Here are nine tips useful for everyone who starts trading cryptocurrency. It’s interesting to see, even traders with years of experience, forget sometimes about the basic rules you have to follow so you don’t get burned. Of course, since no one can really predict the market, we all make mistakes and, hopefully, we get to learn from them.
Cryptocurrencies are known for having increased volatility. This happens because of a large number of motives; some of them are whales (holders of large proportions of the total outstanding float of the currency) or media, who can influence based on different news. Volatility gives us great opportunities to buy and sell, it doesn’t mean we are going to make money tough. So, having a goof stop-loss strategy is an important aspect of your trading journey. Cryptocurrency is still a young technology, and will continue to fluctuate. These volatile fluctuations are often caused by public sentiment and companies and financial institutions that choose to adopt or reject a product.
If you’re just getting to trade crypto, it’s important to take time to study the risks that come with trading. High volatility in crypto trading means a higher risk or a higher reward. Remember that no one can guarantee the performance of a coin – it’s impossible to be accurate about it. You can manage your risk by first accepting that you are going to lose money at some point. When this happens, developing a risk management strategy will give you a structured and coherent approach to identify and evaluate your risk regarding trading.
Having a demo trading account is a very useful tool. You get to trade on live markets, in real-time with simulated funds. It is mostly recommended for beginners.
The market is constantly changing, it doesn’t repeat itself. While you are unlikely to change your strategy during a trade you should understand how and when it’s appropriate to adapt that strategy. Cryptocurrency markets provide great opportunity to evaluate your trading strategy. High market volatility represents reason to adapt the strategy, while an unexpected loss, represents a poor reason to change.
Use stop-loss orders
A stop-loss order will make sure you are not getting into a losing position. Once the current price goes through the level you set, the stop-loss will exit the trade for you. Limit orders are useful because they ensure you minimize risk of swings in the market price, and in crypto space, this is very useful. You may want to open a position in the morning with the intention of returning to it later, knowing with certainty that you have been stopped out, taken a profit or your position continues to stand. Use limit orders, because they exist to protect you from a major downfall, so it’s good to use them where appropriate.
Get ready to lose
Everyone is losing at some point in trading. You have to be realistic, and prepare for it. There is no such thing as an awesome winning strategy – especially when it comes to cryptocurrencies. Protecting your money against inevitable losses is a must have strategy for any long-term profits in trading.
Take all news with a grain of salt
Cryptocurrencies are a hot topic, and as any trending subject, they come with a lot of information that can be overwhelming and you not verified. It’s important to keep this in mind when you are doing your market research. It is not only important to read crypto news, but you also have to check the sources of the news and validate it.
Know what is you trading style
When determining a trading strategy, forget about making money and try and look at first at the time available that you have, so you know when you can buy and sell. Some people are more likely to trade daily, others weekly; some during the day other during the night. As always, I recommend long term investing, so far, it’s been the most rewarding method to win in the crypto space. Your personal trading style is defined by the trading signals you follow and by the tools you use in your trades.
Hope is not a strategy
Probably the best rule in trading cryptocurrencies: don’t rely on luck. The key to get rich is in your ability to utilize the strategy which best suits your needs and to stay with it. When trading crypto, get into the habit of identifying your performance KPIs. How are you going to determine the success of your trading? When? What signs will you look for when determining a to buy something? Is it hype? FOMO? Are you looking for small market movements in heavily-traded indices? Would you like to range trade currencies? In the end, also make sure you define your exit strategy. Always know when it’s time to close a position before the choice is no longer available for you to make. Don’t hope for the best!