What You Shouldn’t Do When You Trade Crypto

by Richard | 07 Aug, 18:08
What You Shouldn’t Do When You Trade Crypto

by Richard

Cryptocurrency made headlines in late 2017, at this point, many people got involved in asset trading for the first time in their lives buying bitcoins. At the very same time, all of them did their first quite common mistake – they bought Bitcoin for the incredibly high price. Cryptocurrencies have paved the way to trading for lots of people all over the world because volatile exchange rates of cryptocurrencies promise quick profit. Most of these people have never ever had any trading experience although thanks to the stock market we have a solid base of past experience and recommendations on efficient trading. These recommendations and research can improve the trading experience of fresh crypto traders.

Is Trading Risky?

By some accounts, 96% of traders lose money and quite, although these tough statistics are questioned. Anyway, there's no mistake in saying that trading is rather a way to lose money than to earn it. Speaking of cryptocurrencies it is important to realize that high volatility increases both chances to earn big amount of money quickly and lose a lot of money in a couple of hours. Nevertheless, ones who understand the laws of trading and have a good reaction manage to make a good profit.

Some Basic Rules

Let's begin with several short recommendations that are vital for every trader regardless of experience and ambitions.

First, and you've probably already heard this advice, you shouldn't invest more than you can afford. There's always a risk of losing all the money and you should always take such a possibility seriously. Never invest money that you should spend on something else.

Second, you shouldn't trade without a plan. Trading without a plan is a sure way to lose all the money in a relatively short time. You should know how much you can lose per day and when to stop if the day is lucky and you earn again and again, etc. Fear and greed are the worst enemies of the trader and you should be able to cope with them. Some exchanges provide a kind of demo mode so you can create your strategy in a riskless mode first.

Third, diversify your portfolio. If your "favorite" currency experiences an unexpected and fast nosedive you won't go bankrupt and save much of your money kept in other currencies. Don't stick to the only currency no matter how much you like it.

Fourth, don't invest in coins that have no potential. Some might ask of how to distinguish if the coin has a potential or doesn't have. There's no short answer to it. You should do the research on coins you can trade. Is this coin representing some groundbreaking technology? Is it supported by the established companies? What do analysts say? Will have a use case any soon? If you see that by these factors the coin looks attractive you might try investing in it. Don't buy random coins.

And finally one of the main rules – buy low, sell high! Forget about emotions. If the price of a decent coin drops it means that it's a good opportunity to buy it and the bad time to sell it. Some people fear to buy or even keep coins that lose its value forgetting that most probably one day this price will be much higher. Buy low, sell high – that's a golden rule!

Don't Misuse Stop Losses 

Most cryptocurrency exchanges have a stop-loss tool that helps traders to preserve certain amounts of coins when the price goes down. Some traders in fear of losing money set a stop-loss at a relatively high price (close to the initial buying price). Such actions in many cases lead to the situation when the price is triggered at stop-loss quickly and the trader misses the chance to get more money when the price starts to rise. It's better to set a stop-loss at support/resistance lines. On the one hand, it's riskier, but at the same time, it creates an opportunity to earn more when the price changes direction and starts to climb.

Don't Let Pump and Dump Groups to Seduce You

You've probably heard about so-called Pump and Dump groups. It is supposed that these groups (usually Telegram groups) gather some amount of people who decide to buy the same cheap altcoin simultaneously to pump its price. The skyrocketing price then attracts new traders who don't know about this group, and as the price of the altcoin rises higher the members of the group sell all the coins out leaving other traders with cheap and useless altcoin and gaining some amount of money.

Why you should avoid participating in Pump and Dump groups? Now it's clear that admins of these groups always buy certain altcoin before they create these groups. There's a probability that you (and the fellow group members) will be the last to buy this altcoin, so you won't be able to dump it. Besides the chance that the operation won’t be successful for you, you should be aware that many pump groups take fees for joining them so you lose something anyway. The groups may be advertised by shills speaking of great gains but you'd better stay away from it.

Choosing Unpopular Coins for Short Term Trading

There are thousands of altcoins existing to the date. Some of them have interesting concepts and represent nice projects and it can be the reason why you might like to buy some of these coins. That could be not a bad idea if you want to invest in some blockchain project and hold some coins to be able to use them within the project's ecosystem. But if one day you decide to use these coins for trading you are likely to lose your money. Unpopular coins are hard to sell, especially on small exchanges that have small order books. Think twice before buying the coins that are not in the top, and if you decide to have some you should fully realize why you buy these coins and what to do with them in the future.

Conclusion

There could be much more points on what you should NEVER do as a trader (for instance we could talk about sending coins to the wallet that doesn't support this coin), but it's better to finish now and let you find more information if you need or just try trading because now you already know the most important things.

Let's repeat the basic rules: stay away from fear and greed, have a plan, and remember: buy low, sell high! Not otherwise!


written by
Richard

Financial journalist


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