The majority of traders focus on traditional assets, such as stocks, bonds, forex, and commodities. However, cryptocurrency has been a hot topic for years, attracting all types of traders and investors, regardless of skill and experience. The cryptocurrency industry is the epitome of risk, so we’ve put together some crypto trading tips to help you mitigate risk when trading these assets.
1. Decide on a trading strategy
Before buying your first crypto, you need to define your strategy. When developing your plan, you should consider your availability, research skills, and experience. There are many strategies available, including scalpers (making several trades per day, usually for small profits), day traders, swing traders (typically making trades every few weeks), and passive investors, who buy and hold the cryptocurrency for the long term.
2. Risk management
The difference between pure gambling and cryptocurrency trading is risk management. Along with your trading strategy, you should also clarify your risk management strategy and the tools you will use to limit the risk of losing money when trading crypto.
Examples of risk management tools include using stop-loss orders, thoroughly researching each digital asset before investing in it, and updating all relevant information about your assets.
Just like with traditional assets like stocks, diversification will help you mitigate some of the coin-specific risks. Spread your capital among different digital coins rather than buying a single coin.
If a coin loses popularity, your portfolio will remain relatively stable. Some recommend investing around 1% in a single asset. So even if it crashes one day, it won’t reduce your entire portfolio.
4. Don’t buy just because it’s cheap
Beginners or traders with a small budget may be tempted to make this mistake. Unlike traditional assets, cryptocurrency has no intrinsic value. Thus, its price is low or high depending on demand and supply. Sometimes cheap is cheap for a very good reason, so it shows you that there is something wrong with the asset. Therefore, it is important to check usage rates and market capitalization before investing in any cryptocurrency.
In general, it is easier to use a broker who facilitates access to these assets while providing sufficient information and support. Therefore, your crypto trading journey should start with a process of selecting the right service provider for your needs. To know how to trade cryptocurrencies, you can consult ThinkMarkets.
5. Don’t invest all your capital
You should never invest money that you cannot afford to lose, such as money you need to cover your living expenses for the next six months. Even when saving money, especially for trading, you should always keep an emergency fund in case something goes wrong. Also, when buying a cryptocurrency, you should not invest all your money in it – even if the platform you are using may encourage you to do so.
6. Keep your emotions under control
Maybe you’ve heard of FOMO – the fear of missing out. FOMO is responsible for most failed transactions these days. FOMO can make people impulsive and afraid of missing out on opportunities. As such, they may be more likely to rush decisions and buy or sell without proper due diligence.
It can be argued that FOMO is one of the main reasons why crypto markets are volatile. It is important to do your best to contain your emotions when negotiating, including fear or greed. It is crucial to make data-driven decisions when trading or, in other words, to always base your strategy on facts rather than intuition or emotions.
7. Exit strategies
Most altcoin traders have come to realize that the majority of coins have a relatively short lifespan. It is not only important to know when buy but also when to sell. After a while, most altcoins can lose value, so it’s important to keep an eye on daily trading volumes and cut your losses early when this happens, rather than holding on to a losing investment. .
Overall, the world of crypto trading is not easy, but it can be extremely lucrative. When trading cryptocurrencies, you need to be diligent and test your strategy carefully before risking your hard-earned money. The crypto market is highly volatile, so you may need to gain some experience before you potentially see increased profits. No strategy is perfect, so starting with due diligence and testing your strategy can be key to making informed decisions and protecting your capital.