Cryptocurrency trading has been one of the riskiest vocations to be practised lately. People have lost an immense amount of wealth in speculating the currency’s price. Cryptocurrency is not real token money or fiat money either. It is virtually created.
Crypto trading, despite seeming risky, is still profitable for traders that understand the demand and supply of such assets. It is strongly believed by some that it will be the future of money. There are many guides on cryptocurrencies, one of them being www.ibtimes.co.uk.
What Steps Should We Follow?
1. Stop Loss
A stop loss is an order that will close your position, and you will exit at a predetermined price level. This order is usually set at a price that is lower than the price that the asset is bought at. For example, if an asset is bought at $100, you might set a stop loss at $95. Such an order prevents you from suffering huge losses.
The first thing to know before setting a stop loss is that you must not put the stop loss too close to your buying price. This suggestion is because there are small fluctuations in any stock or asset; therefore, you do not want to exit a trade with good potential at a loss. Cryptocurrencies are volatile. They will vigorously increase and decrease by ten per cent. If the cryptocurrency crashes, you lose all your investments within seconds. To avoid this misfortune, build a habit of placing a stop-loss order every time you trade.
2. Letting Green Positions Run
We barely realise that the trades where we lose Money do not create wealth, but the profitable ones do. If the amount we earn on one trade is lost by another, we will eat our capital. As any successful trader over the years will recommend, keep the profitable trades running.
There is a fine line between letting a trade mature and being greedy. Prices are correct as fast as they rise. The only way out is to ensure that you maintain a trailing stop loss. A trailing stop loss is nothing but an order placed below the current market price. Let us say that you have a risk appetite of $5 per unit of asset. You must keep trailing your stop-loss order by $5 under the current market price. In this manner, your green trades will never turn red.
3. Entering A Trade Based On Strategy
The trader’s nightmare would be to enter trades impulsively. Even when you are a veteran, sharp price spikes might excite you. This spike in the price or volume of a commodity, especially crypto, will have you drooling to get into a trade. Keep your emotions in check. Trading impulsively only depletes your capital.
It is ideal to select one particular strategy and stick to it for a month at least. Do not go by other people’s ideas only. Most people fake it. Almost none of the individuals that give “trading calls” and “trading advice” actually trade in the market. They charge others for their advice and earn a handsome amount. Staying wary of them will be vital for your success.
There are many strategies like the Moving average crosser, relative stochastic index, and MACD. It is best to backtest a few strategies before you bet your hard-earned Money on such risky assets. None of the strategies is perfect. This imperfection is why you must learn to be as patient as possible.
4. Risk Reward Ratio
The euphoria of getting rich quick is something that we all want to experience. It would be best if you thought reasonably. Once in a while, you will win a lot of Money on a bet. However, it is an exception and not a rule. Keep your head down and be consistent in what you do. It is practically impossible to maintain a higher percentage of green trades compared to red trades over a longer period of time. Then how do people make Money if they cannot have more than 50% green trades?
A profitable trader does not necessarily require a higher gain to loss-making trade ratio. It seems like a strange concept, but it is true. The way to maximise profits is to hold your positive positions and snip your losses short.
Let us say that your risk tolerance per unit of the asset is $5. Then, it would be best if you targeted gains of a higher value per unit. The golden risk-to-reward ratio is 1:3. This means that for every losing trade, you are losing $5, and for each winning trade, you are earning threefolds, that is $15. This way, even if you end up having 75 loss-making trades out of 100, you will still not be in losses (excluding taxes and cost of trading).
The calculation comes to, $15*25= $375 and $5*75= $375. For cryptocurrencies, the best ratio of risk to reward would be 1:2. The ratio will give you a lesser margin for error, but you will end up winning more often as the target is more achievable.
5. Read Books
Reading books is crucial to the expansion of your knowledge. The genre of books that you must first invest in is the ones that teach you the basics about Money. Money is the most important concept because if you wish to trade cryptocurrency, you must first learn about Money itself.
Books offer in-depth knowledge about various conditions in the market. Their authors are mostly people who have been traders or investors all their lives. Their ideas will surely broaden your perspective. Reading more about the economy and how it functions will also help you understand how few developments around the world each day define how the asset will perform in the market.
If you follow these basic steps, you will become a more successful trader. With a good temperament and polished knowledge of the markets, you will find it easier to trade. You must have realised by now that cryptocurrency trading is not an adventure sport but a serious occupation.