The best investors are not necessarily the most skillful; they are the ones who understand how the market works.
Investing in cryptocurrencies is fraught with risk, and no one seems to be an absolute pro. The volatility and instability can often make you doubt your investment and analytical skills when investing, and making a good investment goes beyond predicting whether a crypto price will rise or fall.
So, here are eight crypto trading tips to help you make better decisions about your investments.
1. Have a Trading Plan
You wouldn’t launch into crypto investing without a plan, right? If you do this, it’s time to stop. Your success as an investor comes from proper trade planning, and your crypto trading plan is your anchor as you invest. It enables you to stay detached from the emotions that could set in.
A good trading plan should cover your overall investment objectives, the cryptocurrencies you want to trade, and the market conditions for trading such currencies. Through this, you will be able to control your risk to a reasonable extent and have a more prepared approach to the market. Such approaches include your entry and exit time and price, trade volume, etc.
2. Manage Risks
Risk management is a crucial tip all investors should embrace. Even if you’re so sure of the positions you opened, leaving your trade open without measures to protect you from huge losses is a bad idea. The crypto market is such a volatile space that any event can change the market direction and result in unexpected losses.
Never invest more than you can afford to lose on any trade, no matter how promising an asset is. Risks are inevitable in investment, and continuous uncontrollable losses can discourage you from trading (not least leave you penniless). We also advise that you take a break from trading after recording two or three consecutive losses—this is usually specific to short-term traders.
3. Diversify Your Portfolio
Diversification is a prominent method for controlling market risk by allocating investment across different crypto assets that respond differently to different crypto market conditions.
You can try investing in DeFi, altcoins, Bitcoin, and derivatives. This will prevent exposure to risk associated with a particular crypto asset, and you will be less likely to experience heavy losses. Meanwhile, swinging arbitrarily between crypto-assets isn’t a good idea. We urge you to study different markets and invest only in the ones you understand best. For example, you can study the different types of altcoins to figure out which to invest in.
4. Think Long-Term
Many new crypto traders want to make it big fast. Many create unrealistic expectations, hoping to be lucky enough to make millions in a few months. It is possible not to make money fast from the market, and having a long-term plan will help you continue being positive.
Long-term trades have proven to be a successful investing methodology (elite-tier investors like Warren Buffet prefer this method), but it requires in-depth research and analysis. In addition, long-term investments require a lot of patience as it is a buy-and-hold process. Many traders find it hard to stay put with their long-term plans, as they tend to close the trade once the investment moves about 50% upward or downward, making many miss out on big market opportunities.
5. Don’t Buy Just Because the Price Is Low
Often, you hear people say, “Buy the dip!” once cryptocurrency prices begin to decline. There is nothing wrong with buying the dip as long as you are in it for the long term and understand the risks. However, you could end up hating yourself if you place a buy in a short-term trade in a falling market without carrying out proper technical analysis.
In fact, in an extremely volatile situation, you should stay off the crypto market because the downward trend can persist for weeks or even months before finding strong support. Figuring out where the bottom of the dip will come is difficult, and it can be like catching falling knives. So, you don’t buy just because the price is low. Rather, buy because you project the price could rise.
6. Do Your Research
The importance of research cannot be over-emphasized. Proper research offers you definite direction on implementing your trading plans while at the same time being confident and decisive with your investment choices.
Many traders settle for signals from different brokers, professional traders, or expert advice from trading bots. They’re not inherently bad ideas, but we suggest you employ them to complement and confirm the analysis from your research.
Brokers’ signals are not reliable because there are traditional brokers that trade against investors. Also, trading bots are usually not sensitive to market trends. Hence, bots and signals are not totally reliable.
7. Avoid FOMO
One of the prominent reasons people blow out their accounts in investment is the “Fear of Missing Out.” FOMO is a common feeling that all investors have, as no one wants to lose out on a hot opportunity in the market. In a bid to take advantage of the market, they lose focus and drift off their trading plans.
FOMO usually emanates from social media trends, news, or rumors that could prompt investors to take reckless actions, such as increasing trading lots, trading cryptocurrencies they do not understand, increasing trade volumes, depositing more to increase the trading price, and so on.
8. Use Leverage Appropriately
Leverage refers to borrowed capital that enables you to trade more than your actual deposit. A leverage of 1:100 means you can trade at 100 times your actual deposit.
As good as leverage is, it increases the chances of liquidation, i.e., losing all of your money plus your leveraged figure. Remember, leverage works for both profit and loss.
If your leverage is very high, say 1:1000, a 1% deflection in price can result in a huge loss. So, the higher the leverage you use, the lower your volatility tolerance, and the lower the leverage, the greater the margin of error to trade (volatility tolerance). You shouldn’t use any form of leverage if you do not understand cryptocurrency markets well.