Cryptocurrencies are one of the most exciting trading options right now, with the market constantly evolving at a such a rapid pace that fortunes can be made or lost in a moment. To help safeguard investments it is important to remember that trading requires much attention and proper guidelines. These tips will help traders protect their assets against potential losses.
1. Know the Motive for Every Single Trade
Whatever the strategy, may it be day trading or scraping, since digital trading is a zero-sum game, successful cryptocurrency trades relies on a specific motive. Since the cryptocurrency market is dominated by “whales”—large stockholders who will often make bulk moves only to sit and wait for long-term rewards, it is easy for an individual trader to be panicked into a trade.
2. Set Targets and Stop Losses
A stop-loss order is placed by a trader in order to buy or sell a stock once it is has reached a specific price. For example, the order might state a sale once the price has dropped 10% below the initial buying price, limiting all potential losses to 10%. When it comes to trading cryptocurrencies, setting the stop loss at the amount that was paid for the coin is a good way of making sure no investment is ever lost.
3. Beware of Pumped Up Coins
It is not uncommon that a trader will be swayed by seeing those around them buying coins at a very low price. This is usually the result of a “whales” selling a large amount of a certain currency to smaller traders, often leading to oversupply, which then leads to losses. For those who don’t have the time to do a full market analysis, the option to buy signals cryptocurrency can be a great way of safeguarding investments, as it provides all the necessary market knowledge.
4. Don’t Only Buy because the Prices is Low
This advice is particularly important for those just beginning; avoid buying because the price seems affordable. It is important to focus not on the price, but rather on the market cap, which is formulated by taking the current market price and multiplying this by
the total number of outstanding shares, meaning the higher the coin’s market cap the more suitable it is for investment.
5. Keep a Diverse Portfolio
No matter how positive the returns appear, every investment is by nature unpredictable, and this is especially true when it comes to cryptocurrencies. One can reap huge profits within a matter of moments, but unfortunately, they can easily all be lost just as quickly. This is why keeping a diverse portfolio is so important.
Bitcoin, which is valued against the USD has a huge effect on the value of all other coins, meaning that when Bitcoin losses value against the dollar, all other cryptocurrencies fall, too. Understanding this shows the inherent risk at the heart of this trading market. This risk will never be fully mitigated with a diverse portfolio, but it is a respectable way of securing asset stability.
As seen from Bitcoin in 2018, cryptocurrencies represent an ever-changing market, which has the potential to make millionaires, or completely bust traders overnight. Successful trading requires a strong set of guidelines and market awareness to be followed at all times.