The crypto market is highly volatile because the prices of cryptocurrencies keep changing. This exposes investors to high risks that can only be mitigated if the right trading basics are implemented.
If you are a beginner trader, you need to learn the basics to improve your skills. Some of the basic things you need to know about crypto trading are included below.
Invest Money You’re Willing to Lose
The values of digital assets can increase or decrease so fast that you might not even know when it’s happening. Unlike stock trading, where loss can be prevented through good trading strategies, the risk of losing money is very high in crypto trading because market crashes happen without notice.
Do Your Research
Like any other kind of investment, you need to do your research before dipping into this market. Do proper research on the cryptocurrencies you want to invest in and ensure they align with your investment goals. It is also best to look into the underlying technology of a cryptocurrency to know if it is offering something that you can relate to.
Avoid Buying the Hype
In crypto markets, the Fear of Missing Out (FOMO) often makes traders make the wrong decisions. For example, when a notable influencer or investor backs a cryptocurrency, the hype surrounding it increases, and its prices shoot up. However, traders who buy when prices are too high can end up losing much money once the buzz dies.
It is also advisable to not trade based on emotions. Emotional trading is influenced by fear and greed, which most often leads to wrong decision-making.
Diversify Your Portfolio
There are thousands of cryptocurrencies in the market, but most of these are scams. If you want to manage losses, you need to put your money in different cryptocurrencies to ensure that you are buffered from loss if the value of one cryptocurrency dips sharply.
Use Stop-loss Orders for Day Trading
If you are a day trader and do not have the time to keep checking crypto prices all day, you can set stop sell orders where your holdings will immediately be sold when the price drops to a certain level. This reduces the chances of loss.
Conduct Technical Analysis
One of the most important basics of crypto trading is to conduct technical analysis. This is where you use technical indicators such as moving averages and the relative strength index (RSI). These indicators will help boost your profitability chances.
Whilst these are important basics to consider, understanding the market first before making any decision is of key importance. Research about the cryptocurrencies you want to invest in and the best platforms where you can purchase them.