Cryptocurrencies are still very volatile, and this means you can lose a lot of money while trading. The digital currency is affected by news among other factors. However, there are a few tips that can help you to remain profitable despite the bear market.
The first tip to understand the market is attentiveness. Trading should not be a gamble. Rather, you should pay attention to the market forces controlling demand and supply. Internalize all the tips listed below as they will give you a clearer idea of how to minimize trading losses.
Use Stop Losses and Set Profit Target
When you are trading, it is important to know when to jump out and whether you are making a profit or not. Setting clear stop-loss levels can reduce your losses. Many traders still underestimate this skill. Expert traders advise that you set the stop loss at the coin’s cost. For example, if you got a coin at $1,000, this amount should be the minimum you will trade on that coin. This helps ensure that you will get your initial investment back before the coin can lose more of its value.
The case is the same for-profit level. Be sure to watch the price as it goes up. Place it on a minimum profit and get out after hitting it. Doing anything otherwise will be greedy and you could lose out.
Enter Each Trade with a Motive
You should also enter all trades with a clear purpose in cryptocurrency trading. What is your purpose for each? Do you want to scalp or day trade? Then you need to plan a strategy for each purpose. Trading cryptocurrencies is more or less a zero-sum game. This means that there is a loss for every corresponding win. Someone has to win for another to lose.
The whales control the cryptocurrency market as they place lots of bitcoins in their market order books. Whales are known to be very patient. They wait for the traders to make mistakes and they make a profit off it. Whether you are a scalper or a day trader, in most cases, you may be better off not making any profit than rushing off and making huge losses.
If you study the market closely, you will be able to tell when to stay off certain trades. When you avoid them, you can prevent losses.
Manage your Risks
Experienced traders know better than to run toward massive profits all the time. They know it is not wise. Rather, you should stay safe and gather small and guaranteed profits from regular trades.
It may be ideal to consider investing some of your portfolios in a less liquid market. While such trades may require more patience and tolerance, they could be better in the long run.
Don’t Buy Because of Low Prices
Crypto rookies make the mistake of buying coins because they are cheap or affordable. One instance is going for XRP instead of ETH because it is more affordable. This is the wrong reason to buy a coin.
Conventional stocks are usually gauged by market caps. The market cap is evaluated with the current market price times the total number of outstanding shares formula. Cryptocurrencies follow the same rule.
Look at each project individually and pick the coins you believe in.
Be Careful with Smaller Altcoins
Many altcoins lose value after some time. In most cases, the loss is rather sudden, and you could lose a lot of money during the process. It is important to understand that this could happen when you hold a coin for too long.
To choose a suitable altcoin to invest in, look out for the daily trading volumes. Coins with higher volumes are more suitable for long-term investments. Some coins with high trading volume daily include Ethereum, Tether, Binance coin, and Cardano. These coins have recorded decent trading volume in recent times in different exchanges around the world.
Trading volume can drop over the years, so be sure to observe the charts of such altcoins on your radar. Take note of the spikes and study the pattern. It will come in handy to help you determine when to buy or sell your altcoin.
Diversify Your Portfolio
All investments are unpredictable whether they are stocks or cryptocurrency. Even investments that promise infinite returns can crumble under harsh economic conditions. Cryptocurrencies are more unpredictable than most investments due to volatility.
Traders can reap high profits to the tune of thousands in seconds. In the same vein, they can lose thousands in a flash. The best way to prevent such heavy losses is to diversify your portfolio.
Diversification means keeping bitcoin as your base asset and also realizing that the value of the dollar can’t be overlooked. Hence, you should diversify from the same asset type to different types to spread the risk across different industries.
Aside from crypto, there are other viable investments to consider. Some are not as risky as cryptocurrencies, but they may not offer as much returns as crypto would. Some notable ones include mutual funds, real estate, and stocks. Be sure to research thoroughly before investing in any of the ones mentioned above.
Trading cryptocurrency is risky like every other investment. However, the risk may be higher. You need to think ahead before making any moves. Do not start to trade until you are sure that you can get in and out. Remain calm because emotional trades are terrible ones. You could end up losing everything. It is safer to be patient and strategic. This way, you can minimize losses and consolidate gains during your crypto trades.