Cryptocurrency trading is a word everyone is aware of nowadays as it has made thousands of people rich in a blink of an eye. It is mainly because the price of Bitcoin has reached from 1 dollar to 60k dollars within a decade. Altcoins may not be as lucrative as Bitcoin but still, they possess a significant profit margin for those who cannot afford Bitcoin.
At the present moment, only 4 percent of the world population is involved in crypto trading and the rest of the people are still skeptical about it because of its volatility. Some people are waiting for its bearish movement to end as it has plummeted to 24k dollars from 31k within a few days. Now many people are eager to invest in it because it has been declared a purchasing time by experts and whales have predicted that it will break its record by touching 70k dollars by the end of 2022.
I agree with the point that Bitcoin and altcoins have a very good margin of profit but it is not true that everyone gets a profit from investing in crypto. The chances of a profit and loss are equal so one should invest after doing proper homework about the digital asset one wants to invest in. To help beginners, we have compiled a list of crypto trading tips that will help you to steer in the crypto trading market with care and efficiency.
- Develop Your Knowledge
If you have made up your mind to jump into the cryptocurrency trading market then the first thing you need to do is to understand cryptocurrencies in detail. What are cryptocurrencies? How are cryptocurrencies mined? What are their pros and cons? Where to store them safely? The answers to all these questions should be clear in your mind. Like other online trading markets, researching cryptocurrency trading will give you a bird’s eye view of the topic which will help you in your future endeavors.
- 50-50 Win-Loss Ratio
Some people start crypto trading with a pre-set mind that they will become rich and don’t even consider that they may face a loss as well. Higher expectations can lead to stress, insomnia, and depression if not come true. Trading is a zero-sum game and someone has to lose if one is winning. The whales in the crypto trading market are always waiting for an opportunity to make profits at expense of small traders’ mistakes. If one understands that the chances of profit and loss are equal, he would face loss with grace.
- Trade with a Plan
It is not a wise idea to jump into trading when you see something selling cheap. An opportunity can be a possible trap as well so for each trading position, a trader should set some target beforehand. We must have a preset level to take profit and a stop-loss level as well for cutting any visible shrinkage. It means that we should decide in advance that this is the maximum loss we can afford so invest accordingly. All cryptocurrencies are volatile (except stablecoins) so the stop-loss targets need to be defined and updated according to the market sentiment.
- Beware of Pump and Dump Schemes
Sometimes, whales artificially increase raise the price of cryptocurrencies to gain profits. It is done by spreading a false tip that the price is going to shoot and as a result, many people invest in that particular asset. It is true that the price rises but when the whales dump their stocks to cash some profit, the prices fall even more than the original price. The little fish are the ones who suffer the most in pump and dump situations. It is advised not to pay head to this kind of rumor and trust your instincts.
- Devise Your Risk Management Policy
A trader must set some limitations on himself to reduce the risk attached to online trading. To become a profitable crypto trader, never go for the edges to maximize the profits. In crypto trading, a bullish movement can convert into a bearish movement in the blink of an eye so you can go in the negative if you procrastinate too long. When your target is achieved, don’t fall prey to greed and manage risk cautiously in your portfolio. Avoid investing a large percentage of your funds in non-liquid assets.
Impact of Bitcoin on Altcoins
Bitcoin is an asset that creates a volatile market environment because most of the altcoins are traded against Bitcoin instead of fiat currencies. Bitcoin itself is a highly volatile asset hence its effect is passed on to the altcoins as well. In the past, Bitcoin and altcoins had an inverse correlation as altcoins lost value when Bitcoin surged but in a few years, this relation has become vivid. When Bitcoin is volatile, trading conditions become foggy and confusing. In such conditions, it is recommended to have close targets and stop-losses set and don’t trade if possible.
An in-depth analysis of altcoins shows that the value of the majority of the altcoins is reduced with time. Their value keeps on leaking gradually or randomly and this is why the list of top 100 altcoins in terms of market value keeps on changing. So this fact should also be kept in my while choosing altcoins for investment whether for long-term or short-term trading. In case you are planning to HODL altcoins or build a long-term portfolio, remember that the altcoins with higher daily trading volumes have higher chances of surviving bearish moves.
A trader must follow the coin’s chart to figure out low and stable periods. Low and stable times are possibly the periods of accumulation and an uptrend can start when the time is right. The right time to buy any crypto is when there is no fear of missing out (FOMO). FOMO is a situation or time in which a trader feels that if he doesn’t go with the tide, he will miss the opportunity.
- Understand the Value
The cryptocurrency trading market has been on the arrow’s tip of the top investors of the world because of its volatility. They use the analogy of a bubble for the crypto market which can burst at any time leaving nothing behind. This is the main reason why top rich people have invested less than 1 percent of their fortunes in crypto. In reality, the main reason behind this is hesitation and lack of understanding of the value of digital currencies. To understand the value of digital coins, the value of Bitcoin should be monitored closely because all major altcoins follow the trend set by Bitcoin.
- Comprehend the Exchanges
Cryptocurrency trading is different from trading other assets for various reasons so the experience of other markets is not useful in this market. So it is pertinent to understand the crypto exchange you are going to use for the execution of your trades. All the top-rated crypto exchanges are providing an option of a demo account to practice trades without actually investing your money. This is a very useful feature because traders are expected to make some blunders at the beginning of their careers and this feature can grant them a free life. Another thing to keep in mind is that cryptocurrency trading can take some hours to settle so don’t worry if your sale or purchase isn’t executed right away.
