The development of Blockchain technology, as well as the appearance of cryptocurrencies, increase the interest of traders and investors towards the opportunities to earn money. However, there is no a single easy way to gain profits.
Professional traders and investors always give obvious recommendations to novices. They sound like buying lows, selling highs and other common advice that you can hear or read somewhere. However, those recommendations are general and have almost no practical benefits.
We have gathered several useful aspects that may be helpful in your everyday trading routine. Those cryptocurrency trading tips and tricks are very important for traders and investors who want to start their career.
Tip 1: Do not invest all your money in a single asset
Many beginners reading charts and seeing assets to jump upwards try to buy them using all their funds. This strategy seems to be reasonable as the more you invest, the more you will get as a reward after the price growths.
However, professional traders recommend sharing funds among exchange and “cold” wallet. This approach helps to decrease all types of risks including hacker attacks and dishonest exchange managers’ behavior.
In addition, when you invest your funds partially, you minimize your trading risks as well. If a crypto goes upwards and you buy it, you will be able to gain more as we have already mentioned. However, if you are wrong in forecasting price’s fluctuations, the asset will go down and you will lose money.
Another reason to have a reserve is diversification. When you invest all your funds in one single coin, you find yourself prevented from the opportunity to buy other cryptos that may also be promising.
Try to distribute your funds wisely. It is better to use up to three or five percent of the total amount to buy a single crypto when speculating. For investors those figures may be higher.
Tip 2: Use funds that you can afford
Beginner traders who have just entered this industry and watch those charts with upside moves sometimes make crucial mistakes. They think that they may become rich in just a couple of days. Having not enough money for trading, they start to look for additional investments everywhere including banks.
This way is wrong leading to complete bankruptcy. If you lose money, borrowed from bank, you will have to work hard in order to repay the loan including the rates. The safer way is to reinvest your profits partially or to use your savings for trading.
Why is it strongly recommended to invest only the amount you can afford? There is a psychological reason for that. When you use your own money that you can lose, you will not be vulnerable to different types of emotions that can ruin your deposit. Fears of losing all money that you have borrowed from the bank or friends will affect negatively your trading results.
Tip 3: Be ready to lose your investments
This sounds weird as you came here to win and not to lose. However, all professional traders are ready to lose their investments as they understand financial markets’ nature. When you place a trade, you have no guarantee that this order will be a profitable one. Moreover, even if you use a very strong strategy, you can lose.
Your main task as a trader to have stable growth of your trading account in long and even midterm. However, you have to be prepared to lose a battle sometimes in order to win the war. This is one of the reasons why we have recommended using a small part of your funds in a single trade.
In contrast to Forex or stock markets, crypto industry have much more risks for traders and investors including scam exchanges, hacker attacks, delisting of tokens and the others. Cryptocurrency market is volatile and coins have no underlying value meaning they may cost either $100,000 or $0 depending on demand and supply. Nobody can predict today the price of Bitcoin for several years.
Fundamental factors also matter. Depending on general situation with crypto industry and the attitude towards coins in this or that country, their price may vary significantly.
Tip 4: Diversify your investments
When “keeping all eggs in one basket” you risk to lose all your money one day. Let’s say the price of X coin is $1,000. You decide to buy 10 units investing $10,000. However, one month later, X coin’s price falls down to $500, meaning you lose half of your funds as 10 coins cost $5,000 already. Where is your mistake here?
There were also Y and Z coins that you had an opportunity to invest into sharing your funds among them. Let’s say those two cryptos have added $500 each for the same period. Following this example, you had a chance to not only protect your risks but even to make some profit.
Diversification in crypto industry means not only buying different coins. As you may know already, there are scam exchanges, hacker attacks etc. When you invest all your money into a single trading place, your risks are higher. If hackers steal money, you risk to lose even without doing a single step there.
Some crypto enthusiasts store their funds using one type of wallet (cold or hot). The first offers more security but is less flexible than the second. Those who want to find a reliable solution, store their cryptocurrency on both types of wallets benefiting from their advantages.
Let us show you a simple example. You have one Bitcoin and want to store it somewhere, but you need 10 percent from this amount to be instantly available to conduct transactions. One possible solution in this case is to store 10 percent of your total amount using a so-called hot wallet and the other 90 percent on your cold wallet offline.
Tip 5: Analyze coins using special techniques
Professional traders often recommend buying lows and selling tops. It sounds to be easy, but when you start trading, you always have difficulties to find market bottoms and tops. There several ways to do it using technical analysis for example.
Why is it necessary to do this way? When you go shopping, you try to find the best prices looking for discount programs, bonus campaigns and other ways to minimize your expenses. When dealing with crypto trading, you have no need to compare prices in different places as the cost is on the chart already. All you need is to understand whether this price is suitable for you or not.
