At the beginning of my experience as a trader of cryptocurrencies I was really confused. There were so many coins, and I spent lot of times reading white papers and descriptions, trying to figure out the particularities of every project. After some weeks of study I started to gain better understanding of the technologies involved, but I was still wasting a lot of time in checking hourly and daily graphs for huge quantities of coins.
That trading style soon become not susteinable, not only becuase it made me waste too much time, but also because that variety prevented me from identifying technical pattrens.
Luckily, coming from the world of stocks, I realized soon what I was doing wrong. No matter how interesting a project could sound, I had to limit the selection of coins to a restricted list, just like what I used to do with stocks.
Selecting a limited range of assets to follow, in fact, alllows you to better focus on the behaviour of every single asset, to identify patterns and market reactions to technical configurations.
As some seasoned traders suggest, you have to limit the selection of the assets you watch only to a couple of dozens, in order to acquaint yourself with their idiosyncrasies.
Neither was so easy to achieve a selection of coins that satisfied my trading style.
In fact, I started with a watchlist composed of the classic coins, the ones with the highest market capitalization, but soon I realised that such a watchlist was far from being a good trading support. In fact, that kind of coins were too much correlated with the Bitcoin, making their trading like trading photocopies of the main cryptocurrency.
It took me some time to identify a selection of coins that showed a real trading appeal. In fact, I searched for coins that would satisfy these requests:
- Having a good volatility
- Being able to decorrelate from Bitcoin
- Having a good liquidity
- Being tradable both short and long
In my cryptocurrencies watchlist a coin must fulfill at least three of these four characteristics because there exist coins correlated to Bitcoin which are of high trading interest.
After a lot of trials and errors, my watchlist is today composed of these kinds of assets:
- Good volatility coins, even if correlated to Bitcoin. Example: Polygon Matic, Theta, Chainlink.
- Low correlation coins. Example: Stellar, Terra, Solana.
- Uncorrelated coins capable of volatility explosion: REVV, Axie, Peercoin.
In my opionion is really important to focus on a limited selection of coins that have ability to perform interesting movements, worth of being traded. This is a good advantage because lets you achieve good results even with a limited or non existent leverage.
Also it is important that the Exchange you use allows for trading in both LONG and SHORT directions, to be able to catch every significant market move.