Bitcoin (BTC) was launched in January 2009, and it gave rise to the crypto world. With the passage of time, bitcoin and the term ‘cryptocurrency’ became popular. There is a potential for massive profits and massive losses due to the volatility of cryptocurrency.
That’s why it’s a good idea to have some knowledge about the rules of crypto-trading. Some of the rules and regulations associated with crypto-trading are:
Only invest the money that you are willing to lose
Hobby-investors lost a lot of money in the January 2018 crash. It’s common to see investors taking loans to invest in cryptocurrency. Some of them receive massive profits while others suffer a considerable loss followed by debt.
Losses can happen due to regulations, bugs, and hacks and should not be considered to originate from the market dips.
Whether or not you took a loan to invest, it’s important to know that the money you lost in cryptocurrency is lost forever because cryptocurrencies are highly volatile, which means that it’s very probable for your investments to become zero.
Therefore, it’s critical that you should only invest whatever amount you are willing to lose.
Diversify if you want to succeed
According to CoinMarketCap, at the time of writing, there are 880 crypto coins in the market. You may have heard about bitcoin and other altcoins rapid surge in prices in 2007. An altcoin, Verge (XVG), increased 13,000x times. Bitcoin increased by 34x. All these are very tempting for a novice investor to put all his eggs in one basket.
However, doing so will only welcome unnecessary risks. The amount you invest magnifies the amount of money you earn or lose. Therefore, it’s imperative to diversify your investments.
It’s ideal to invest a small amount in bitcoin, to get you started, helping you jump aboard the bandwagon when bitcoin rises and minimise loss when Altcoin value goes down.
Therefore, market experts recommend you should invest in at least 4-5 coins in order to minimise as much risk as possible.
Greed is the Greatest of the Sins
It’s unlikely for you to lose any money while you are reaping profits. It is, however, very likely that as the value of the coin increases, so will your greed.
You may have set very high goals for yourself, like 40% or 50%, but, typically, one should start the growth at a lower level, at around 30%.
If you take profit at a higher point or if you wait too long, then you invite the risk of losing your earnings. It’s very probable for you to lose your initial investments and even your profits if the coin value descends.
Therefore, it’s vital for you to let go of any greed inside you. Scouting for re-entry after taking your profits will ensure that you will continue gaining profits.
Stop-loss is necessary for those interested in day trading as it can help them cut loses. Some of the crypto coins are only good for short-term. Hence, you must be very careful while trading with them.
Stop-loss provides you with the ability to automate a trigger when the coin is sold, which is a good marketing strategy since you end up cutting your losses and want to shift from that coin to Bitcoin or FIAT.
Avoid blind investments
Some brokers and scammers are willing to sell you anything to earn them profits. It’s very common for novice investors to get trapped in hyped coins.
They claim and create hype around a coin which attracts the novice investors into investing their money into it. There are many ICOs and Ponzi schemes that only wants to acquire your money.
That’s why it’s crucial for you to do your research before investing in anything. A little bit of time dedicated to research can go a long way.
Start your trade with bitcoin as your guide
If bitcoin experiences a rapid surge in price, then many of the altcoins are likely to decline. This change in rate is due to the increase in people trying to ride the bitcoin profit boat.
If the opposite happens to bitcoin, even then altcoins can experience a decline as more people dump their coins.
During the Asian financial crisis, the majority of the altcoins were more closely linked to bitcoin than USD to Asian currencies. All of this implies that you should use bitcoin as your guide in cryptocurrency trading.
Be aware of the market size
Market size is, in simple terms, the number of potential buyers of a product or service in a given area.
All of the 1,950 cryptocurrencies, according to CoinMarketCap at the time of writing, must be in competition with each other for user consideration.
For the opportunity to increase, the market size must be higher as well because people believe that cryptocurrencies have value.
Cryptocurrency trading may look simple to some people, but that’s never the case. Understanding the crypto market, technical knowledge about the coin you are planning on investing in, how much volume particular coin was traded for etc. are all highly important in the area of crypto trading. However, following the rules mentioned above are sufficient in giving you a grip on the market.