Are you one of those people that invested their money in crypto just because someone you know made a huge profit? Are you still a newbie in the crypto field and clueless about basic principles that are essential for your success in it?
Or maybe you’re struggling with keeping your portfolio in green? If reading any of the just outlined questions made you nod your head, this blog is exactly what you need! The article will outline six crucial steps you need to follow in order to not just survive, but thrive in crypto markets. Let’s dive right into it!
Avoid FOMO at all costs
The most common mistake crypto novices tend to make when they enter a crypto world is buying the first coin that has been outperforming the market lately, based solely on the bullish uptrend the price has been in lately. Unfortunately past performance does not guarantee future success.
What is more, sharp upwards price movements can make investing even more risky. If there was no change in the project's fundamentals, it’s very likely for prices to revert to the mean.
Of course, in case your research suggests that the change in price reflects the change in fundamental value, hopping on a train when the bulls are in charge isn’t a bad idea. ‘The Trend is Your Friend’ is a famous saying in the trading world that suggests it’s more probable an existing trend continues in comparison to a change, so enter your position in case there are underlying aspects that back the decision. Just make sure your emotions never get the best of you!
Always Do Your Own Research (DYOR)
Shilling is unfortunately a common practice in the cryptocurrency world. In case you’re unfamiliar with the term, it refers to the practice where people tend to advertise the coins that they own in hopes of positively affecting the price or simply because they were paid to do so. Quite often, it can be difficult to distinguish the difference between a shill or an unbiased post, therefore it is advised to make the decision on your own before putting your hard earned money at stake.
When coming up with a decision on whether to invest in a particular project or not, make sure you are getting information not only from a reputable source, but also always try to confirm it with multiple media channels.
Have a Strategy
Not knowing where the mistake was made is a common thing when it comes to new traders. In order to avoid making the same mistakes over and over again it’s essential to have a trading strategy. It is a systematic approach to entering and exiting trading positions, which is based on predefined rules and criteria that guide your trading decisions.
These rules should reflect your goals and other investment considerations such as technical indicators you’ll use, fundamental factors, level of portfolio diversification, time horizon, minimum market cap, etc. Trading strategies basically use quantifiable information that can be backtested to determine possibilities based on past results.
Cryptocurrency trading is a high-risk business and the majority of traders end up losing money. Always use historical data to your advantage and don’t be afraid to adapt your strategy based on changes in the market.
This tip goes hand in hand with having strict trading rules. New traders often think that a stop loss is not just an optional order type. The reality is that using stop-loss and take-profit is essential for success on your crypto journey. Professional traders use a stop loss in every trade and it is usually determined by their trading strategy.
If you strive for professional results, you should try to follow the same principles, which means doing the same for yourself. Whenever entering a trade, make sure you set a stop-loss, as well as take-profit point. Once you enter a position, don’t track how it is turning out. Never adapt your pre-planned trade rules based on emotional responses.
Don’t put all your eggs in one basket
It’s crucial to diversify your portfolio in order to minimise risk. Just imagine what would happen if you invested all your money in a single coin. Everything would be great as long as it was trending upwards. But what would happen if the coin suddenly took a U-turn? You would lose a great portion of your entire investment in a single blow.
In order to make sure it doesn’t happen, one decent strategy is to keep around 40% of your portfolio in top coins (based on the market cap), around 30% in medium risk coins (also based on the market cap), 10% in risky low-cap gems and additional 20% in stablecoins so you’re ready to buy the dip once your favourite digital asset gets on sale.
Don’t force trades in order to earn back lost money
Whether it is making the mistake of FOMO, not doing proper analysis, or simply not following a trading plan, nearly every trader will face a big loss (or several) throughout their trading career. Bouncing back after a big loss shouldn’t be too complex, as it can be done with a few simple steps. What is difficult is repairing the mental damage done, especially the damage to confidence.
Trading in fear is just as blinding as doing it in overconfidence. You should always treat trading as business, limiting emotions and executing accordingly to a plan.
Always accept responsibility for how things turned out. There is always something that can be done and fixing the particular issue that caused the loss is the first step you have to take. In case you burned yourself because you didn’t follow a trading plan, ensure you do so in the future. If you didn’t break any of your trading rules, you may adapt your trading plan.
After a losing streak (or a big loss) start small. Don't jump right back to the same position size you were trading with before, or even worse, increasing it. It is a recipe for disaster. With trading, slow and steady wins the race.