As of 2018, more people are day trading than ever before. With seemingly countless different assets available to choose from, there is no surprise that the day trading industry has become increasingly competitive. Though succeeding as a day trader will certainly require a great deal of work and monitoring of certain indicators, the general decrease in the cost of trading has made the industry much more accessible.
For nearly a decade, the rise of cryptocurrency and other digital assets has enabled day traders to significantly diversify their portfolios. However, while wheel of bitcoin is likely the first thing that many people imagine when they hear the term “cryptocurrency”, it is important to recognize that this term actually encompasses an incredibly wide range of digital assets.
In this guide, we will discuss Ripple and how this particular asset can be effectively utilized in a day trading strategy. There are many different potential benefits of investing in Ripple. When used correctly, it can decrease the cost of exchanging currencies and also offer users an opportunity to increase their wealth.
Getting to Know Ripple
The term “Ripple” can sometimes be confusing because it refers to both a specific digital currency (often abbreviated XRP) as well as a supporting exchange network. Ripple was designed to operate as a medium through which various currencies and other financial assets could easily be exchanged around the world.
While many currency pairs, such as the United States Dollar (USD) and Euro (EUR), are quite easy to directly exchange, others face significantly more obstacles. In fact, if you are hoping to exchange a Thai Baht (THB) for a Kenyan Shilling (KES), you would likely need to first exchange the THB for USD and then convert USD to KES. Ripple is a fiat digital currency that seeks to ease, accelerate, and decrease the cost of these sorts of transactions.
While many currency exchangers will charge a fee for converting THB to KES, Ripple is designed to provide a “neutral” intermediary currency at essentially no cost (1/1000th of a cent). The only reason that the 1/1000th of a cent cost is even used to begin with is to prevent the market from being manipulated.
Understanding the Ripple Market
There are several different reasons that a given unit of Ripple (Ripples) can claim to have an inherent value. Because the currency can be used to bypass the exchange charges from PayPal and most banks, the asset itself is incredibly useful. Anything that has both an objective use and a finite amount of circulation—the company is currently limiting the global supply to 100 billion Ripples—has the potential to increase in value over time.
As of October 2018, the value of one Ripple is about $0.52. This figure is significantly lower than its peak (temporarily reaching over $3 around early January), but significantly higher than it has been for most the currency’s trading history (initially released in 2012). Like Bitcoin, Ether, and other forms of cryptocurrency, succeeding in the Ripple trading market will require you to carefully time your entry into and exit out of various positions. While holding onto Ripple from 11/2017 to 1/2018 could have allowed you to earn an incredibly 3,000% rate of return, holding from 1/2018 to 2/2018 would have resulted in more than an 80% loss of value.
The Benefits of Day Trading Ripple
The cryptocurrency market, as a comprehensive whole, is widely recognized by investors of all stripes for its incredible volatility. Though systematic volatility may deter long-term investors who are saving for their retirement, it also offers day traders an opportunity to earn a lucrative return.
Ripple is traded countless times throughout the day. There are many different reasons why this is currently the case.
- The objective usefulness of Ripple means it is unlikely to lose all of its intrinsic value at once (a problem for certain cryptocurrencies).
- Being consistently among the top five most trade cryptocurrencies proves that Ripple has been able to establish its legitimacy.
- Short-term volatility creates lucrative entry points throughout the day.
- When compared to Bitcoin, Ripple offers faster transactions, better cooperation with banks, and (arguably) higher liquidity.
- Fixed distribution helps combat potential price dilution.
These are just a few of the reasons that Ripple has been able to effectively position itself in the greater crypto market.
Developing a Strategy for Day Trading Ripple
Despite the myriad of benefits mentioned above, investing in Ripple is not without risks. After all, any currency that has the potential to lose over 80% of its value in a single month (as occurred between January and February 2018) is one that needs to be invested in carefully. Issues with security and future uncertainty have also created complications with certain investors. Still, because Ripple has such a strong potential for growth on any given day, it is a currency that crypto day traders should certainly take the time to understand.
There are many different ways that you can effectively decrease the risk of investing in Ripple:
- Follow short-term charts and use a momentum trading strategy. This allows you to ride price rises to the top and exit before your gains begin to diminish. Momentum trading is designed to help decrease the risk of immediate price drops after opening a position.
- Diversify your cryptocurrency investments. Cryptocurrencies often have low—or even negative—correlations with each other’s prices. Diversifying your investments can help you avoid asset-specific risks.
- Use stop loss and stop limit orders. Though stop loss orders may force you to accept a net negative day, they make it possible to cut your losses while you can. Stop limits allow you to “cash in” on your earnings before they begin to diminish.
- Study historical data and follow Ripple-specific news—this will make it much more possible for you to correctly identify when price changes may be occurring.
In addition to the strategies mentioned above, you may also want to consider back-testing a specific strategy before you begin risking actual capital. Take a look at historical patterns and see if the use of a specific approach would have actually been profitable.
In instances where back-testing your new strategy would have resulted in a loss of value, you may want to consider adjusting your stop order approaches, your investments in other cryptocurrencies, the indicators you use to enter a position, or perhaps all of the above. Investing in any structurally risky asset—such as cryptocurrency—will not guarantee that you are profitable over time, but there are still many different things you can do to effectively decrease your exposure to risk.
Because Ripple—both as a platform and as a fiat digital currency—seems to have created tangible, real value, this finite asset will likely increase in worth over time. If you are hoping to successfully day trade Ripple, it will be very important for you to correctly time your entry and exit points. By familiarizing yourself with the digital currency market, taking the time to review historic data, and installing various safeguards against risk, you will put yourself in a position to be a successful Ripple investor.