What is crypto volatility? Exploring causes of volatility and strategies to manage it

Crypto trading has become a popular way for people to grow their funds, but it's not without its risks. Before you start trading, it's important to understand the potential risks and how to manage them.

In this article, we 'll explore one of the key risks of crypto trading — market volatility, looking at what external events cause volatility and how you as a trader can navigate future unpredictability in the crypto markets. By the end of this article, you should have a better understanding of what is volatility in crypto and how to manage it.

One of the biggest risks associated with crypto trading is market volatility. Cryptocurrency prices can fluctuate wildly and rapidly, making it difficult to predict the future value of your positions. This can lead to significant losses if the market takes a turn for the worse.

For example, in December 2017, Bitcoin reached an all-time high of nearly $20,000, only to drop to around $3,000 just one year later. This level of volatility can be a major challenge for crypto traders. It's important to understand that crypto markets could be speculative and influenced by a variety of factors, such as regulatory changes, news events, and market sentiment. These factors can make it difficult to predict the future value of your holdings and increase the risk of losses.

The crypto market's size and growing mainstream adoption mean that today, many different factors can cause volatility — creating a complex landscape for traders to monitor and make sense of.

Because the crypto regulatory picture is still emerging globally, developments to laws — whether positive or negative for the industry — can add to volatility. Although crypto advocates usually champion decentralization, the industry remains under the influence of regulatory oversight that exists to protect individuals and their funds.

Favorable regulation can, for example, lead to greater institutional adoption as firms grow comfortable gaining exposure to crypto markets. On the flip side, a regulatory crackdown can create a bullish environment, leading traders away from crypto.

Despite the risks associated with market volatility, there are strategies you can use to manage risk and potentially minimize losses. Some of these strategies include:

Before you start trading, it is important to educate yourself on the crypto market and the different coins and tokens available. This will help you to understand market trends and signals and make more informed trading decisions.

Diversifying your portfolio by trading a variety of coins and tokens can help to reduce the risk of losses. This way, if one coin performs poorly, your overall portfolio may still be protected.

TP/SL orders can help to limit your losses or take profit by automatically selling your positions when they reach a certain price.

Don't let the potential for quick gains cloud your judgment. It's important to stick to your trading strategy and not to make impulsive decisions based on the potential for short-term earnings.

Although crypto trading can be rewarding, it can also be challenging to navigate. Understanding the risks associated with market volatility is crucial to making informed decisions and potentially reducing the risk of losses.

By staying informed on market trends, diversifying your portfolio, setting TP/SL orders, and sticking to your trading strategy, you can better manage market volatility and maximize your chances of success in the crypto market.