6 TIPS TO AVOID LOSSES IN CRYPTO TRADING
July 15, 2022
Cryptocurrency trading is a popular way for anyone to make money nowadays. Therefore, signing up for an account at a crypto trading platform is simple and fast. Usually, it only takes a few seconds for a user to complete the registration process.
However, crypto trading is more than just learning how to place an order, acquiring a coin, and then hoping for significant returns. It takes a lot more than that. With the help of this handy tutorial, you can keep the common crypto trading blunders at a safe distance and accumulate solid profits along the way.
Here Are Some Crucial Tips To Avoid Losses In Crypto Trading:
1. Conduct Research
As an investor, you must conduct your research and become familiar with the market. Since many techniques used to assess conventional financial markets do not apply to cryptocurrencies, it could be a tough process. Be skeptical of cryptocurrency advice from other traders.
For example, if you live in the Philippines, an expert might ask you to invest in Bitcoin because the price of the coin is about to go up. But instead of readily accepting their advice, you must dig deep into it. To begin with, convert BTC to PHP to know the current value of the Bitcoin against the local currency and then consider other market indicators to gradually come to a decision.
Market dynamics imply that seasoned crypto investors are eager to profit from those who lack experience. And ironically, these same people will tell you when it is a good time to buy so that they may cash in on a hefty profit. Therefore, do not accept advice at face value.
2. Start Small
Some dubious trading platforms advise you to make the most of your capital by placing as many trades as possible. Unfortunately, in most cases, this is a surefire path to bankruptcy. Instead, experts recommend investing a modest amount of capital in the beginning.
There is no getting away from the fact that it is a dynamic market with a reputation for producing enormous profits in a relatively short period. However, investing in cryptocurrencies carries a high degree of risk. So you should avoid going in all guns blazing right away. Instead, it would be wise to aim for low-risk trades that allow you to gain an understanding of the market without putting your entire portfolio at risk.
3. Diversify Your Portfolio
Investing your money in different crypto projects will help you lessen the risk of losing money in one or more cryptocurrencies that do not live up to your expectations. This technique is called diversification.
Having a well-diversified portfolio means that even if any of the components of your portfolio do not materialize well, you will still be able to earn substantial returns. As a small investor, diversifying your portfolio will require buying 3 to 5 cryptocurrencies.
While diversifying your portfolio, evaluate the performance of crypto projects worldwide to ensure that all your funds do not go to one region or country. This will safeguard your assets from regulatory uncertainty and provide you with an additional means of balancing your diverse portfolio even during market volatility.
4. Consider Liquid Currencies
A coin’s liquidity refers to how easily it can be exchanged for cash or other currencies. There are thousands of cryptocurrencies that have been listed on cryptocurrency exchanges. But you are better off opting for ones that ensure high liquidity.
High liquidity indicates that the market is peppered with several buyers and sellers, which leads to lower pricing for all investors. Conversely, a thriving market with a lot of trading activity tends to produce a balance market price that is fair to everyone. High liquidity is particularly critical in the short term, allowing traders to enter and exit positions in a breeze.
5. Control Your Emotions
Humans are fundamentally emotional creatures. We love, hate, get greedy, and experience fear. As a trader, these emotions could bring your downfall sooner than later. For example, trading decisions are typically influenced by fear and greed.
A common cause of fear is trading with excessive size, which compounds the effects of poor judgment. When a trader is overextended, they are more likely to make mistakes. Also, fear can set in when you are not 100% confident that you are in the “right” trade but have no idea what to do about it. Fear drives us to sell our wins too soon and cling to our losses for too long.
When it comes to greed, it is good to an extent because it gets investors interested in trading. But too much of it tempts traders to “chase the market,” also known as FOMO (fear of missing out). In addition, greed can trap traders into taking up risky positions. A good example is when the market suddenly surges in value and demand dwindles.
Creating and adhering to a trading strategy is the most effective way to keep these emotions in check. In a trading plan, you should lay down criteria that make a setup tradeable.
Also, narrow down your goals and the amount of risk you are ready to take. You may avoid FOMO and panic selling by keeping a trading journal. Savvy traders use the trading journal to record every step of the trading process, including strategy formulation and risk management.
6. Learn From Losses
You can learn something new about trading with every setback. Do not allow it to be a source of rage, despair, or self-punishment. Instead, let it serve as a springboard for growth. The first thing to ask yourself is whether or not you took the loss because you entered the game with a better than 50% chance of winning, only to lose it due to bad luck. If you are merely unlucky, do not sweat it.
But if that is not the case and you genuinely made the wrong decision, try to figure out what led you to that. Was your reasoning flawed? What if your logic was correct, but your assumptions were flawed? Anxiety can be soothed with a dose of rationality.
Conclusion
Do not put too much pressure on yourself to quickly become an expert in crypto trading. You will have to put in the time, effort, and dedication to get the most out of your virtual money. That being said, you should embark on the journey of mastering crypto trading by sticking to the tips listed above.
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