The concept of market capitalization is one of the most important keys that traders need to understand the volatile market.
It is the result of multiplying the price of one coin by the number of coins in circulation.
๐ธ Formula:
Market capitalization = price ร circulating supply
A simple example: If the price of a coin is $2 and there are 5 million pieces, the market capitalization would be $10 million.
๐ฑ Why is market capitalization an important metric?
Market capitalization is not just a number; it is a measure of the project's strength and reach.
High market cap coins (over a billion dollars): Often stable, such as Bitcoin $BTC and Ethereum$ETH .
Medium market cap coins (100 million to billion): They may carry promising opportunities but require caution.
Small market cap coins (under 100 million, especially under 50 million): Here lies both the danger and the opportunities.
๐ป When does market capitalization become a risk?
The smaller the market cap, the greater the risks, for several reasons:
1. Low liquidity: It is difficult to execute buy or sell trades smoothly.
2. Sharp volatility: Illusory rises and sudden falls.
3. Ease of manipulation: Large investors can control the market.
4. Emerging or unknown projects: They may lack vision or end quickly.
5. Lack of transparency: Some small projects do not clearly disclose their objectives.
๐ก๏ธ How to avoid risks while trading?
Trading is not gambling, but an art based on knowledge and discipline. To avoid the trap of small market capitalization, here are simple yet effective steps:
1. Test the coin: Is the project real? Does it have a known team? Does it solve a real problem?
2. Wisely diversify your portfolio: Don't put all your money in a small-cap coin, and allocate a small percentage for risk.
3. Monitor liquidity: Ensure there is sufficient daily trading volume.
4. Determine your exit point before entering: Don't leave yourself a victim of greed.
5. Learn technical and fundamental analysis: A vigilant eye sees danger before it occurs.
6. Avoid herd decisions: Don't enter because others have, but because you studied well.
7. Use stop-loss orders and trailing stops to protect your profits.
โจ Summary
Market capitalization is not just a number; it is a primary map guiding the trader on what to expect.
Small coins may be a gateway to wealth, but they are often a gateway to loss for those who are not prepared with knowledge and wisdom.
O you who walk the paths of trading, let market capitalization be a mirror in which you see the reality of the market, not a mirage deceiving you with its colors.
