For many people, the excitement of cryptocurrency trading has turned into frustration as they’ve lost money trying to get started in the market, or have found themselves consistently on the losing end of trades with no clear strategy to turn things around. Don’t let this happen to you! Here are 10 proven strategies that will help you avoid losing in cryptocurrency trading, no matter what market cycle you encounter.
10 Proven Strategies to Avoid Losing in Cryptocurrency Trading
1) Know the basics
A good way to start is by first familiarizing yourself with cryptocurrency trading. Simply put, trading cryptocurrencies involves buying and selling different types of digital coins in hopes of turning a profit on your investment. As with any other type of investing, there are plenty of strategies that can help you get started—and while there’s no guaranteed way to make money from these types of investments, there are ways you can try and avoid losing your money (and sanity).
The first step is understanding how cryptocurrency trading works: It helps to think about it like purchasing a stock, but instead of investing in one company’s stock value, you’re betting on more than 1,000 companies that accept Bitcoin as payment.
2) Understand market caps
The first thing a cryptocurrency trader needs to understand is what market capitalization is. Simply put, it’s just a fancy word for the total value of coins in circulation. Market cap is important because one coin may be worth $500 while another could be worth $5,000.
If you don’t have an idea of what your potential upside or downside could be based on market fluctuations, then trading cryptocurrencies will likely seem like gambling (and vice versa). Know how much your cryptocurrency investment is worth and use that figure as a benchmark when making trades.
3) Watch out for FOMO
It’s important to remember that cryptocurrency is highly volatile and that you should never invest more than you can afford to lose. If you want to try your hand at cryptocurrency trading, start small. Never buy into something you don’t understand or that seems too good to be true—remember, your capital is at risk.
The right way is through a well-thought-out investment plan based on proven market data and clear goals. Don’t fall for FOMO or puffy white papers with promises of 10x returns; do your research first and foremost. Do not let your emotions make decisions for you; always think rationally. Remember, if it sounds too good (or bad) to be true, it probably is.
4) Do your research before investing
Do your research! Most people who lose money (or don’t make money) investing in cryptocurrencies do so because they don’t understand what they are investing in or how it works. Before you invest, you should get a sense of how long you want to be invested for, what kind of return you are looking for and how much risk you can afford.
If possible, diversify across multiple assets—otherwise known as don’t put all your eggs in one basket. It is also important that investors shouldn’t treat digital currencies as investments at all—they are highly speculative with high risk, and their value is not tied to anything other than market demand.
5) Do your homework after investing
After investing your money into a particular cryptocurrency, you might be tempted to just sit back and see how it turns out. The problem with that strategy is that sometimes you’ll find yourself sitting on a useless investment. For example, over $1 billion worth of ripple was recently just locked up by one address.
Now there are hundreds of millions of dollars worth of XRP trapped in an account no one can access because they don’t have permission from all private key holders. If only someone had taken time, in the beginning, to research how ripple works…do your homework after investing!
6) Take calculated risks
With a highly volatile asset like cryptocurrency, it’s important not to get emotional or greedy. Don’t let greed lead you into taking risks you know nothing about, and don’t base your decision on price alone. Before buying into any cryptocurrency, it’s crucial that you research its past performance and current events surrounding its use case.
Make sure you also have a plan for when (not if) things go wrong and how you can best minimize your losses. In short: don’t gamble; invest smartly.
Make sure you have a strategy for when your investments go south and risk-reward ratios are no longer favorable. Ask yourself: how much can I afford to lose, and at what point do I cut my losses? Plan out your trade so that you know when you’ll sell if things don’t go as planned. Before entering any trade, ask yourself: what is my maximum loss? What will I do if it occurs?
7) Buy low, sell high
One of the most important strategies for successful cryptocurrency trading is to buy low and sell high. Sounds simple, right? But it’s easier said than done. It requires a lot of market research and planning before you start your trade. It helps if you have an idea of where prices are going and how fast they will get there.
Aside from monitoring cryptocurrency news, one good way to get a glimpse of what’s coming is by looking at technical analysis or TA graphs. This strategy involves studying price trends over a long period, as well as trying to predict future price movements based on historical data.
For beginners, there are a couple of technical indicators that can help you identify when prices are trending up or down: Moving averages, resistance and support levels, RSI, and MACD. Some of these indicators might look complicated at first glance, but they’re really easy to understand. Keep reading for more information on each one of them.
Bid on coins with long-term potential: Perhaps even more important than buying low is buying high.
8) Be realistic with your goals and expectations
Understand that trading has inherent risks and may not be a suitable strategy for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange or any other financial instrument or cryptocurrencies you should carefully consider your investment objectives, level of experience, and risk appetite.
Do not invest money that you cannot afford to lose. You should be aware of all possible risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Many factors can affect currency prices; any analysis provided here is indicative only. Past performance is not indicative of future results.
9) Always pay attention to your investments
Even if you have a rock-solid strategy for investing in cryptocurrency, you’ll lose money if you don’t watch your investments. Always pay attention to your investments. You should know how much is being invested and at what price, at all times.
It might sound trivial, but ensuring that you are constantly watching makes it far less likely that market fluctuation will catch you off guard and cost you money. One good strategy is to schedule notifications via email or SMS so that they go out every hour – giving you a notification every time there is activity on any of your cryptocurrency holdings.
In addition, you should always be aware of how your investments are doing. Rather than checking them at random intervals or just once a day, it’s better to set reminders that go off every hour or so. This way, no matter what you’re doing, you’ll never lose track of how your investments are performing.
Also Read: What You Need to Know to Start a Cryptocurrency Trading Business
10) Contribute to social media forums
Social media can be a great place to engage people with your content and make new connections. Set up social media accounts on sites such as LinkedIn, Facebook, Twitter, Google+, and others where your target audience is likely to be active. It’s also a good idea to set up accounts on forums that cater to your industry or niche.
You can ask questions related to your post here or here. Follow other high-profile users who post frequently on these forums and engage them by liking or commenting on their posts.
Asking questions is a great way to get involved with these communities and build rapport with your potential customers. You can start simply by asking, How do you use product x? Don’t forget that responding to other users on social media forums or groups is also a great way of getting people engaged.