Who isn’t interested in making a little money off cryptocurrency? You hear about others who have turned a profit, and now you’re ready to find out how to get your piece of the pie. This article will guide you through strategies and tips to help beginner crypto traders to get started.
A friendly reminder: The HedgeTrade blog provides educational content which is not intended to be financial advice. As always in the crypto world, do your own research (DYOR) and verify your information.
Some folks, when they first hear about cryptocurrency, think mining is the way to go for earning money with crypto. But this is only something you would do if you had the technical and electrical resources and knew how to mine Bitcoin and other cryptocurrencies. Sure you can earn that way, but for a lot of us Bitcoin mining is simply not an option. If the rest of us want to make money on cryptocurrency, it is most likely going to be through trading.
You can already see how popular online trading has become with apps like Robinhood bringing in millions of new traders. Add in cryptocurrencies and you have 24/7 markets plus trading compatibility with hundreds of other digital assets and dozens of exchanges and platforms.
While there is the potential to make money through trading cryptocurrency, it isn’t as simple as buying some coins and watching the price climb. Although HODLing a little Bitcoin never hurt anyone. Crypto trading is more complex than that. If you don’t have the proper knowledge and tools before getting started, you can lose money fast.
Trading strategy development
Developing a trading strategy takes time and research. Any person can tell you that they can make you rich with their crypto trading secrets. More than likely, they don’t make money from trading, they make it from selling their trading course or by selling subscriptions to their “can’t lose” trading picks.
For those new to crypto trading, there are certain do’s and don’ts you need to know. That way you can go into your strategy development armed with knowledge. Read on to learn five rules every beginner should follow when they start trading cryptocurrency.
Fear of missing out (FOMO) is a dangerous instinct in the world of crypto. Millions of dollars have been lost by those who have bought in simply because they see so many other people making money on a particular investment.
This usually happens when a coin has been on an insanely strong run for an extended period. As price keeps climbing, you see others making massive profits and then you decide to jump in. But often once the price reaches a peak, it starts to drop. Those late to the party stand to lose a lot of money if they FOMO’d in and bought the top.
Investing in a coin just because it seems like it is on a wild ride to the moon is not a recommended strategy. Once the coin reaches a tipping point, the whales who bought in early start selling and the price will drop. Instead of chasing the coins that seem to be climbing fast, it is usually better to look for something steadier and more reliable. In the words of Vincent Briatore, “Buy red, sell green”. When crypto charts show red candlesticks it signifies a crypto price dropping, which can be a buy signal. Conversely, when you see green, it could be a sell signal.
2-Discern low prices from low value
Low-priced coins can seem very attractive to the new trader. You see a coin that sells for just a few dollars or even pennies each, and you figure it is a good investment to buy a bunch. If the price does shoot up, you could potentially turn a nice profit off a relatively small investment. While this strategy has paid off for some traders, it can also lead to very small profits or big losses.
If you are looking at stocks as an analogy, it would be like buying a bunch of shares in some pink sheet garbage simply because you can buy a lot for a low price. In reality, you would be better off buying fewer shares of an established stock that has a proven track record.
The same is true for cryptocurrencies. You are better off sticking with coins that have a strong history. Instead of looking at the price of a coin alone, consider things like market cap, trading volume, team, and history.
3-Target Your Endgame
You shouldn’t buy coins simply to make transactions. Every trade should have a strategy behind it. A lot of people treat crypto trading like a form of gambling. They just buy coins hoping the price will go up without any clear reason for believing it. For the vast majority of traders, this type of trading will be a recipe for disaster.
When you make a trade, know how it fits in with your strategy and what you are trying to achieve with the coin. Do you see a bright or dismal future for a cryptocurrency in question? Act accordingly. Don’t feel like you need to execute trades every day. Some days, you won’t find any smart plays to make. Rather than forcing it, you are better off just sitting on what you have that day.
Another strategy is to set up price alerts, which is very easy to do on most exchanges. If you know you want to buy some $BTC/USD when the price dips below $30,000, you can set up an alert that will let you know as soon as that price is reached. In some cases, you can set up a buy order as well so it automatically makes the buy for you at the desired price.
4-Diversify (in 3 ways)
Remember the old adage: “Don’t put all your eggs in one basket.” This remains true with crypto assets as well. Diversify your crypto holdings. Even cryptocurrencies that have seemed to perform reliably for months can suddenly take a dip. In the same way that coins can suddenly climb in price, they can also suddenly drop. The best way to protect against this is to diversify.
Instead of investing in one coin, you should have holdings in several, just as you would in a stock portfolio. If one hits a rough patch, either the others can help you absorb some of the losses or they can allow you to hold your position while you wait for it to recover.
There are 2 other less talked about methods of diversifying in the crypto trading realm:
- Always have multiple crypto exchange accounts or crypto trading apps in case one gets hacked. It does happen in this brave new world of digital assets. ***While we’re talking about crypto exchanges, remember to keep only balances of crypto you are currently trading and the rest stored safely in an offline wallet.
- Diversify your bank accounts as well. Laws and regulations are not firmly in place quite yet for crypto and sometimes a bit of FOMO or FUD will creep their way into banking systems. If your bank suddenly freezes your account because someone at the top has devised a wayward policy, you want to have a backup or two to get your bills paid.
At the start of every trade, you should know the prices at which you want to exit the trade. As an example, if you buy a coin at $300 per coin, your analysis might tell you that it is time to sell when it reaches $315 per coin. Know your ideal selling price and sell when you reach it.
The same is also true when it comes to price drops. You should have a price set for selling if the price drops. Using the example of the $300 coin, you might know that it is time to cut your losses when the coin drops to $250. This is where setting a stop loss for your trades can be valuable. That way, you know the trades will be executed at the right price even if you are not constantly monitoring your holdings.
Crypto trading can be complicated and it takes time to develop a strategy. If you are new to the market, make sure you take the time to research your investments. Don’t buy into the hype from people touting quick and easy profits from a coin you never heard of and avoid taking on more risk than you can handle. Eventually it will feel you are part of a crypto lifestyle.
For more on crypto trading strategies, visit the HedgeTrade blog to read, “7 Ways to Build a Trading Psychology for Success”.