Crypto trading can be one of the most volatile investment strategies, and perhaps the hardest to master. We’ve all witnessed the dramatic price swings of Bitcoin and thousands of altcoins. The question is, how can you trade the price swings to your advantage?
Here’s a list of 10 tips every cryptocurrency trader needs in their toolkit to be successful in the crypto markets:
Setting A Stop Loss
We’ve placed this at #1 as having a solid defensive strategy in place is key to being successful in the crypto trading world. Setting a Stop Loss is the key to preserving your funds whilst trading cryptocurrencies. If you want to be a successful crypto-trader, setting a stop loss is imperative.
What’s a Stop Loss?
A stop loss is where you dedicate a specific price point on your open trades that closes your position if it is hit. For example, imagine you’ve placed a trade on BTC/USD at 10,000. You set your stop-loss point to 9,500. If BTC/USD suddenly drops below 9,500, then your position will be closed automatically.
Stop-loss points act as a safety harness that pulls you out of bad trades before it too late.
There is a huge range of different strategies you can use to choose where you place your stop loss. For now, all you need to know is if you want to become a successful crypto-trader, you must place a stop loss on every trade.
Be Logical – Not Emotional
Controlling your emotions can be tough – especially when you’re in the middle of a trading session. When the market is swinging in your favour, you’re overwhelmed with joy. When the market starts going against you, cue the sad violin music.
Whenever you’re trading, one of the most important things to remember is to not get carried away with your emotions as this can seriously affect your trading strategy. Trading — especially crypto trading — requires a huge amount of perseverance.
All of your trades should be based on a logical, well thought out plan. This logical approach will dramatically improve how you trade, as you’ll be less inclined to get carried away with emotional trading.
Stay Well Informed
This may seem obvious to some, but you’ll be surprised how many people trade crypto – looking for instant riches, without ever taking note of what is currently moving the crypto markets.
Before you place a trade in the cryptocurrency market, keep yourself updated on current events that may influence market behaviour — news, announcements, developments, etc.
You can keep updated on the latest cryptocurrency news by using Coinpaprika.
Simply type in the specific coin you wish to see, and a collection of the latest and most relevant news stories relating to this specific coin will be displayed on that page.
If you’re looking for information regarding a specific cryptocurrency you’re trading, it’ll pay to visit that specific cryptocurrency’s website and Reddit forum to see if any announcements will help you to make more well-informed trading decisions.
Using Technical Indicators
Technical indicators are one of the key components to any successful crypto trading strategy. Using indicators, such as MACD, RSI, moving averages, and Bollinger Bands, will help you to make accurate trading decisions.
Technical indicators can be used in combination with one another to ensure you’re placing the right trade. Be sure to learn about the various technical indicators that are available, and how to use them as part of your trading strategy.
Diversify Your Trades
Never put all of your eggs in one basket. Diversifying your trades will help to minimise your risk, whilst maximising your potential profits. Instead of piling all of your trading capital into one cryptocurrency, spread your funds across a multitude of different cryptos and digital assets.
The 2:1 Rule
This rule is simple — for every $1 you’re prepared to risk losing, you should be aiming to make a profit of $2. If you’re placing a trade with your stop-loss set to $20, you should be aiming to make a profit at least $40.
As we’ve discussed previously, setting a stop loss is important. However, the aim of trading cryptocurrencies is to make a profit — this is why you should always set a clear profit target. The 2:1 rule is a simple way to measure your profit targets, based on the amount you’re willing to risk.
The 2% Rule
This is another risk management tip. Following the 2% means you’ll only ever risk 2% of your trading capital per trade. If you’re trading with a $1000 account, then you should only risk losing $20 per trade. This is a simple way to ensure your capital doesn’t take a huge hit every time a trade doesn’t go in your favour.
Trading Bots
This is the closest thing to have a personal trading manager.
Trading bots are an awesome way to make profits without constantly observing the cryptocurrency markets.
Trading bots are using highly-sophisticated, programmable algorithms that detect trends in the crypto markets. Once a trend has been identified, you can program your bot to automatically place trades for you.
Having a trading bot as part of your crypto trading toolkit would be a great idea — especially for those of you who don’t want to spend hours staring at a screen trying to identify market trends.
Trade With A Plan
This goes without saying. Planning your trades is what spells the difference between a serious, profitable trader, and a novice gambler who aimlessly place trades hoping to cash in.
You should be planning every trade before you place it. To do this, write out a simple list of reasons why you’re about to place a trade and how you’re going to execute it, including:
- Your fundamental analysis: any news or announcements that could affect your decision.
- Technical analysis: what your technical indicators are suggesting.
- Stop loss: write down the amount you’re willing to risk and the point at which you’ll exit the trade if it doesn’t go in your favour.
- Profit target: the point at which you’ll take profits on your trades (think back to the 2:1 rule).
Keep Track Of Your Results
Using the previous tip – trading with a plan, you’ll be able to keep a close eye on your progress when trading crypto. With each trade, record your performance. If you made a profit, go over what strategy you used and why you were successful. If your trade failed, this is the perfect opportunity to learn — figure out where you went wrong and learn from your mistakes.
Scrutinize your trade plans to see what went right, what went wrong, and figure out how you could have improved them. This will help you become a consistently profitable crypto trader.
Final Thoughts
Crypto trading can be a tough skill to master. However, if you have the right strategy in place, you’ll soon become successful. Using the tips we’ve provided you’ll be able to minimise your risk, whilst maximising your potential profits.
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