7 Tips You Need to Know Before Trading Cryptocurrencies

Oct 19, 2018 · 5 min read

Cryptocurrency trading is all the rage right now since this new digital asset class is changing things up in the world and presenting a whole new set of opportunities. That being said, cryptocurrencies are also notoriously volatile and they have a reputation for being unpredictable. Making mistakes while trading cryptocurrencies can result in you losing a significant amount of your cryptocurrency assets. In order to be able to trade properly, you need to have a focused approach to it. Cryptocurrency trading is not the simplest thing in the world and it might not be for everybody.

Here are the top tips that you need to know before getting into cryptocurrency trading. This way, you can be sure of a better result and a more calculated approach towards cryptocurrency trading. Remember that you absolutely must not get hooked on the cryptocurrency trading game without understanding how to optimize your trades.

1. Understand The Theoretical Aspect

Before you begin trading cryptocurrencies, it is crucial for you to understand the basics of the theory behind cryptocurrencies. Make sure that you bring yourself up to speed on all of the terminology used in the cryptocurrency landscape, what they mean in the market and how they are relevant to you. Learn about what is the candlestick chart, the order books, depth and spread charts and all other trading terms that you will come across when you start trading cryptocurrencies.

Once you have a grasp of the basic concepts and terminology, it is also important for you to keep yourself up to date with all the latest happenings in the cryptocurrency world. The trends of the different cryptocurrencies, their prices and the news surrounding the cryptocurrency world should shape your decisions.

Understanding technical analyses is also an important thing for you to learn. Without having the understanding of how cryptocurrencies have been performing in the past, you cannot hope to anticipate how they will perform in the future.

2. Arbitrage

If you have been following the cryptocurrency world with even a little bit of attention, you will have noticed that different cryptocurrency exchanges have slightly different prices for cryptocurrencies. It is a difficult thing to keep a track of the different prices and even more difficult to find out which one has the cheapest price for a cryptocurrency so that you can make a profit through the differences in the price at the two exchanges.

Other factors like transaction fees, variation in prices and available volumes for the price you’re looking for can affect your trade significantly. CoinScanner happens to be a very useful resource. You can use it so that you can better understand the arbitrage, buy and trade cryptocurrencies at the cheapest price at the time of the trade and take advantage of arbitrage.

3. Always Start Small

Never go all in right off the bat. You should always dip your toes first to test the waters before you make any big trading decisions even in the traditional financial world. Being careful cannot be emphasized enough when it comes to cryptocurrencies. The likes of Bitcoin and other digital assets in that class are quite volatile. The one thing that is predictable about cryptocurrencies is that they are unpredictable.

A trader can see massive losses and massive gains in a very short amount of time. This is why you should only invest the amount you are willing to lose when it comes to cryptocurrencies. That means you should probably reconsider putting your life savings into cryptocurrency trading. It’s not the smartest idea.

When you start small, it will help you get a little understanding of how the market works. Once you have doubled the initial investment you made, you can cash out the trade and continue trading with the profits as you make them.

4. Be Aware Of The Pump Dump & FOMO

There are a lot of people out there that are just pumping up the cryptocurrencies that they have invested in. They make use of social media platforms to advertise how they have invested in one of the most promising new cryptocurrencies in the world right now and they try to instill that fear of missing out (FOMO) in other people.

This is a cheap marketing trick that a lot of the ‘whales’ use. They are holding a lot of units of some cryptocurrency they bought at a very low price and they want to sell it to gullible traders for higher prices once they have managed to get enough people riled up with the FOMO online.

Never get caught up in the whole pump and dump scenario because of the FOMO. You might not get a chance to sell it at a higher price to someone else and you will be at a loss.

5. Diversify Your Portfolio

You know how they say “Don’t keep all your eggs in a single basket” right? Well that is something which applies to cryptocurrency trading as well. No matter how much a cryptocurrency seems to be showing promise, you should not be tempted to invest everything into a single cryptocurrency.

Diversify your portfolio and distribute your risks across a number of cryptocurrencies so that the risk is diluted. Make sure that you have some level of distribution for different cryptocurrencies. You can assign more funds to a cryptocurrency that shows more promise but having it distributed will mean you can recover the lost money easier in case one of your investments tanks.

6. Stop Loss and Target Levels

Make sure that when you start a trade, you set an automatic target level and a stop loss level. Having a clear target level for your profits and a stop loss level for limiting the losses is necessary.

The stop loss level is the limit that you set for automatically cashing out of a trade if the price is dropping too much. The target level for profit is the upper limit that you will set for you to automatically cash out of a trade once it hits a certain point so that you can get a definite profit out of the trade.

You need to set both of these levels after putting aside your love for a cryptocurrency and base the decision solely on the performance of the cryptocurrencies. There is no other way about it. If you ever let your ego make the decisions for you, your assets will be at a high risk because the cryptocurrency market is a lot more volatile than your average stock market trading. You stand to lose a lot.

7. Final Thoughts

In order to become a profitable cryptocurrency trader, your focus should not be to go big and chase the peak all the time. Instead of aiming for large one time payoffs and huge profits, aim for several small profits over the course of a long time. Make sure that your risk management is on point. Don’t wait around for that big profit or you might end up going home with big losses instead.

Lastly, conduct due diligence on all the cryptocurrencies and make sure that you invest in them wisely. Go for the ones that have a higher daily trading volume than others — you might have a better chance at a good start to your cryptocurrency trading career.

Darren Lee

Written by

Business Management | Marketing | Blockchain | Investment

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