As one of the newest investment markets, cryptocurrency trading is daunting and confusing for many people. Whether you’re new to investing in general or a seasoned investor who is new to cryptocurrency, everybody can benefit from the tips we have gathered below. There you’ll find five distinct tips that should help your performance as a beginner crypto trader.
If you are a beginner, you should find an exchange that you know and trust so that your transactions process properly. There are many exchanges out there, so you want to find the best exchange to trade cryptocurrency on, and use them to see what they look like and what they do.
1. Have A Motive
Before you try to enter a trade, you should figure out why. Every trader wants to make some money, of course, but having clear goals allows you to set conditions where you’ll take profit or abandon the trade. There’s nothing worse than rushing into a trade, getting caught up in price movements, and having no idea where you should sell.
What you must understand is that most price movement in the cryptocurrency market is controlled by whales. Those are investors who own thousands, or hundreds of thousands, of cryptocurrency assets and make large-scale trades. If they sell a lot, the cryptocurrency price falls. If they buy a lot, the cryptocurrency price rises. Needless to say, most of these whales are the best of the best and are waiting for beginners like you to throw more money into the market, so they can try and take it.
2. Use Stop Losses
The subject of stop losses divides many traders, especially where hype and long-term holding are celebrated like in the cryptocurrency market. If you’re day-trading or short-term holding, you should use stop losses.
You need to know when you get out of every trade and, by setting a stop loss, you mitigate risk and do that automatically. To try and avoid losses altogether, try to buy a crypto that is experiencing a price rise and then set your stop loss at the cost of your buy-in. That way, you can back out of the trade without losing any money.
As we alluded to in the first point, you should also have a maximum price point in mind where you want to sell. If you get to that point, and there are no obvious signs of increasing interest in the coin, you should sell. Greed leads many inexperienced traders into bad trades while the pros take profits wherever they can.
3. Tame The FOMO
FOMO, or Fear Of Missing Out, is where you become aware of an experience that somebody is having and you want to join it, even if it’s too late. In the context of cryptocurrency trading, this would be buying an asset that has popped with the expectation that the price will rise even further. Will it? Maybe. Is it a sure thing? Absolutely not!
Cryptocurrencies, especially those with very small market caps, have experienced run-ups that can bag traders more than 100% gain, sometimes even 1,000%. You should remember that those situations are rare and that they leave many other traders holding the bag.
4. Understand Underlying Assets
Cryptocurrency isn’t just money slapped into a screen, each crypto asset may or may not have underlying technologies and other assets tied to them. The gold and silver of the crypto world have such use-cases. Bitcoin is relative to fiat currency and was made with the idea of becoming legal tender, which it has for many companies. Ether, on the other hand, is use to power and support the world’s largest blockchain technology – Ethereum. The price movements of these two market leaders affect other coins too.
Know the underlying asset behind the cryptocurrency by reading their white paper before investing. You should also make sure the crypto has an active dev team behind them and a community that holds them to account, to avoid being scam.
6. Aim High & Diversify
For our last tip, you should understand that many cryptocurrencies have a very low market cap. While that makes it easy to scoop many of them up, it doesn’t guarantee a solid investment. Like with the stock market, a higher market cap actually indicates a more favorable investment and growth potential.
You should also diversify your investments due to the unpredictability and volatility inherent to the cryptocurrency market. You don’t want to lose your entire investment in one swinging price movement. When you’re diversified, you won’t lose as much in individual instances of volatility.
Read more: Want to store your bitcoins safely