One of the best things about cryptocurrency, no matter how it works out in the long run, is that it has sparked the average person’s interest in finance. However, investment isn’t something that people can just leap into blindly. There’s a lot of nuance to trading and investing. It isn’t as simple as buying low and selling high. Here are a few tips about cryptocurrency that everyone joining the trading club should know:
1. Create and Stick to Goals
Anything that involves money must have goals, whether it’s a budget or your cryptocurrency trades. Trading willy-nilly to catch the next spike in value is going to run you ragged and will result in more losses than gains. Whenever you purchase a currency, set goals as to when you’ll take your profit or when you’ll cut and run.
The most significant benefit of this is control. Instead of letting your emotions push you into making trades, you will instead let your goals guide the way. That is how people usually practice buying low and selling high. These goals help determine what exactly “high” and “low” mean relative to the profit and loss acceptable to them.
2. Learn the Art of Chart Reading
One of the biggest barriers to informed trading is the sheer number of charts, most of which at a glance, will drive many people mad. There are so many lines that it can get overwhelming enough to push people out of trading right from the start or worse, cause them to try trading without learning how to read said charts.
These charts might be dull and confusing at first, but they’re what will help you make smart trades. They will tell you how your chosen currencies are doing over time, which is essential. Too many new traders will focus on short bursts of gains and losses. Smart ones will focus on the big picture, which is what charts help you see.
3. Only Use “Play Money”
New traders sometimes put all their hopes and dreams on their investments, which is a tremendous mistake. Because of their volatility, there is much risk in trading in cryptocurrencies, making that move akin to gambling with a college fund at Vegas.
If you’re going into crypto trading, only use what you can afford to lose. Some people call this money “play money,” and for a good reason. All too often it will feel like the rules change at a whim, mainly because that’s what’s happening. Market manipulation is, as of 2018, expected. Countries around the world are still deciding on whether or not to support crypto in their local markets.
You must be comfortable in losing everything you put in because that is what might happen. If you only trade what you can afford to lose, an unfortunate turn at the market will not destroy you. As a bonus, when you know that you’re fundamentally safe and not emotionally compromised by market movements, you make smarter decisions.
Bitcoin might be the poster boy for cryptocurrencies, but it doesn’t mean that it’s the only one worth your investment. In fact, putting all your expendable capital into it is undoubtedly the wrong move. That’s like putting your money all on one spin of the roulette wheel.
Instead, you should diversify your portfolio. Putting everything on one coin increases the risk you’re exposed to and makes it harder to recover from a poor turn. Spreading the wealth across a few high-potential coins not only makes you safer, but it also lets you stay afloat should parts of the market dive.
It’s also essential that you don’t diversify just for the sake of having a lot of coins. Each one you invest in should have its own goals and should represent real potential. Do your research.
5. Be Careful With Your Stop Loss Orders
A stop-loss order is what you think it is: it’s something you set that automatically sells off your assets should they dip beneath a value you specify. This is a great tool that can save you from a poor turn when you’re away from your exchange of choice. However, this is not something to be taken lightly.
For example, you shouldn’t set it too close to your buy-in amount. Market fluctuations could cause you to sell your recently purchased currencies, leaving you at a net loss. You should also take digital currency’s inherently volatility when deciding on your stop loss order, as small fluctuations can cause you to cash out before you want to inadvertently.
6. Be Patient
The cryptocurrency market’s volatility is what pushes more careful traders away from it, and it’s hard to blame them for their tentativeness. Cryptocurrency is still in its infancy. There are no established best practices or real patterns to follow. Fluctuations are everywhere, as is market manipulation.
That makes patience incredibly important when trading in digital currencies. Day trading isn’t the path you want to take. You must focus every decision you make on the big picture. Don’t move because the value shifted a little. Move when the overall trend gives you value.
7. Be Wary of Coming Regulations
Most would compare the current cryptocurrency world to the Wild West, where the law is mostly absent, and everything goes. They’re not exactly wrong to do so. Much of cryptocurrency remains unregulated, with both countries and banks sitting back and waiting for everything to settle down.
However, it’s not going to stay that way. It’s getting to the point where prominent organizations are becoming more and more comfortable stepping into the digital currency waters, and with those steps comes regulations and laws. You should temper any investment or trading you put into coins with the knowledge that the rules you’re following now may not apply in a few short months.
8. Do the Research
Bitcoin isn’t the only digital currency in which would-be traders should show interest. Ethereum, Ripple, Stellar, and more should be on their radar. Unfortunately, there are also hundreds of joke and scam currencies around. While one is malicious and the other isn’t, to a trader they represent the same issue, and it’s that they are worthless.
Don’t just trade into a coin because you think it is fun or because someone talked it up on some forum. Do your research. See who the engineers behind it are, what the coin’s purpose is, and figure out its overall potential, before even considering putting your hard-earned money into it.
Cryptocurrency trading is an exciting new world, and everyone wants to stake their claim. Unfortunately, it’s also full of dangers that people should be aware of before putting down the cash on a few coins. Don’t leap into it blindly. Learn the right tips, and you’ll not only make sure that you’re safe but that your money is safe and as profitable as possible.
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