Top 10 Tips You Must Know Before Trading in Cryptocurrency
It would be very heartbreaking to lose all your Bitcoins or altcoins when trading because of a small mistake that you could have avoided. In order to trade right, you need to be attentive and 100% focused. Also, note that trading is not for everyone. Before you get into trading, therefore, ensure it is for you. Do not get hooked on the idea of trading cryptocurrency without first learning how to optimize your trades. Once you start trading, set your goals by putting sell orders.
The following are some trading tips you should take note of before you get into crypto trading.
- Understand theory
Before you start trading, it is highly recommended that you understand basic cryptocurrency theory. Learn all about certain terms used in the market. Learn about order books, candlestick chart, spread and depth charts and other trading terms that you will encounter. Without understanding these, you will be diving head first into a death trap.
Also, make a habit of tracking the latest cryptocurrency news daily. This will help shape your decisions. There are also interesting factors and indicators that can help you understand a coins pattern such as compound monthly growth rate (CMGR). Note that technical analysis is also included in your learning because without knowledge of how a coin has performed in the past you will not understand its pattern.
- Start with a small investment
The crypto market is very volatile and you can have major gains or losses in a span of minutes. Before you get comfortable trading your best cryptocurrency, you are advised to invest what you can afford to lose. Therefore, do not put a big portion of your savings into trading. The first amount should help you understand the market and its dynamics. Once you double your initial investment, you can cash it out and trade with the profit.
- Take advantage of arbitrage
It is difficult to know the prices of cryptos on different trade exchanges. It is even more difficult to make a profit from the difference in price of two exchange platforms. During your transaction on these prices on the exchanges can change drastically affecting your margins. Also, other factors such as transaction fees, order execution delays, available volumes for the price you want can affect the outcome of your trade.
CoinScanner is a website that can help you understand arbitrage and trade/buy crypto at the cheapest possible price in real time.
- Volatile market conditions
Relative to physical money (Fiat), BTC is a very volatile asset. You should take into consideration this fact because most altcoins are traded according to the value of Bitcoin. When the value of BTC rises, altcoins lose their value against BTC and vise-versa. When the value of Bitcoin is volatile your trading conditions are deemed as foggy hence it would be hard to trade altcoins. Therefore, on such conditions, you are advised either to target small profit percentages or not to trade at all.
- Avoid FOMO and a PUMP
There are a lot of people in the market who pump a coin. These people will flood social media sites to praise these coins instilling a fear of missing out on many others. Take note that there are whales waiting for buyers to join the rise of the coin and sell to them. They bought the coins at cheap prices and will dump them at a higher price to anyone willing to buy. Do not be caught up in such pump and dump situations just because of FOMO because you might not be lucky enough to sell at a higher price.
- Have a reason for every trade
Do not start a trade without clear reasons and a clear strategy for your way forward. The altcoin market is also controlled by large whales waiting patiently for you, a small trader to make a mistake. Therefore, analyze the market and be sure that you have the right reasons to start trading. Remember that for every gain someone makes, someone else loses. Instead of losing, it would be better not to trade at all and keep your investment.
- Distribute money to different tokens
No matter how much a single coin grows, do not be tempted into investing all your money in it. Distribute your risks across a broad portfolio to dilute them. In your wallet have a certain token distribution such as 40% bitcoin, 25% Ethereum, 15% bitcoin Cash, 10 % litecoin and 10% EOS. It takes a lot of time to recover your lost money so be sure to distribute your risk in different tokens.
- Target and stop when starting a trade
For each of your trades, set a clear target level for taking profits and also a stop-loss level for cutting your losses. The stop-loss level outlines the level of loss where you will close your crypto trading. When setting this level, consider certain factors such as your ego and your love for a coin. Do not let your ego or emotion control your trading. Remember that the crypto market is more volatile than the stock exchange so you need to know when to sell out before you are left holding a coin that has no hope of ever recovering.
- All coins are different
All cryptocurrencies are different from each other. You would be making a mistake as a crypto trader if you thought of them correlatively. There are times when the price movements of certain coins are similar but it should not lead you to believe that it will happen for long. Research each coin separately, understand their price movements separately and therefore have different trading strategies for them.
- Risk management
To be a profitable crypto trader, do not chase the peak of the movement. Settle for small profits which will eventually settle into one big profit. Ensure you manage risks wisely across your coin portfolio. Waiting for a big profit might backfire on you and the coin loses value and you are lest without any profit at all.
Note that most altcoins lose their value over time when you decide to hold them for long. Choose the altcoins you will hold carefully since coins with a higher daily trading volume have a better position.