A casual term used to refer to automated trading software. More general terms that you will often come across when dealing with cryptocurrency can be found in our glossary section. The Penny Stocks of the 21st Century In many ways trading altcoins is similar to investing in penny stocks, and that comparison has been made many times in the past by other authors. But in other ways it is very different. There are some important lessons that can be taken from penny stock trading and applied to altcoins: The first thing you will learn about penny stocks is that you should spread your capital out among as many different shares as possible, to reduce the chances that you will lose everything.
The majority of new business will fail in their first few years, meaning that their shares will drop in value to zero. The same is true for altcoins — many new coins will completely fail within the first year of trading.
Altcoins: The Penny Stocks of the 21st Century
The smaller a market is, the easier it is to manipulate. Penny stocks have always been subject to a large amount of professional hype, and this is certainly true for cryptocurrency as well. Professional promoters will hype up a coin, through newsletters and tip services, through social media and blogs and even through advertising. In either case, the kind of artificial price pump driven by this kind of hype is often followed by a price crash as the people behind it cash out at the higher price.
In a similar way, FUD can be deliberately spread in order to artificially drive down the price so that the people behind it can pick up cheap coins. It is always true in life, but doubly true when researching altcoins for trading, that you should always be skeptical of what you read, do your own research, and make up your own mind. One of the biggest mistakes that penny stock traders make is to take profits on winners too soon, but keep hold of the losers until they are worthless.
I have seen this a lot in cryptocurrency trading as well. In both of these niches it is common for the majority of your picks to lose money. This may feel like a great profit, you may fear losing it and want to lock in the profit, or you may just get excited and impatient to realize your gains even though the price is still trending upwards.
At the same time, many traders become emotionally invested in what they buy, and find it hard to give up hope and sell even when it is clear that the price is going down, and in this way they end up losing most or all of the value of their investment when they could have cut their losses much earlier if they had taken a more rational approach.
One key difference between penny stocks and alternative digital currency is that the former may take years to realize a profit, whereas the cryptocurrency world is very fast paced indeed.