits, increase its supply on the market and generate a potential devaluation.
No wonder Bitcoin has become so popular and is referred to as digital gold.
