When it comes to trading, you should never throw caution to the wind. While the intentions of those in the crypto space are mostly good, no one can guarantee that projects will be successful.
Therefore, it’s best to invest only what you can afford to lose. It is not a scare tactic. It is a way for you to understand that there is always some risk involved with any investment.
Of course, there are also many benefits of investing in cryptocurrencies and other digital assets. Plan and research the tokens you’re interested in buying or selling before making your move to take full advantage of these opportunities.
Now let us look at six best practices you should follow while trading cryptocurrency.
#1 Set Goals and Stick to Them
Once you have mastered the fundamentals of cryptocurrency trading and got the hang of the different strategies, it is crucial to ensure that you stick to your goals. That starts right at the beginning when developing your cryptocurrency trading strategy.
You need to develop a strategy that fits your goals. Before starting cryptocurrency trading, new traders need to have a plan before starting.
However, being realistic about these goals is also very important. While setting achievable targets can help in staying motivated and driven, setting excessively high targets can demotivate traders if they are not met. Hence, set realistic targets initially and then slowly move on to more ambitious targets as your experience grows.
Keeping this in mind will help develop an effective trading strategy and determine what kind of trades would work best for you based on each trade type’s time horizon and capital requirements. It will also ensure that you do not end up taking risks beyond your capabilities or become too overconfident and keep you focused on achieving them with discipline.
#2 Avoid Margin Trading with High Leverage
Margin trading best practices dictate that you should never use more leverage than you can handle. Using high leverage will amplify gains, but it will also magnify losses in the same way. That is why experienced traders only take small positions and do so with a stop-loss order in place to avoid downside risk. If you are new to margin trading or if you have limited experience, then your best strategy is to use only small amounts of leverage, such as x2 or less.
Always keep an eye on cryptocurrency prices when trading. Cryptocurrency markets are volatile. Hence, the cryptocurrency value for all coins and tokens can fluctuate greatly. Unless you want to take a big risk, always check with the market cap of the crypto you want to trade. It is a more crucial metric than the crypto value.
#3 Don’t Trade on Fear
There are a lot of people who claim to be experts in cryptocurrency trading. That doesn’t mean they know what they’re talking about, so keep your eyes open and do your research. Don’t get caught up in the hype. Be skeptical of everything.
Ask questions, be prepared for the worst, but don’t trade on fear! While this does not apply only to crypto trading (this is good advice for most areas of life), it’s especially vital here because emotions can get high when you’re dealing with so much volatility and unpredictability in a single market. The best thing you can do is take a step back from the market and reassess every once in a while to make sure that you’re still making positive returns every day.
#4 Don’t Buy Just Because it “Feels Like the Right Time”
You shouldn’t buy a cryptocurrency just because you believe it’s cheap.
If you find yourself holding a lot of cash and thinking, “I need to buy something! It’s getting expensive out there,” then what you should do is take a step back and remove emotion from the equation. Look at your holdings and decide if it makes sense to rebalance or not. If you think the market is irrational but don’t want to short it for fear of losing money, consider buying other assets that are undervalued.
Do not get caught up in price movements alone; look at the bigger picture.
#5 Diversify Your Portfolio
Diversification should be a vital part of any trading strategy. The cryptocurrency market is young and volatile, and you must not put all your eggs in one basket. It is best to spread your investment across several different coins whose prices may rise and fall independently of each other. So, if one currency crashes horribly, you will still have investments elsewhere to keep you afloat while the markets recover.
It might seem counterintuitive to diversify as much as possible when investing in cryptocurrencies. However, it is a good idea.
If you only invest in one coin, a sudden crash in its price could wipe out your entire investment. Diversifying keeps your portfolio balanced enough that not every drop or dollar has a drastic effect on its value.
#6 Never Do These Things
Remember the following points.
- Never panic and sell or HODL – hold on for dear life – everything you have.
- Never be too greedy or afraid to invest in an emerging market.
- Never trade based on emotions! Learn to control your emotions.
- Never blindly follow what experts say, do your research first.
- Be smart about the coins you invest in and only invest in those you understand.
As long as you ensure these practices, you will enjoy your crypto trading experience. There is also a chance that you will come out of these deals as a successful trader.