- Diversify Your Portfolio
When trading cryptocurrencies, diversity is good as it reduces the intensity of a loss. Not all cryptocurrencies may lose their value at the same time. If one loses its value, meanwhile some other gains value as well. So it perfect strategy to invest in multiple coins instead of a single coin to reduce the chances of a loss. If one coin incurs a loss, the other may make up for it. This is a very simple technique being used by seasoned stock exchange traders for many decades now and it is easy to implement.
- Don’t Cash Out In Hurry
Everyone joins the online trading market to gain profits but the majority of traders instantly cash out on seeing a price hike. Although it is a good approach to remain on the safe side by not testing it to the edge but an opportunity may be half wasted with this mindset. The Crypto market has high volatility level so it is easy to get a quick profit bite but it can provide a full meal in the longer run. In past, Bitcoin has proved many times that the HODL strategy has provided three times more profit as compared to the immediate cash-out method. When the Bitcoin price jumps, it often takes 3 to 4 jumps at some distant intervals which can be availed easily if one keeps his nerves under control.
- Keep an Eye on Inconsistency
Cryptocurrencies are still new and in the development phase as more new digital coins are being released every week. The crypto market is still showing inconsistent behavior and it would take more time to become consistent. Cryptocurrencies are heavily influenced by public perception, whales’ opinions, and brand partnerships. Due to these reasons, the prices fluctuate so much that it is not even possible to tell what price is low and what is high. When you intend to sell or buy more, thoroughly go through every market for signs of any incoming hike or drop.
- Go for A Reliable Exchange
There are hundreds of trading platforms available nowadays but only a few of them are trustable. Most of the exchanges are traps set by scammers to trap innocent traders hence you should check beforehand if the exchange you are going to use is well reputed and its payment methods are secure or not? You should also make sure that the exchange is regulated or not and if it is regulated then should know by whom it is regulated. Generally, exchanges regulated by SEC are the safest and if you ask me to recommend some exchanges I would advise you to go for Binance, FTX, Kraken, or Bybit.
- Create Your Own Stop and Trade Plan
The Crypto market is notorious for its volatility and to overcome it, you must have a clear stop and trade plan. If any altcoins are showing a bullish move doesn’t mean that they will continue to rise forever. It could start behaving the opposite at any time. A stop and trade plan means that you sell some of the coins when your set target is matched. The coins that you will sell will prevent you from a total loss in case their value collapses. It is a life-saving plan and essential in the case of crypto trading because their prices jump more than 20% as the Bitcoin price has dropped from 31k to 23k within a couple of days.
- Keep Your Coins Secure
Experts say that buying crypto is easy but keeping it secure is difficult. When a trader buys any digital coin, he can either store it on the exchange or in some digital wallet. It is somehow risky to store your coins in exchange because some traders claim that their coins were stolen by hackers. Professional traders use the services of regulated exchanges but store their coins in their digital wallets or create their paper wallets. Digital wallets don’t cost much and are pretty easy to set up. There is a large number of wallets available in the market with different types and features. There are many types of cryptocurrency wallets such as
- Watch for Media Impact on Pricing
Although other markets have also a history of being affected by media and press releases but cryptocurrencies are more susceptible to fluctuation as a result of hype created by media. When a company announces through a press release that it has started accepting altcoins, its price shoots up considerably. If you want to earn profit from altcoins then you must follow businesses on Twitter so you can timely catch their announcements. These types of news will not only tell you what to buy but also tell you when to buy. It can also provide you insights as if why the coin will lose value and when it will bounce back.
- Beware of New Laws and Regulations
Cryptocurrency is a new trading instrument as compared to Forex and Stocks etc. hence it is not properly regulated yet. New laws are on the cards and the situation can change drastically. Many countries are defining the status of crypto and crypto trading and some are launching CBDCs. In this situation, it can be assumed that federal securities, trading, and tax laws are all applicable to Bitcoin and altcoins. Some countries like the US, Australia, and China have stringent regulations regarding crypto trading and mining so a trader must be aware of the rules and regulations of the country he lives in.
- Make and Follow a Trading Schedule
Contrary to other trading markets, the crypto market remains open 24/7. It is a very good point but it can make it difficult for traders to stop themselves from constantly monitoring the prices which ultimately forces them to buy more coins than they initially planned. It is essential to make a schedule of when to trade or else you will lose your sleep and become addicted. It is suggested you should pick a suitable time for trading and monitoring and it is even better if you make trading a part-time job.
- Make a Long-term Strategy
Professional traders follow a long-term strategy for better gains but it requires rational thinking to develop a long-term strategy. A trader must keep in mind that some altcoins are developed to last for a short time and then they fade away. You must invest in long-term coins which have a good adoption rate into commerce and stores. Ripple, Ethereum, and Dogecoin are now being accepted in stores hence they are a good option. The traders who want to invest a large amount must follow a long-term approach to trading. A coin that has a chance of becoming obsolete is a serious risk for your investment which is not recommended.
- Be Careful of Scams
The Crypto market is brimming with scammers who invent new methods and schemes to allure innocent traders. You should be careful of scams and everyone who makes unrealistic promises. It is highly advised that you use well-known, regulated, and reputed sources for trading like Binance and FTX. A common perception that you will earn a big profit by providing your money to brokers is very risky. Try to double-check your broker before depositing money and utilize authentic forums only.
In nutshell, crypto trading is similar to trading other instruments but unlike other assets, crypto trading is relatively new, unregulated, and highly volatile. The situation will improve gradually in the coming years when more coins will be integrated into commerce. You should keep yourself updated with rules and tricks used by successful traders and keep reading our content for sincere trading tips.