Trading stocks and cryptocurrencies is difficult, but here are some pointers to help you get started.
It doesn't matter how skilled a trader you are; there is nothing that can shield you from the volatility of cryptocurrency prices. Bitcoin's (BTC) volatility, which is a common measure of daily changes, is currently at 64% annualised. In comparison, the S&P 500 has a volatility statistic of 17 percent, while WTI crude oil has a volatility spec of 54 percent.
However, by following five simple guidelines, you can prevent the psychological consequences of an unexpected 25% instantaneous price movement. Fortunately, holding these strategies through periods of extreme volatility does not necessitate specialized technologies or big sums of money.
Make a plan to not withdraw money for at least two years.
Let's say you have $5,000 to invest, but you'll almost certainly need at least $2,000 of it during the next 12 months for travel, automobile maintenance, or some other purpose.
The worst thing you can do is make a 100 percent crypto allocation since you might need to sell your investment at the worst possible time, such as at the bottom of a cycle. Even if the proceeds are intended for use in decentralised finance (DeFi) pools, the danger of impairment losses or hacks that threaten access to the money exists.
In a nutshell, any assets dedicated to cryptocurrencies should have a vesting time of two years.
The dollar cost average is always used.
Fear of missing out (FOMO) can engulf even skilled traders, leading to a rush to create a position as rapidly as feasible. But how can you just sit back and watch when everyone is making 50 percent or more returns on a consistent basis, including meme coins?
The DCA approach entails buying the same dollar amount every week or month, regardless of market movements; for example, buying $200 every Monday afternoon for a year eliminates the stress and worry associated with deciding whether or not to add a stake.
At all costs, avoid purchasing all of the positions in less than three or four weeks. Keep in mind that cryptocurrency use is still in its infancy.
Don’t use too many indicators when conducting analysis
There are countless technical indicators, including the moving average, Fibonacci retracement levels, Bollinger Bands, the directional movement index, the Ichimoku Cloud, the parabolic SAR, the relative strength index and more. If you consider that each one has multiple setups, there are endless possibilities for tracking these indicators.
The best traders are experienced enough to know that reading the market correctly is more important than picking the best indicator. Some prefer to track correlations to traditional markets, while others focus exclusively on crypto price charts. There’s no right and wrong here, except for trying to track five different indicators simultaneously.
Markets are dynamic, and in crypto, that is especially true considering how fast things change.
Recognize when it's time to take a step back.
You will eventually misread the market when looking for bottoms or cryptocurrency seasons. Every trader makes mistakes from time to time, and there's no need to compensate by increasing the bet size quickly to make up for the losses. This is the polar opposite of what one should be doing.
When you have a "bad break," take a break for a few days. The psychological toll of losses is significant, and it will impair your ability to think properly. Allow that one to pass even if a clear opportunity presents itself. Aside from trading, go for a walk or try to manage your life.
The most successful traders aren't necessarily the most gifted, but rather the ones who have survived the longest.
Continue to put money into winners.
This may be the most difficult lesson to learn because investors have a natural desire to profit from our winning positions. As previously said, crypto market volatility is highly high, thus aiming for a 30% gain will not be enough to compensate for your prior (or future) losses.
Traders should buy more winners instead of selling losers. Of course, market data and overall sentiment should not be ignored, but if your expectations remain strong, try adding to your position until the entire market shows signs of weakness.
By being brave and holding on to the most profitable positions, one can finally make a 300 percent or 500 percent profit.
Every rule is intended to be disobeyed.
If there was a path to bitcoin trading success, many people would have discovered it after many years, and the profits would have faded rapidly. That is why, every now and then, you should be willing to break your own rules.
Do not blindly trust investment advice from influential people or skilled money managers. Everyone's risk appetite and capacity to add positions following a setback are different. But, more importantly, remember to look for yourself while you're out there!