Cryptocurrencies have become notorious for their extreme volatility and this makes them very risky and easy to manipulate. However, this doesn’t appear to stop people from taking an interest in this market because the right moves can help you profit. Yes, it is possible to make money via crypto trading, but you need to bear in mind that it requires a great deal of discipline, skill, and due diligence. The market has only been around for a decade, which means it is still in very early stages and it could take a long time for it to be accepted or backed by institutions or governments if it does happen.
Therefore, as of now, cryptocurrency is nothing more than pure speculation and this is something you should bear in mind when you decide to dive in headfirst. If you want to minimize your losses and boost the chances of profits, there are some top rules you should follow in crypto trading. You can check them out below:
Ease into a trade rather than plunking down money
If you are new to the world of crypto trading, it is a grave mistake to invest large sums of money into Bitcoin, or any other cryptocurrency, all in one go. You shouldn’t plunk all your money down because the crypto space is a volatile one. Rather than spending all your capital, take it slow. Begin with a small amount and gradually increase it if the trade appears to be moving in the right direction. You can continue adding until your position size is funded fully.
Learn to buy and sell at extremes
When you are trading such a volatile financial product as cryptocurrency, you should take profits routinely. If you have made extreme gains, it is a good idea to sell half or all, but you should definitely take something off the table. When you are trading these digital currencies, you should resist the urge of being greedy, or you could end up holding until you lose all your money. This usually happens when crypto traders experience FOMO i.e. fear of missing out.
It is best to start with small gains, rather than wanting to reach the top right away. Sure, there are some people who have managed to make millions by trading one cryptocurrency or the other, but you have to be practical. Just like lottery winners, you will also find many players in the crypto space who have lost a significant portion, or all of their money. Unless you want the same fate, it is a good idea to keep it small.
Don’t buy on margin
Buying on margin means that you are borrowing money from the broker you are using for increasing the amount you can purchase. This is referred to as leverage and you shouldn’t forget that this can be a double-edged sword. If the trade moves in your favor, you can end up with substantial profits. But, if it turns out to be wrong, then you can end up owing a lot more than you invested. Smart crypto traders are those who learn to manage risks, which means you shouldn’t borrow money for buying cryptocurrencies.
Always have mental stop-losses
Having stop losses is a good idea, but as cryptocurrencies tend to move very quickly, ‘hard’ stop losses often turn out to be ineffective. Therefore, it is a better idea for you to use ‘mental’ to stop losses and have the discipline of obeying them. You could also use a time stop, which means telling yourself that you will sell a particular position on a specific day. This is an effective strategy of forcing yourself to cut losers and locking in winners.
Don’t hold onto losing positions
If a trade is not moving in your favor, you should consider selling all, or at least, half of it. You shouldn’t allow small losers to turn into big ones.
Have a trading plan
When you have decided to trade cryptocurrencies, it is essential to have a trading plan in place. In a volatile market like this one, you cannot just wing it and expect things to work out in your favor. You need to have a plan that can help you in deciding when you should buy and sell. Stick to the plan and follow the rules.
Last, but not least, you shouldn’t put everything in just one cryptocurrency. Spread your money across different crypto assets and keep the purchases small until you have gained some knowledge and experience.