Cryptocurrency trading has made the rounds in the last decade, reaching its paramount in the post-pandemic era.
Over the last two years, the job market, and generally the global economy, has been sucked into a financial swamp. Thanks to the conflict in Ukraine, the global population is knee-deep in this mess. However, due to a dwindling job market and fluctuating prices, the global population is resorting to ways it can restore whatever pennies are left in its pockets. Investing in stocks and crypto is one of those ways that many have been counting on.
While investment is lucrative, there are countless ways to let all your savings go down the drain. Especially for absolute beginners, numerous scams and fake gurus are waiting to leech on to their naivety and lack of experience in the crypto arena.
Though we don’t promise to make you an overnight success, there are specific tips when beginning crypto trading or diversifying your investment portfolio.
Table of Contents
1. Know the motive behind each trade
Just like every other realm of your life, investment and crypto trading also demands that you have a motive. Know your “why” before you put some money into trading. Are you doing it out of genuine interest for a particular token, or is it because you despise FOMO (fear of missing out)? Do you plan day trading or scalping (profiting off minor price changes)? The Bitcoin price history shows that the crypto market is highly volatile and risky. The bigger investors dominate the crypto market and are waiting to prey on your mistakes and losses. And what makes them superior isn’t the big bucks they have poured into the system but the patience and strategy with which they invest. Sometimes it is in your interest to stay off a trade than risk investing in it only to be gulped by a bigger whale.
2. Create a strategy
There are numerous scams in the crypto community. With the surge in crypto investment scams last year, it has become increasingly difficult to spot a genuine trading opportunity. It also builds on what was said earlier to analyze a trade before investing in it. Look at the currency you’re planning to invest in or the platform you’re using. Are there enough users on the site to rule it off as a scam? Is there tangible proof of positive results? Analyze and strategize before you pour in your savings.
3. Set targets
A simple rule of crypto trading is to know when to back out of a trade. First, you must develop a keen sense of profit and loss in a trade. Sometimes it is better to operate at a stop-loss level than stay loyal to a currency that will take you down. If you don’t know, stop-loss defines getting out of a trade when it reaches a certain price level to avoid a more significant loss. Knowing the stop-loss level is about setting targets for your profits and losses – something all investors must know!
4. Risk Management
What separates a novice crypto trader from a big whale is risk management. Experienced traders never go after currencies with massive profit ratios. Instead, they start small for incremental gains on regular trades. Limiting the amount you invest in a specific currency is best as the temptation to overinvest can result in losses. Crypto trading is a high-risk business. That’s because, unlike fiat currency (the currency notes and coins you use for day-to-day transactions), crypto’s value is influenced by market expectations and media hype. For example, when Bitcoin’s price increases, altcoins’ price tends to fall (this is where most traders fail to assess risk). So, it is better to avoid trading at those times or to set better targets.
Like any other form of investment, you must not put all your money into one digital currency. Instead, investing in a couple of different assets simultaneously is feasible, rather than risking being baited to volatility in the crypto market. For a successful trading experience, ensure you do your research when finding lucrative digital currencies.
6. Knowing when to buy
A common mistake that novice crypto traders make is to buy a coin when its prices are low. Crypto trading should have less to do with affordability and more with its market rate, otherwise called the market cap. Market cap denotes the price of a coin and its tokens in circulation. It is better to invest in a currency with a high market cap than one that has a low price.
7. Understand how cryptocurrency works
Even before you begin investing, it is crucial to understand blockchain technology. Learn about the cryptocurrency ecosystem before you learn how to trade. Many people have heard of famous coins like Bitcoin, Dogecoin, and Ripple yet don’t understand how blockchain or trading works. It can be challenging to interpret the blockchain system but worth it for crypto trading.
8. Don’t let FOMO drive your trading decisions
It can be tempting to invest in a currency just because everyone else is doing it or it’s the hottest thing right now. But the currency’s popularity is the last thing you should be concerned about in trading. More so, assess the prospects of investing in that currency or participating in a trade.
9. Crowd Sales
An initial coin offering (ICO) is a way for cryptocurrency ventures to raise funds for their new coins. Many ventures offer investors like you the opportunity to invest in their currency through a crowd sale. You can get tokens at a lower rate through a crowd sale. At the same time, the venture promises enormous returns when the coin officially launches on the exchange. ICOs have been lucrative in the past as a lot of coins ended up being evaluated tenfold their original price. Where ICOs promise huge returns, there are also ones that have turned out to be nothing but scams. It is better to be cautious when participating in a crowd sale and know the background of the venture you’re about to support.
10. Don’t hold altcoins for too long
Altcoins tend to lose value after some time. It is crucial to understand not to hold off an altcoin for a more extended period. To decide which coins are suitable for long-term investment, assess the daily trading volumes. A coin with a higher daily trading volume is better for long-term investment. While coins like Ethereum and Monero have high daily trading volumes, they also have highly-fluctuating prices. You must read the charts clearly before investing.
Crypto trading is a rather complex way of putting your money to good use as it comes with many risks. Try to set goals before you step into trading, assess the venture and currency you’re planning to invest in and don’t cave in to emotional buying and selling. Learning about trading, crypto, blockchain technology, and investment generally is better before you start trading.