Bitcoin surged higher and already provided a decent profit to investors. Therefore, if you want to build an investment portfolio with crypto coins, there is no alternative to thinking about altcoins.
Among altcoins, some instruments have already provided a good profit like DOGE, ETH, or LTC. However, the crypto market is becoming famous among investors, and mass people join in this field. As a result, focusing on a solid coin with a strong background is the only way to rely on the future price direction.
We can say Polkadot (DOT) is a potential investment opportunity that might change your future based on our findings. Let’s see how the DOT works and how to invest in this instrument.
What is Polkadot?
A Swiss company, Web3 Foundation, drives the Polkadot project. The main aim of this project is to make the internet fully functional in a decentralized nature. Therefore, the Web3 Foundation collaborated with other organizations to bring Polkadot to serve mass people.
It uses an open-source multi-chain blockchain that can quickly send data from one place to another than traditional blockchain systems. Moreover, the uniqueness of the decentralization and private web can keep this platform above others.
Polkadot protocol uses both private and public blockchains that can transfer information and transactions on the blockchain. The Native token of the Polkadot is DOT that can govern the protocol and allow making parachains.
The four key factors about Polkadot components are mentioned below:
- Relay chain: it is the most important part of the Polkadot system that often encourages it as the heart of DOT. It allows the system to run within a highly secured chain.
- Parachain: it is a neutral chain capable of having its crypto tokens in an optimized manner.
- Parathread: it works similar to the parachain, but the unique feature of the flexibility in connecting pay as you go model, makes it different.
- Bridge: it creates a connection between the parachain and parathread to make a connection with other blockchains.
How to identify the effectiveness of Polkadot?
Before investing, it is wise to know about the trading instrument. More particularly, investors should focus on instruments that can provide a better value to the people. Therefore, investment in Polkadot should come from how it is providing service to mass people to anticipate its future value.
As per the present data, the Fully Diluted Market Cap of DOT is at $48,068,058,749, making it remain within the top ten cryptocurrencies in the world. Moreover, its circulation is fixed at 1,103,303,471 DOT, which is logical. As a shared multi-chain network, this platform can make transactions through parallel channels, which will reduce energy usage. Moreover, the network is convenient where information transfer is easy.
The user-driven governance system might help the chain to remain more secure. Overall, the future value of DOT is pretty strong compared to traditional cryptocurrencies, but investors should understand when to buy using technical analysis.
A short-term strategy
In this section, we will see a short-term method to buy and sell DOT. These methods are based on technical analysis, so it is better to apply them to CFDs. On the other hand, there is no problem if someone tries to apply it on the spot market.
Most of the emerging cryptocurrencies remain corrective most of the time. Therefore, short-term range trading is suitable for them. In that case, we will identify the overall market trend and follow the direction from ranges.
Bullish trade setup
Before taking a buy position, make sure to confirm the following market behavior:
- The overall market context is bullish.
- Price reached the support level and formed a bullish rejection candle in the H1 chart.
- Buy trade is valid as soon as the candle closes.
Bearish trade setup
Before taking a buy position, make sure to confirm the following market behavior:
- The overall market context is bearish.
- Price reached the resistance level and formed a bearish rejection candle in the H1 chart.
- Trade is valid as soon as the candle closes.
A long-term strategy
In the long term, there is no alternative to HODLing. Cryptocurrencies are still very new in the investment world, where they require more time to achieve market stability. In that case, long-term swing trading is perfect for investing in Polkadot.
The first condition for this method is to find the market direction and follow it from the swing low. You can follow Ichimoku Kinko Hyo to identify the market direction. It works well in all time frames, but we will stick to the daily chart for the long-term method.
Bullish trade setup
Open the candlestick chart and implement Ichimoku Kinko Hyo into it. Later on, find the following conditions to rely on the bullish trade:
- The price moved above the Kumo Cloud, which is an indication of a trend change.
- Price formed a swing high and came lower but showed bullish rejection from dynamic Kijun Sen.
- The buy entry is applicable after the rejection.
- If the price comes below the swing low, HODL it until it stabilizes below the Kumo Cloud.
Bearish trade setup
If you trade CFDs, you have to find the price below the Kumo Cloud and wait for a bullish correction. As soon as the price moves below the Kijun Sen with a bearish rejection, open a sell trade.
On the other hand, if you have exchanged other crypto coins with Polkadot, you can open a sell limit from significant Fibonacci levels. The ideal approach is to book profits from 161.8% and 261.8% Fibo extension levels.
Pros & cons
Let’s see the pros and cons of the Polkadot trading system.
| Pros | Cons |
| The strong innovation of Web3 makes investment potential. | HODLing means carrying loss that is often painful. |
| This instrument is available in most exchanges. | Need to know the details of a crypto project to understand its reliability. |
| Easy to spot the market trend through the technical chart. | Missing a buying opportunity might be irrecoverable. |
Final thoughts
Overall, we can say that investment in Polkadot is an excellent opportunity for crypto investors. If you want to build a strong portfolio in the crypto space, make sure to understand the risk associated with the marketplace. The ideal approach is to follow any trading method as shown above to get the ultimate benefit.