As with any form of trading, crypto trading is fast-paced, risky, and can be rewarding. The pandemic has seen the amount of retail traders globally balloon as more people have been staying at home, looking for entertainment, and for many crypto trading is just the entertainment they have been waiting for.
In this article, we look at the top 5 rules of crypto trading when starting out.
- Where to trade?
This may be one of the most critical decisions you will make in your crypto trading journey. You have a large choice of brokers and digital exchanges all offering the trading, buying, and selling of cryptos. First decide if you want to actually buy the underlying crypto assets or if you want to speculate on them, which means that rather than buying the assets you will be trading on the price movements.
If you opt for buying then it is recommended to choose a broker or exchange that has some form of support. Brokers have been running for longer, they have more experience in customer service and are usually available to talk to. If you are a beginner this can be useful. Digital exchanges rarely avail clients of customer support. Rather you will open a support ticket and wait for it to be opened.
Often the process of actually opening an account with a broker is simpler too. With crypto exchanges, the process can be clunkier and rather frustrating at times. You must also check the crypto fees, which vary wildly between the exchanges. Atani is an exchange that offers some of the lowest fees around, it also offers a full package of the tools, which a trader needs, including Multi-Exchange Trading Terminal, Portfolio Tracking, Real-time Alerts, TradingView Charting, and Technical Analysis and Tax Reports. Make sure your broker is secure and trusted. Often an exchange that offers more than just a platform, in the same vein as Atani, is a sure sign of a stable offering.
- Risk is risk
Trading and Investing both come with inherent risks. The main rule here is to never trade more than you can afford to lose. Often the biggest rewards come with equal and opposite risks in a sum zero scenario. Cryptos are volatile assets and are prone to major price spikes.
We have even seen Bitcoin’s price jump and fall over 10% in one day in some cases. Risk management is the key to successful trading. It includes creating a trading plan, and sticking to it, no matter what the market is doing. This knocks out the possibility to be led by your emotions, like panic, fear, and greed which can override sensible decisions.
Some brokers and exchanges offer risk management tools on their platforms. Traders often use Stop-Loss orders to stop their trades out automatically when the position falls to a certain value and Take Profit order, once your position climbs to a certain value, allowing you to take your profits off the table.
Another Risk management tool that you can easily apply is your capital management. You need to decide how much of your bankroll to dedicate to each trade, a good rule is usually to not place more than 5% of your overall capital on any one trade. Professional analysts usually suggest allocating no more than around 1-2% of your entire portfolio to cryptocurrencies.
- Learn what moves the markets
A successful trader is usually a trader who is informed and has learned exactly how to trade and when to trade. Cryptos are susceptible to drivers which move their price. Unlike traditional assets, the news can greatly impact the price of your crypto asset.
For instance, all it takes is for Elon Musk to say a few words on Twitter for the price of Bitcoin and Ethereum to rise or fall. Be aligned to the news and then place your trade. Follow the news using Crypto websites like ZyCrypto. Apart from this, the main factor that moves cryptos is supply and demand. Learn about this first.
There is a huge wealth of information available, mostly free for traders on the internet. Watch videos, read eBooks and articles. With many online brokers, you can usually practice your strategies with a demo account. This is a good way to start.
- Your platform and tools
Digital exchanges and brokers give you platforms to trade from. Once again, practice first if you can on a demo account. Learn how to use the platform, understand how the charts work and any indicators you wish to integrate onto your chart. Indicators are a useful tool for identifying trends and imminent reversals in the price of crypto. You can also use external charting packages like TradingView and you can get trade ideas from websites like Seeking Alpha.
- Have others trade for you
You can subscribe to trading signals to get ideas about trade entry and exit points. Some signals are created by humans and some by algorithms. Check the track record of the signal provider first. The results should be over 60% gains, in order to see the continued growth of your account. You usually receive signals in the form of SMS or emails. Once you receive them, it is important to act fast and place your trade.
You can also engage in copy trading, which allows you to automatically follow the trades of other more experienced traders. There are a variety of packages you can use for this purpose. You will be presented with a list of other Trade Leaders or Masters to browse through. Take a look at their success rates and risk appetite first, to make sure it is aligned with yours. You can then set your parameters, each how much to place on each trade, and if to trade the same amount as the leader or to trade a ratio of what they trade. This is an excellent way for beginners to trade without any prior experience. You can pause your trades at any time.
The Bottom Line:
Look before you leap. Enough people jump into crypto trading from excitement, but those who stay in the game are those who are informed and educated. Remember, to never invest more than you can afford to lose, and good luck!