One of the most substantial characteristics of the cryptocurrency market is its volatility. Different digital assets are known to swing violently in a short period, unlike other more traditional assets.
This volatility is seen by some as a negative, but experienced traders know that it can also be very profitable. Trading cryptocurrencies could be very challenging. However, if done correctly, it can also net nice gains. Having said this, below are a few tips that can definitely help step up the game and take advantage of the slightly different nature of the crypto market.
Tip 1: Do Your Homework
This one is perhaps a broader tip which applies to every single investment you make, and cryptocurrencies are no exception. The very first thing you need to do before you decide to put your hard-earned cash into a digital asset is to research it.
Take a look at the documentation which is available for the cryptocurrency. Learn about the project’s goals and correlate them to the current and potential future market conditions. Make sure that it’s viable and that it has room to grow in the short and long term.
Take a look at the team members and make sure they are real people with relevant experience. There are hundreds of projects which turned out to be blatant scams fueled by non-existing social media profiles.
Do your homework – research. It’s the first step to take before you venture into a particular cryptocurrency and put your money on it.
Tip 2: You Can Make Money Even Under Bear Market Conditions
A popular misconception is that you can only make money when the market rises in green. That’s not true. There are different trading mechanisms which allow you to make money when the price drops as well.
For instance, you can short Bitcoin if you think that the price is going to start dropping. There are some margin trading platforms which allow it. This way, you can benefit from negative trends as well.
In fact, leveraging short positions can help you diversify your trading strategy and maximize your profits. That’s the difference between an experienced trader and one who isn’t aware of all his options.
Tip 3: Manage Your Risk
If you want to be a successful crypto trader you need to have the bigger picture in mind. You shouldn’t be looking for the next ‘moon’ but rather take advantage of smaller market moves which will regularly add up and net you a substantial profit.
Make sure to manage your risk wisely throughout your entire portfolio. When it comes to non-liquid markets, you shouldn’t invest more than a smaller percentage of your portfolio because the risk is relatively higher.
Keep your investments in a range that you can afford not based on your overall resources but based on your investment portfolio. Make sure that each trade you do is consistent with this strategy and keep all feelings aside.
Tip 4: FOMO – Keep it in Mind
The fear of missing out (FOMO) is perhaps one of the most commonly used terms within the cryptocurrency community. It describes a situation where a particular cryptocurrency experiences a sudden increase in value and people are usually tempted to buy in in order not to miss out potential gains.
However, in situations like that, it’s not uncommon to be on the losing side of the trade. It is entirely possible for the price to continue pumping but then again, this is a decision that you should make based on robust factors, not on a quick pump and subjective sentiment.
Therefore, it is particularly important to resist FOMO and to make sure that even if you buy in the surge, you are making it because you know what you’re doing rather than just following the herd.
Tip 5: Set Your Ego Aside
This is perhaps a continuation of all of the above. When trading cryptocurrencies, you need to make sure that your ego is set somewhere distantly as it has no room in trading.
Your decisions should be made solely on facts and nothing else. Sure, you’re likely to know the phrase “my gut is telling me to do so,” and in some cases, your “gut” might be right. But if you want to be consistent in your profits, you need to leave this thinking aside.
These are just a few tips that you might want to keep in mind when it comes to trading cryptocurrencies. Of course, there are other essential considerations but if you are just venturing in the field, keep these in mind.