Every soldier is familiar with the statement that “safety rules were written with blood”. While we are not referring to a risk to human life, losing your prized Bitcoins by making trading mistakes is clearly not a fun situation to find yourself.
How can you avoid mistakes in your Bitcoin trading? How can you be mainly on the green side? The first thing that you should be aware of is that trading requires attention and complete focus. The second thing is that trading is not for everybody.
The tips below are easy to understand and implement since they were “written in the blood of the veterans”. However, it is still possible to experience problems applying them in real-time since human beings are not always rational.
Have a reason for getting into a trade
You should only enter a trade when you know exactly why you are doing it and have a proper strategy for afterwards. Since trading is a zero-sum game (one person’s loss is another person’s gain), not all traders actually make gains from trading.
Large whales (yes, the same ones placing massive blocks of hundreds of Bitcoins on the order book) drive the Altcoins market. The whales wait patiently for small, innocent fish (regular retail traders like us) to make mistakes.
Even if your aim is to trading bitcoin every single day, it is sometimes better to do nothing and not earn rather than jumping into the rushing water and expose your coins to losses. From experience, you can keep your profits by not trading completely on some days.
Set a Stop and Target Before Getting into a Trade
It is important to set a clear target for taking profit for each trade as well as a stop-loss for cutting your losses. A stop-loss is setting a loss level where the trade will get closed. It is important to consider several factors when setting your stop loss.
The path to failure for most traders is falling in love with either the coin itself or the trade. They keep saying to themselves that eventually the price will turn around and they will exit the trade with minimal losses.
However, letting your ego take control is the quickest route to disaster since Crypto trades are usually riskier compared to traditional stock markets where daily movements of 2 to 3 percent are considered extreme. Cryptocurrencies can lose or gain tens of percentage points in a matter of hours!
Fear Of Missing Out (FOMO)
It is never fun to see certain situations from the outside such as when a particular coin is being pumped up in a big way and making double digit gains in a matter of minutes. Such situations are evidenced by massive green candles enticing you to start trading those coins.
At this point, you will start noticing people flooding Cryptocurrency forums and exchanges to talk about the point. What should you do in such a situation? The answer is quite simple, just continue moving forward.
It is certainly possible that many might have got on the move before the rest of the traders and it can still rise, but remember that whales are simply waiting for small buyers to sell them coins that they bought at considerably lower prices.
At this point, prices will be now high, but it will be evident that those currently holding coins are just the little fish. Needless to say, the next step is almost always a massive bright red candle that sells through the entire order book.
Risk Management
Big pig gets eaten while little pig eats a lot. This statement tells the story of the market profits from our perspective. If you wish to be a profitable trader, you should never look for the movement’s peak. A better idea would be to look for small profits that eventually accumulate into a massive one.
Wisely manage your risk across your portfolio. For instance, never invest more than a small proportion of your portfolio in a non-liquid market. To traders assigned greater tolerance - the stop loss and target levels are usually far from the buying level.
The Underlying Asset Can Create Volatile Market Conditions
Altcoins are generally traded according to the value of Bitcoin. Bitcoin is a volatile asset and it is important to take this into consideration especially during the days when Bitcoin’s value moves sharply.
Bitcoin and Altcoins tend to have an inverse relationship in their value, i.e. when Bitcoin’s value drops then Altcoins gain their Bitcoin value and vice versa. When Bitcoin is volatile the trading conditions will be kind of foggy. In times of fog, it is much harder to see ahead and it is better to not trade at all or simply have close targets for trades.
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Good Tips for newbies.. I catch myself falling for FOMO sometimes tho.
Good tips! Thanks :-)