Cryptocurrencies have grown to become a regular fixture in today’s business, finance, and economic landscapes. Cryptocurrencies are by nature volatile and speculative but their wild price swings are one of the factors that makes them attractive to traders. Last year, Bitcoin rewarded traders with 1400% gains, Ethereum rewarded investors with 12,000% gains, and the general cryptocurrency market was up more than 3600%. Anybody can make money during a bull market, but it takes intelligence and discipline to make money when the markets are down. This piece provides insight on five tips that can improve your odds of trading success irrespective of the general market direction.
1. Never forget that cryptocurrencies are highly speculative
Cryptocurrencies are still in their Wild West phase and you should never put in money that you are not prepared to lose – the counterintuitive point, however, is that this mindset reduces the odds that you’ll lose much money. Apart from the fact that the cryptocurrency market could head into an unexpected downturn, your money could be lost to bugs in exchanges, hacks, data loss, and changes in the regulatory environment. It is easy to get caught up in the moment with the buzz and hype, but you need to be objective about your financial circumstances. Taking a mortgage, loan, selling all your stuff, or using credit cards to buy cryptocurrencies are desperate moves that you should resist the temptation to pursue.
2. Good trading tools are worth their weight in gold
One of the fastest ways to lose money as a cryptocurrency trader is to make trading decisions based on your feelings, guts, or hunches. Successful trading requires precision, clarity, objectivity, and critical analytics. However, your emotions will always get in the way of making logical decisions; hence, you should not underestimate the importance of trading tools in helping you make smarter trading decisions. Blockfolio, for instance, is a free app that helps you track the price of Bitcoin and altcoin across multiple exchanges. Using Blockfolio is straightforward, once you’ve downloaded the app, read through the on-screen tips, and tap Finish. Capitalise is another interesting tool that can help you automate your trades so that you can automatically get in in the earliest points of a rally, ride the bull all the way, and get out as soon as the market starts to tank.
3. When Bitcoin sneezes, the market catches a cold
Bitcoin is the first, most popular, and biggest cryptocurrency by market cap – BTC holds a 41% market dominance out of 1621 cryptocurrencies. Developments around Bitcoin often determine the performance of other cryptocurrencies and altcoins in the market. When Bitcoin is enjoying bullish vibes, most of the cryptocurrencies tend to ride the hype to book gains as well. When Bitcoin suffers from bad news, other cryptocurrencies tend to see their prices nosedive irrespective of the quality of their market fundamentals. As a cryptocurrency trader, you don’t necessarily need to hold all your funds as Bitcoin, but you need to pay special attention to Bitcoin to know where the market could be potentially headed.
4. Diversification will minimize your risks
The total amount of money you put in a coin has a multiplier effect on how much profit you make from the investment. If you invest $500 in coin ABC and it soars 5X, you’ll have $2000 in profits. But investing $2000 in the same coin ABC will net you $10,000 after a 5X price surge. However, the potential to lose money is also magnified by the amount of money you put into the trade. You can never be sure that anyone coin will deliver impressive gains and it is unlikely that any coin will rise to prominence to move the markets the same way Bitcoin moves the market. Hence, you’ll most likely be better off investing in a diversified mix of cryptocurrencies than putting all your money in a single cryptocurrency.
5. Nobody loses money by taking a profit
Greed is a terrible human propensity that you must manage to increase your chances of being a successful trader. During bull markets, the cryptocurrency industry grows at an amazing pace and it is easy to start feeling invincible when a coin goes up 5%, 10%, 15%, 20%, or 50% in a matter of days. If your trading goal is to see coins soaring all the way to a 50% uptrend, nothing stops you from taking your profits off the table when they are at a 30% or 40% uptrend. A 30% gain that you take off the markets is better than a 50% gain that you almost made, then lost.