The crypto markets can be a confusing place for complete newcomers. Even people who are au fait with regular equity and FOREX investments struggle to wrap their head around the new terms, concepts, and market behaviors.
So, if you’re entirely new to the world of crypto trading, here are our 10 top tips that’ll help you get through those first few months.
1. Do Your Own Research
This is the most important lesson for any newcomer to understand. Never blindly follow tips on Twitter, Reddit, or crypto websites, no matter how confident the person may seem or how many people endorse their view.
You don’t know about the other person’s attitude to risk, investment timeframes, profit goals, or any of the other intricacies surrounding their investment decision.
Perform your own research, and both your market understanding and trading success rate will increase dramatically.
(Note: We’ve written about some of the most important fundamental indicators to be aware of.)
2. Learn to Trade a Single Coin
If you want to learn how to actively trade cryptocurrencies (rather than adopting a long-term passive investment strategy), don’t try and do too much at once.
By focusing on too many coins, you will spread yourself thinly and it will take you longer to get your head around the basics.
Instead, focus on one coin (ideally Bitcoin), and study the charts every day for at least six months. Learn to recognize levels of support and resistance, internalize the rationale behind some basic technical indicators, and try and understand why the price reacts the way it does in certain situations.
3. One Chart, Many Conclusions
It doesn’t matter how many followers someone has on Twitter or how pretty their charts on TradingView may look; no trader is right all the time.
Whenever you look at a snapshot of a chart, there are an almost endless number of ways to interpret it. Indeed, two different indicators may provide very different projections about what to expect.
Just because someone has reached a different conclusion from you doesn’t mean they are right, and you are wrong. Learn to trust in your own decisions.
4. Keep a Log
Take notes about what you’re doing every day. Log the prices of the trades you made, why you thought the trade was a good idea, which indicators you used to reach your decision, and any patterns you’ve spotted developing on the charts.
By doing so, you can refer back to your thought process at a later date and learn valuable lessons about what worked for you and what didn’t.
5. Avoid Paid Groups
If you follow crypto Twitter, you’ll see a never-ending list of tweets trying to sell you access to a paid group.
Avoid them at all costs. If you dig into the profiles of the paid group leaders, you’ll see many are young kids who only have a couple of years of trading experience at most.
Worse, some of the largest groups are highly developed pump and dump scams. The group leaders pre-run their buying tips, then sell when their community’s investments begin to drive the price higher.
Your time is better spent learning from quality educational materials.
6. Educate Yourself
Speaking of which, take the time to educate yourself using well-regarded resources. Sure, some prolific Twitter traders or free Discord chat groups might form a small part of that, but you need to cast your net more widely.
The more information you can absorb, the quicker you will become proficient.
7. Small Losses, Big Wins, and Risk Management
A common mistake among new investors is believing that they need most of their trades to be winners in order to turn a profit.
In fact, the opposite is true. Even professional traders get more trades wrong than they get right. The trick is to keep your losses small and to let your correct trades run and run.
Have a risk strategy in place and stick to it. For example, perhaps you decide never to risk more than two percent of your total funds in a single trade, and if the trade drops five percent, you will cut your losses. It means you’d never lose more than 0.001 percent of your portfolio on a trade.
8. Don’t Use Margin
The web is full of people who claim to earn crazy returns using high levels of margin; some crypto exchanges allow up to 100x leverage.
If you’re new to trading, leveraged investments are a sure-fire way to lose all your money. Yes, using margin can amplify your gains, but it can also amplify your losses.
Remember, by using margin, you are borrowing capital from the exchange (or other users), and your initial funds act as collateral.
Should the value of your investment fall below the maintenance margin, you will be force-liquidated.
- Bitcoin is trading at $2,000, and you have $100 in your account.
- You open at 5x position, giving you a tradable balance of $500.
- You buy 0.25 BTC for $500
- The margin maintenance rate is 15 percent of your position ($500*0.15=$75)
- If the value of your investment drops from $500 to $425, you will be force-liquated and lose $75 of your original $100.
- To calculate the price of Bitcoin whereby you’d be liquidated, calculate $425 (liquidation value) / 0.25 (amount of BTC in position) = $1,700.
We can see that merely by using 5x margin, you could lose 75 percent of your initial capital with a 15 percent drop in price.
9. Decide on Your Timeframes
Don’t try and trade all the timeframes at the same time. A monthly chart will tell a different story to a daily chart. A six-hour chart will tell a different story to a 15-minute chart.
Broadly speaking, the higher timeframe charts are useful for identifying larger trends, the short-term charts are for trading price action. Unless you’re a pro, you will find it hard to do both at once. Decide what type of trader you want to be.
10. Trade the Trend
If you’re a beginner, the easiest way to turn a profit is to trade with the trend. Ignore the noise at lower time frames; if the daily or weekly charts are bullish or bearish, trade that situation until the sentiment starts to change.
To establish when a trend is about to break, look for higher highs and higher lows in a bear market, or lower highs and lower lows in a bull market.
Do You Even Want to be a Trader?
Trading sounds glamorous, but it’s hard. It requires months of learning, hours staring at a computer screen every day, and a steely control over your emotions.
Remember, if you don’t want to trade but still want access to the crypto markets, you could try a passive investment strategy using a crypto index tracker.
Disclaimer: This is not investment advice. Bitcoin and other cryptocurrencies are highly speculative. Nothing is guaranteed in cryptocurrency. Always perform your own research before investing and never commit more money than you are comfortable losing.
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