One aspect you have to clearly understand prior to trading cryptocurrencies, or any other financial instruments, is that you cannot perfectly time either your buys or sells. You cannot hope to succeed by doing the same thing over and over again. You have to employ different strategies, learn from mistakes, and fine-tune your strategies in order to improve your chances of reducing losses and increasing profits.
You should also never kick yourself if some trades don’t work or have not worked spectacularly enough. You should learn to live in the present as mulling over what has happened in the past has the power to pull you down. It would have been very good if you had bought Bitcoin was valued at around $600 about a year ago. You would have made a great deal of money. Unfortunately, that’s not how the whole thing works.
Imagine how you would feel if you had bought Bitcoin when it was hovering around $1,000 in 2013 and sold it off in panic at $200 when the cryptocurrency’s price plunged. What you need to remember is that it is easy to understand what you should have done or not done after something has happened. However, it is difficult to predict the future. As such, the aim of this post is to give you some tips on how to trade Bitcoin and other altcoins so that you are in a position to maximize your profits.
#1: Appreciate the power of cryptocurrencies
The blockchain technology that powers Bitcoin has the potential to revolutionize the global economy. Cryptocurrency’s decentralized nature makes it difficult to manipulate it easily or shut it down.
#2: Find a reason for entering a trade
You should enter into a trade only if you know clearly why you are executing it. Once you know why you are entering a trade, employ a clear strategy. Large whales drive the cryptocurrency market. Sometimes you are better off not doing anything or earning nothing as you could suffer huge losses.
#3: Follow a strategy
How frequently do you want to buy and sell? Are you aspiring to be a day trader? In the case of cryptocurrencies, buying and holding and then selling has yielded great results. Here is the thumb rule: the longer holding the lesser will be the less risk. However, at times you may have to just cut and run. Price decline because of unforeseen structural issues indicates that you should sell out to cut losses.
#4: Set a profit target and a stop-loss level before starting a trade
If you are a day trader, set a clear profit target level and liquidate your stock when you achieve it. More importantly, set a stop-loss level so as to cut losses. A number of factors have to be considered in order to set the stop loss level properly. Never allow your ego to take control of your trades as crypto trades are very risky.
#5: Average cost of your initial investments
Dollar cost averaging your Bitcoin purchases helps to reduce the risk posed by sudden price changes. This, in turn, reduces the reliance on single point entries. Over time, increase your Bitcoin investment so that your desire to buy and sell more frequently reduces. Bitcoin is here to stay. You can follow your instincts, but never ignore others’ opinions.
#6: Manage your risk well
If you want your trades to be profitable, you must never wait for large price movement. Aim for small profits. Over time, they will accumulate and become big. This also means that you must manage risk across your portfolio. In fact, you should invest only a small percentage of your money in non-liquid markets that pose very high risks.
#7: Hedge your risks
Another risk management strategy is hedging. Several exchanges permit short orders, enabling you to take positions on both sides of Bitcoin price movement. For instance, one simple strategy you can think of implementing is having 90 percent long and 10 percent short. The assumption here is that your confidence in long positions is higher.
#8: Consider trading other cryptocurrencies
There is no doubt about the fact that Bitcoin is the first and the best cryptocurrency. However, you should never neglect non-bitcoin cryptocurrencies. They are not prone to as much speculation as Bitcoin. Further, they are likely to experience larger price swings. Each one of them has been created for a specific purpose. Investing in other altcoins may be riskier compared to investing in Bitcoin, but they provide larger rewards. Some of the other cryptocurrencies you can consider are ZCash, DASH, and Monero.
Depending on your risk tolerance, you can allocate a portion of your portfolio to these cryptocurrencies. It is akin to managing a fund. While some altcoins like Ethereum are more stable, some others experience a lot of volatility. For example, you might allocate 50 percent of your funds in Bitcoin, 25 percent in Ethereum, 20 percent in DASH, and 5 percent in ZCash.
#9: Bitcoin’s price affects the prices of other altcoins
The prices of most altcoins are affected by Bitcoin’s value. Bitcoin is a very volatile asset and it has an inverse price relationship with other altcoins. This means that when the Bitcoin’s value rises, other cryptocurrencies lose their Bitcoin value. This is true the other way also. When Bitcoin experiences price volatility, it is important to keep close targets. If this is not possible, do not trade at all.
#10: Additional tips
Involve yourself by chatting on boards, commenting on blogs, and following news on the social network.
A strategy that is viable for one person need not work for all others.
Multiple trades add up fees. It is, therefore, best to post command and not buy from the order book. For example, the difference is 0.05 percent in maker’s favor in Binance exchange. This is quite large.
It is best to trade without feeling any kind of pressure. Never start trading if optimal conditions do not prevail. Pressure often creates losing trades. It pays to wait for the next best opportunity.