10 rules that every new crypto trader should follow in order to avoid losing money.
If you're reading this, I'm assuming you're familiar with the basics of cryptocurrencies, such as the fact that crypto is digital or electronic money that isn't backed by a government or bank. You're probably aware that you should store cryptocurrency in a digital wallet, preferably offline on a computer, thumb drive, or mobile device, to protect your account. Furthermore, you should be aware that crypto currencies are very volatile, hazardous, and easy to manipulate.
Let's talk about security if you still want to trade crypto. To begin, create an account with a reputable trading platform such as Coinbase or Robinhood. Yes, there are other platforms available, but you must begin someplace. Until you can sort the excellent from the bad, these two well-known, dependable companies will do the job.
By the way, stay away from any fancy online brokerage firms or cryptocurrency exchanges you've never heard of. Many of them are scam sites designed to take advantage of your inexperience. Please do your homework and never give your money to a company you don't know. Here's a thought: Before transferring your funds, call or email the brokerage to determine its degree of service. Better still, find out if the company exists at all.
Second, despite the fact that there are thousands of cryptocurrencies (some real, some false), stick with the world's most popular and liquid crypto: bitcoin BTCUSD, 4.84 percent. Feel free to trade other cryptos once you've gained more experience (after bitcoin, Ethereum ETHEUR, 6.29 percent is the second-largest).
Let's talk about trading now. “Can I earn money trading crypto?” is the first question most newcomers have. Yes, but it takes expertise, discipline, and diligence to do so. Cryptocurrency is still in its infancy, and it may take decades before it is acknowledged and backed by a government or institution (if ever). Buyer cautious until then.
The worst thing is that the crypto universe is rife with dark money, manipulators, and pump-and-dump operators who mislead you on social media, try to persuade you to buy their phoney currencies, or try to persuade you to join their phoney crypto exchanges. Crypto is currently pure speculation, but if you do your homework, you should be able to avoid scams.
Now that you're aware of some of the dangers, here are the top ten rules that every new crypto trader should remember and follow:
1. Scale into a trade rather than plunking down large sums of money: If you're new to cryptocurrency trading, it's a bad idea to invest significant sums of money in bitcoin (or other cryptocurrencies) all at once. Because crypto is so volatile, instead of buying $1,000 in bitcoin, start with $200 and add another $200 if it moves in the proper direction (up). Continue to add until your position is fully funded.
2. Buy and sell at extremes: When trading a volatile financial instrument like cryptocurrency, you must take profits on a regular basis. If your gains are excessive, sell half or all of them, but don't leave anything on the table. When trading crypto, resist the impulse to be greedy (i.e. "Fear of Missing Out," or "FOMO"), otherwise you risk losing most or all of your money.
3. Trade small: Aim for tiny increases at initially. Sure, some people have won millions of dollars trading bitcoin, but many more have lost all or a large portion of their money, just like lottery winners.
4. Never buy on margin: When you buy on margin, you borrow money from your brokerage to augment your buying power. This is how leverage works, and it's a two-edged sword. If you're correct, you can make a lot of money. If you make a mistake, you could end up owing more money than you put in. Wise traders manage risk, which means they don't borrow money to buy cryptocurrency. (Once you get your first margin call, you'll understand what I'm talking about.)
5. Use mental stop-losses: It's usually a good idea to have stop losses, but because cryptos move so quickly, "hard" stop losses are sometimes unsuccessful (which is why many platforms won't let you use them for cryptos). Instead, employ "mental" pauses and the discipline to adhere to them. A "time stop," or telling yourself you'll sell the position by a specified date, such as Friday, is another option. This is a good approach to force oneself to keep winners and get rid of losers.
6. Don't hold losing trades: If a trade is going against you, sell all or half of it - don't allow little losers evolve into massive losers. True, people who sold bitcoin for $20,000 were taken aback when it soared to $60,000. Rule No. 7 will show you how to deal with it.
7. Have a trading strategy: It's critical to have a trading strategy, especially when it comes to cryptos. Have a strategy in place to help you determine whether or not to buy or sell. Stick to the plan and follow the regulations.
8. Use technical analysis: Technical analysis can help you determine when it is best to enter or quit a trade. Moving averages and the RSI are the ideal indicators for novices (Relative Strength Indicator). They're simple to understand and send out clear signals.
On the daily chart, bitcoin was trading considerably below its 20-, 50-, 100-, and 200-day moving averages as of June 30, 2021. (To get out of the cellar, Bitcoin must rally to its 200-day MA of $43,794.) Bitcoin is remains slightly above its 50-day moving average on the weekly chart, despite stabilising.
On the weekly chart, the RSI for bitcoin is 44.72. Despite being oversold, it is not yet reached excessive levels. It's severely oversold at 30 or lower, but don't use the RSI to determine when to enter.
9. Diversify: Don't deposit all of your money in one financial instrument. Purchase cryptocurrency, but diversify your portfolio with non-crypto investments. If that isn't an option, start with tiny purchases until you get more experience and information.
10. Practice with a simulated account before buying: If a simulated or paper money account is available, practise with it before trading with real money. Follow Rule No. 3 if you don't have access to a test account.