Cryptocurrency trading for beginners: 5 tips
Cryptocurrency trading walks after the same rules as Forex trading. Yes, cryptocurrency market is usually more volatile, but still there are some rules to consider. Here are these rules, which make cryptocurrency trading for beginners easier and more efficient.
1. Always trade within a trend, and not against it
If you notice a certain trend on the cryptocurrency market, do not place orders that contradict general trend.
A simple example: if the trend is downward, it is better not to place purchase orders. The best option is to sell the asset when the rate is getting to the upper limit of the trend. But if you still want to buy, you can choose a risky strategy: put an order when the exchange rate approaches the lower limit of the trend and close it when the price reaches at least the middle.
With an uptrend, the situation is reversed: do not place a sell order. It is better to buy the currency when the price reaches the lower limit of the trend.
But trends “break through” eventually. And this brings us to the next tip.
2. Always follow financial news
A competent trader always combines technical and fundamental analysis. And so far, fundamental analysis has a greater impact on cryptocurrency trading. That is why it is important to follow the news that affects cryptocurrency rate. Japan making bitcoin official currency is a good example. The cryptocurrency rates skyrocketed following this news. And if a country, for example, China, bans ICO, calling it a “bubble”, it is a bright signal that the cryptocurrency rate will soon go down.
Use popular financial websites to be aware of every important event and be able to timely react.
Here are some of the popular sources:
3. ALWAYS place stop-loss
Stop-loss is an automatic order placed to sell cryptocurrency when it reaches a certain price. The trader should define it when placing any order: both for purchase and for sale. If you ignore this rule, you can soon lose your deposit.
Say you have placed an order for bitcoin purchase at a price of $20 thousand and wait until its rate goes up. But you do not have time to check open positions. You missed a few hours, and the exchange rate went down dramatically, your position sank, and the deposit was not enough to cover losses. You return to the trading terminal and see “0” on your account. Cryptocurrency trading is over.
You need a stop-loss to avoid such a situation. It closes the deal automatically when it reaches your critical level. Stop-loss can be either fixed (at a certain point) or floating (for example, 50 points below the current rate). Check Wikipedia to find out more about stop-loss types.
4. Place orders based on your own forecast
Newcomers often place orders without thinking about the current state of the market. It's much like thinking that “cryptocurrency is popular now, so the rate will always grow, so I have to buy it”. But such an approach is wrong. And even if it happened that your order has become profitable, it is nothing more than a piece of luck.
Consider every order as a chance to learn something new. Do not start cryptocurrency trading unprepared. Consider the current state of the cryptocurrency market, read the latest news, as well as analyze the technical trends on the cryptocurrency pair you are interested in.
It should look like this: you conduct a full analysis of the market and predict that the currency will go up in the near future, according to trends and news. You place an order, place a stop-loss, and monitor the rate's behavior. If you were right, close the position with a profit. If everything went wrong, close the unprofitable position and analyze the reason. Cryptocurrency trading for beginners is always a chance to learn something new.
5. Always close unprofitable positions on time
If you trade within a day, track all positions and do not place stop-loss, you should know: supporting loss-making positions for a long time is a wrong strategy. Experienced traders will always tell the newcomer that a small loss is better than losing the entire deposit. Determine in advance the amount that you can lose, and do not hold the position sinking below this mark.
These are just a few tips to help make cryptocurrency trading for beginners easier and more efficient. Even experienced traders cannot foresee everything, so do not despair if you make mistakes. Moreover, you will make mistakes for sure, but it is important to be able to learn from them.