Trading stocks and cryptocurrencies can be tricky, but here are a few tips to get you started.
It doesn’t matter how skilled you are in trading as there is nothing you can do to protect one against the power of cryptocurrency price movements. Bitcoin’s volatility (BTC), the standard measure of daily fluctuations, is currently 64% since the beginning of the year. For comparison, the similar index for the S&P 500 is 17%, while the volatility parameter for WTI crude is 54%.
However, the psychological effects of an unexpected 25% spike in the day price can be avoided by following five basic rules. Fortunately, these strategies don’t require advanced tools or large amounts of money to be held during times of high volatility.
There’s always an average price in dollars
Even professional traders get carried away by the Fear of Missing Out (FOMO) and give in to the urgency to get positions up and running as soon as possible. However, if everyone is consistently making profits of 50% and more, and even the meme coins are making excellent returns, then how can you stand aside and just be pure observation?
The DCA strategy involves buying the same amount of dollars weekly or monthly regardless of market movement, for example buying $ 200 every Monday afternoon for a year to remove fear and pressure from the continued need to add or not to add a position .
At all costs, avoid buying all positions in less than three or four weeks. Remember that the adoption of cryptocurrencies is still in its infancy.
Plan to limit withdrawals to less than 2 years
Let’s say you have $ 5,000 to invest, but there is a high possibility that within 12 months you will need at least $ 2,000 for travel, car maintenance, or other business.
The worst thing you can do is allocate 100% crypto as you may have to sell your position at the worst possible time ever, possibly the bottom of the cycle. Even if the proceeds are planned to be used in decentralized funding pools (DeFi), there is always the risk of damage from a loss or hack that impairs access to funds.
In short, all funds allocated to crypto should have a two-year check-in period.
Do not use too many indicators in the analysis
There are tons of technical indicators out there including Moving Averages, Fibonacci Retracement Levels, Bollinger Bands, Directional Movement Indicators, Ichimoku Cloud, Parabolic SAR, Relative Strength Index, and more. Considering everyone has multiple setups, there are tons of ways to track these indicators.
The best traders are skilled enough to know that reading the market properly is more important than choosing the best indicator. Some prefer to track correlations with traditional markets while others focus solely on cryptocurrency price charts. There’s no right or wrong here other than trying to track five different metrics at the same time.
Markets are dynamic, and that is especially true of cryptocurrencies, considering how quickly things change.
Keep investing in winners
This could be the hardest lesson as investors have a natural tendency to take advantage of our winning positions. As mentioned earlier, the volatility of the crypto market is extremely high, so striving for a 30% profit will not cover your past (or future) losses.
Instead of selling the winners, traders should buy more from the winners. Of course, market data or general sentiment shouldn’t be ignored, but if your expectations remain bullish you should consider adding a position until the broader market signals some form of weakness.
You will eventually get a profit of 300% or 500% if you are brave and hold the most profitable positions. These are the returns you would expect from entering such a risky market, so don’t be afraid if they show up.
Learn when to step aside
You will end up reading the market wrong looking for altcoin lows or seasons. Every trader makes mistakes from time to time and there is no need to raise the stake immediately to cover the loss. This is exactly the opposite of what one should be doing.
Whenever you have a “bad vacation”, step aside for a few days. The psychological effects of loss are distressing and affect your ability to think clearly. Even if there is an obvious opportunity, let it slip. Go for a walk or try to organize your life beyond trading.
The really successful traders are not the most talented, but the ones who hold out the longest.
Every rule is meant to be broken
If there is a path to success in crypto trading, many will find it years later and the returns will quickly fade. Therefore, you should always be ready to break your own rules every now and then.
Do not blindly follow the investment recommendations of influencers or experienced asset managers. Everyone has their own risk appetite and the ability to replenish positions after an unexpected default. But more importantly, remember to take care of yourself along the way!