Traditional financial instruments like stocks, bonds, commodities, and currencies have hooked investors for years. However, crypto trading has become a new arena for market participants.
In cryptocurrency, short-term traders are enticed by the market’s momentum and volatility. The short-term upside potential of this market turbulence is immense. Astonishing returns have been created by the much-loved digital currency Bitcoin thus far, leaving investors speechless.
The following are some pointers for cryptocurrency traders to help them maximize their profits:
- You must have a purpose
You should have a reason or goal in mind before you start trading cryptocurrencies. Whether you plan to day trade or scalp, you must have a certain goal in mind before you begin trading cryptocurrencies. For every victory, there must be a matching loss: in the digital currency market, it is a zero-sum game. There is a winner and a loser in every game.
This market is controlled by ‘whales,’ who put thousands of Bitcoins into market order books. They wait for unwary traders to make a single mistake so they can get their hands on that money.
Even if you’re a day trader or a scalper, there are occasions when you’d be better off losing money than risking your capital. We know from years of market study that you can only earn from specific transactions on certain days or periods.
- Diversification is important
Diversifying is the only way to move past certainties in the volatile world of cryptocurrencies. All coins lose value; for example, in the case of Bitcoin to EUR, BTC may decline in value relative to the euro, and vice versa. Diversification can be a wonderful strategy for surviving in the cryptocurrency market in this situation.
- Be vary of FOMO
The “Fear of Missing Out” is a common cause of people blowing through their savings. All investors experience FOMO because nobody wants to miss out on a lucrative investment opportunity. As a result, they become distracted and veer away from their trading strategies to profit from the market.
FOMO typically arises from social media rumors, news, or trends that could influence investors to behave recklessly, such as increased trade volumes, trading cryptocurrency they are unfamiliar with, increasing trading lots, etc. Sticking to your trade strategies and research is the greatest approach to combat FOMO.
- Set a stop loss level
Knowing when to exit a trade, whether you are making a profit or losing money, is an important yet difficult skill to master. Setting a stop loss level is crucial because it can help you limit your losses. This is a skill that every investor should possess. The same holds for profits. Don’t be overly greedy; set a profit limit, so everything remains balanced.
- Managing the risks involved
When we study the cryptocurrency market, we can observe that the current price of Bitcoin significantly impacts the majority of altcoins’ pricing. Therefore, the comparison between Bitcoin and a highly volatile cryptocurrency must be understood. Remember that when the price of Bitcoin increases, the price of alternative cryptocurrencies decreases, and vice versa. Most bitcoin traders could find this confusing. As a result, it is best to either set reasonable targets or to avoid trading at particular times.
- Focus on market cap instead of affordability
All beginners make the error of purchasing a coin when it is inexpensive. But the market size should matter more to investors than affordability when choosing which currency to buy. Instead of using a coin’s price to judge whether or not to invest, it is preferable to use its market capitalization. A coin is more acceptable for investment in cryptocurrency trading if its market cap is greater.
- Always think long term
Elite investors like Warren Buffet favor long-term transactions as a profitable investment strategy, but doing so involves extensive analysis and research. Long-term investment is also a buy-and-hold procedure, which requires a lot of patience. Many traders struggle to stick to their long-term goals because they frequently cancel trades after an investment moves roughly 50% up or down, causing them to lose out on significant market possibilities.
Bitcoin climbed from $13,373.71 to $61,374.28 between October 2020 and October 2021, with daily volatility of 4.56 percent. For a long-term trader, that was an increase of roughly 460 percent within a year; however, many cashed out at the first sign of a respectable profit, missing out on the later gains.
- Make appropriate use of leverage
Leverage is borrowed money that lets you trade with more than your initial deposit. You can trade at 100 times your actual deposit if your leverage is 1:100.
Despite how beneficial leverage is, it also increases the likelihood of liquidating or losing your money and the leveraged amount. Keep in mind that leverage can be used to gain or lose money.
If your leverage is exceedingly high, like 1:1000, a 1% change in price can cause a significant loss. Therefore, as you use more leverage, your ability to tolerate volatility decreases, and as you use less leverage, your trading margin of error increases (volatility tolerance). If you don’t have a solid understanding of bitcoin markets, you shouldn’t employ any leverage.
- Don’t buy crypto just because its price is low
The phrase “Buy the dip!” is frequently used when cryptocurrency prices start to fall. As long as you are investing for the long run and are aware of the dangers, purchasing the dip is acceptable. If you place a buy in a short-term trade in a declining market without performing adequate technical research, you can come to despise yourself.
If the market is particularly volatile, you should avoid it because a negative trend might last for days, weeks, or even months before finding solid support. It can be challenging to predict where the bottom of the drop will be, and it might feel like catching falling blades. So don’t simply purchase because the price is low. Instead, purchase because you believe the price will increase.
The best investors are those who understand how the market functions. Unfortunately, there are risks associated with investing in cryptocurrencies, and nobody appears to be an expert. When investing, the volatility and instability can make you question your analytical and investment skills, but making a solid investment involves more than guessing whether a cryptocurrency’s price will increase or decrease. So follow these tips and make sound decisions when trading to avoid big losses.