Let’s say a trader has bought Bitcoin for almost $20,000 in December 2017. The current price of this crypto is around $7,000-$8,000. It is evident that he has made a mistake purchasing Bitcoin at its tops. Why do many beginner traders do those mistakes? The main reason for this is lack of knowledge and some typical emotions that make them buying when the price grows.
Ask yourself, what you will do when the price goes upwards. Most newcomers will say that they will buy the crypto in this case. The mistake here is that they skip analysis procedure, which is an important step before doing anything when trading.
Tip 6: Do not follow the crowd
Most beginner traders use trollbox or other trader recommendations to buy or sell cryptos. What is the trollbox? This is a chat that you can find on most exchanges. Traders share their opinions there. However, successful traders never follow the crowd as they have their own strategy.
There are several so-called indicators that demonstrate market players’ moods. Those tools are useless as they give no market picture at all and even mislead those who look through them.
Tip 7: Choose liquid cryptos
Most professional investors advise to use a great portion of funds to buy Bitcoin. This seems to be obvious as Bitcoin is the first Blockchain coin ever. However, this reason is not the only one. BTC is the most liquid crypto as its capitalization is $131,544 068 350 according to coinmarketcap in the moment of writing.
Why should you choose the most liquid assets to buy? The first reason is that they are less volatile and more stable as compared to other coins naturally. If we compare EUR/USD and BTC/USD for example, the first is more liquid and is less volatile as well.
However, Bitcoin is the most liquid crypto coin nowadays and this is the main reason why professional traders use it to speculate on.
The second reason to buy the most liquid coins is that there are risks of scams. When you purchase Bitcoin you are sure that you will be able to sell it to somebody later. However, when you buy X coin, which is not as liquid and as popular as Bitcoin is, your risks are higher as everything depends in this case on the project, its team, goals, roadmap, background etc.
Tip 8: Use different timeframes
When you trade this or that coin, it is better to choose more than one timeframe to analyze it. Those who stick to one chart risk to limit their opportunities. Even if you work with Hourly time frame, you need to use daily (or even a weekly one) for example to see the whole picture of the market
Why is it necessary to do this way? The main reason is that you will be able to have the general view of the market helping you to understand midterm and long-term tendencies. If you see that BTC/USD’s price goes upwards on Daily chart, you can say that this asset has a general uptrend in midterm.
This will help you to find better trading opportunities on the hourly chart. When there is an upside tendency, you can either work along the trend or trade against it. However, in the second case you need to be careful as corrections to the general trend are always limited in time and number of pips.
Higher time frames also help to find stronger support and resistance areas meaning you can further use them on your working chart.
Tip 9: Buy rumors, sell facts
This is a typical recommendation coming from stock and Forex markets. There is a probability of a strong and significant price wave when rumors appear. Those who buy on rumors have greater risks as there are still no facts to prove them. However, they also have better profit opportunities as trends are in their initial phases in moments when such rumors appear.
You need to understand that this recommendation is conditional as rumors may either be positive or negative meaning the price will probably grow or fall depending on the type of rumor. If they are negative, one of the decision is to sell an asset or a part of it as not all those rumors may have an impact on price fluctuations.
Why is it necessary to use rumors in your trading routine? They may have a significant impact on price fluctuations which are stronger than the impact of news following those rumors. How does this work?
Let’s say you have heard that the car’s price will rise in one month. This information is not confirmed yet, but you want to buy a car already especially when you had this intention before. The other has the same wish as the will have to pay more after car’s price inflates. This will lead to the price growth as demand will rise as compared to supply.
Now let’s see another example. You have bought a car long ago and want to sell it. You have heard somebody saying that vehicles’ price is likely to go down in a couple of months meaning you need to hurry up in order to get rid of your car for a better price.
The same is for crypto industry and any other market. When you read rumors related to positive changes for the crypto world, you buy coins as those changes may affect cryptocurrencies price in future. In case if rumors are negative, you sell it as future events are likely to push the price down.
Tip 10: Never stop learning
Most beginner traders think that there is some edge of learning that one can reach. The truth is that studying is an eternal process in trading (as in every other profession as well).
Once you create your trading strategy or take a ready one, you can start trading already. However, it doesn’t mean that you can relax in that moment and the profit will jump into your pocket with no difficulties.
Markets are changing all the time. You need to monitor those changes and to include them into your strategy. It is better to learn more methods, be aware of what’s happening in the crypto industry and always be on guards.
Those are not all the tips and tricks for crypto trading, but those are the main. You can use and follow them in order to improve your trading results.