by kamenoccc

Many people are hearing about crypto and want to buy in. Well, after a fair warning about the risks, it’s always best to give them some guidance on what to look for if they’re really eager to invest.

In this post I’ll try my best to note some of the simplest indicators anyone can look for when looking to open a long position on any coin. A very common mistake people make is to only look at a single indicator when buying cryptocurrency. But in reality, there’s a multitude of indicators you should be looking into when buying in to any coin. So if a coin seems to be doing well in all of the indicators I’ll list, then at the very least you’re reducing your chances to get burned.

Bad FOMO

First, let’s list some commonly heard misconceptions about what would make a coin a good buy:

• That coin only costs 0.02$? Buy it, it can 10x.
• This fell 50% today, buy it!
• This coin is rising like crazy, good chance to jump in for some profits.
• Everyone is talking about this coin so it must be good

If taken individually, these are not great indications to open a long position on any coin, for reasons I’ll try to explain in the following points. In the following part I’ll try to put them in a list for the sake of simplicity.

Market Indicators & historical data

1. Look at the volumes

It’s really important to look into if there’s a solid market behind a coin. If current volumes are really small, then the price is very prone to manipulation.

How to look into this? Go into Coinmarketcap or Coingecko and have a look at historical volumes by hovering on the charts at a coin’s page. This is better to be done on a desktop computer/laptop. Phone/tablet doesn’t work so well for getting info out of the chart.

2. Look at the coins in circulation and release schedule

It’s really important to look at how many coins there are, how many there will ever be, and how fast coins are released. This is one of the reasons why buying a coin based on it having a low price per coin alone isn’t a good idea. If many coins are to be released in the near future, it’s very much likely that there’s going to be a lot of selling pressure from those earning them. And if a coin is in its early release phases, emission is likely to be happening at a higher rate, so from monetary terms, prices would stabilize once emission is reduced.

How to look into this? Coinmarketcap shows the total coins in circulation currently, as well as the maximum amount of coins there will ever be. And they’re a third party source so they largely have no incentive to lie. You can trust them over a coin’s developers for instance. Too look into this on your own, go into a coin’s page on Coinmarketcap. Circulating Supply means how many coins are released on the market right now. Max Supply means how many coins there can ever be. To look into how fast coins are released you can Google something like “[coin name] emission schedule”. This should bring up some info on how a coin is planned to continue being ‘minted’. It can vary a lot from coin to coin so always do your own research, find up to date sources and double check so you understand everything correctly.

3. Check the listings

If a coin is only listed on very few exchanges, it’s very much likely that it doesn’t have a solid market behind it. Its price could be manipulated easily and when only a few exchanges trade a coin you should be suspicious of high volumes.

How to look into this? Go to the Coinmarketcap page for a coin, click on “Market” and see the exchange pairs. Pay special attention at how the volumes are distributed and what the “Confidence” rating for each exchange says. If a coin is receiving most of its volumes on low rated exchange it might be a good idea to stay away.

4. Pair variety

If a coin has a great variety of pairs to be traded with, it’s a very good indicator that there’s demand to trade with it. Especially if there are many FIAT pairs for it, across several exchanges, this is a great case for a coin having people interested in it worldwide.

How to look into this? In the Coinmarketcap “Market” page for a coin, see how many different pairs there are. To look out for FIAT pairs more directly you can also filter pairs at the top right by selecting EUR or USD etc. You can also click “Load More” for a fuller picture.

5. Historical price

This is perhaps the single most important indicator when going in to a coin. No matter if the price per coin looks low for example, if the coin is at an all time high when you’re buying, then this is one indicator showing it’s hard for the coin to go up further. You can also compare the current price with different time periods. For example, last 7 days, month, year etc. Important to also look for historical volumes and compare in relation to historical prices.

When doing this, it’s also important to check the market’s history and look for some important related metrics. Like: What’s the All Time High? Has the coin been above current prices many times (and if yes, how much trading volume did it take to break above the price level)? What’s the relation of the previous ATH with the current price?

How to look into this? Simply go into the page of a coin on Coinmarketcap or Coingecko and look at historical prices.

6. Market capitalization value

This is an important indicator. It’s showing the total value of all the coins in circulation, usually measured in FIAT (USD). But there are also some related metrics that might make the market cap value unreliable. For instance: If the market cap went up by a lot due to a nearly vertical price rise recently then it’s not very representative of a market’s substance. You should try to consider the market cap before an ongoing pump for something more representative. Also, if a coin’s market cap value is high with tiny volumes compared to coins of a similar market cap value, then this can be a red flag.

The coin market cap is also a limitation to how much a coin’s price could rise. A golden rule of thumb over this issue is that no coin should ever be expected to surpass bitcoin in market cap value. So in simple terms, the result of the formula

coins * price 

will never be more than bitcoin’s market cap value (in $). Consider this a hard limit to how much a coin can rise in value. And by this point I think that you should also consider any price prediction according to which a coin would come near ETH’s market cap value as unsubstantiated, grossly speculative and wildly inaccurate. In most occasions, this can be used to debunk claims that a coin can go 10x, which is a very common attempt driving FOMO panic buying for a coin.

How to look into this? Just go to coinmarketcap.com’s main page and/or the specific coin’s page and see how that coin ranks.