One of the characteristics that are found common to all of the existing cryptocurrency members is the inherent price volatility in their markets. This is not surprising, because there are regular activities occurring every day, which involves the use of these relatively new financial instruments.
Some of the factors affecting price volatility are the rise and fall in crypto demand and supply (whether they be sharp or gradual), rates of inter-currency exchange, government threats and planned policy implementation, levels of cryptocurrency acceptance and adoption, nature of dispersed news and feedback, amongst other contributing factors. To a large extent, many of these factors are independent, and there’s almost nothing that can be done to bring them to a limit, except a reversal of the contributing factor- which cannot be particularly determined by anyone.
Drawing similarities between the popular foreign exchange market and the cryptocurrency market as a whole, it is obvious that one of the few properties that are peculiar to both markets is the volatility tendencies. Just as the main subject of an exploit in the forex market is the volatility ratio, so also, is it obtainable in the cryptocurrency exchange market. However, there is the clear-cut difference in the amount of volatility that happens, or that can be expected over time. While foreign exchange currency price pairs are estimated to vary by 0.5 to 1.2% over a pretty lengthy period, a high 5 to 25% is expected for cryptocurrency pairs in only a short period. This brings us to a lot of deduction and conclusions as to the prospects or risks that are present in cryptocurrency trading.
The place of concern for users and investors in the virtual currency world is how to immune themselves from debilitating losses, as well as methods of leveraging on this trend. Using the approach of forex trade on the digital currency market can bring lucrative results for the careful investor- who is not unnecessarily careful.
The way to go is the use of technical analysis tools known as support and resistance. Making use of support and resistance mechanisms can help put an effective gauge or indicator that gives an idea as to how the market looks like, at every point in time.
But before we can understand how this mechanism becomes effective, we must understand the concept of it; what they mean.
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