The digital assets have become extremely popular in the last few years as the market has grown immensely, becoming more accessible to anyone who wants to invest. Currently, according to 2019 data from Statista, there are over 328.000 Bitcoin transactions globally each day. So, given the potential of the market to bring you huge returns, here are 5 tips to help you become a better cryptocurrency trader:
Don’t invest more than you can lose
As with any other type of investment, crypto trading involves risks. Let’s take, for example, the January 2018 crash which made many investors experience a lot of losses. The reports after the event on the frustration and losses of traders showed some huge costs of broken monitors, smashed laptop screens, and, obviously, heavy financial losses.
So, you must have figured out by now that the most important rule in crypto trading and any other type of investment is to make sure that you don’t invest more than you can lose. Consider the fact that once your money is converted into cryptocurrency, there is no guarantee that you can earn it back. So, heavy monetary losses can lead to a huge series of unfortunate events including investing more money that you can’t afford to lose, making irrational investment decisions, and creating an even bigger hole in your bank account.
The trick with being a responsible and rational crypto trader is to always evaluate your financial situation before trading. It will save you from acting out of desperation by worsening your situation by applying for loans or using all your savings.
Diversify your investments
There’s a famous quote of Warren Buffet saying that you should never” put all your eggs in one basket” which is highly applicable in the cryptocurrency market too. Simply put, this saying means that you shouldn’t put all your trust in only one idea or plan.
And, let us explain how this works in crypto trading: You might think that the more you invest into one coin, the bigger the potential to earn more, right? Well, although this is somehow true, you also need to know that the risks are higher too. In order to understand how investing in only one coin increases risks is to look at the market as a whole. You must understand that the chances for the market cap to increase being driven only by one coin are much lower than the increase to be driven by many different coins.
So, if you want to minimize risks and secure your earnings by the overall growth of the cryptocurrencies is to invest in multiple coins. The good news is that there are many brokers who allow you to trade different cryptocurrency assets (including Bitcoin) meaning that you can diversify your investment portfolio to minimize the risk of losing an important amount of money.
Invest with your mind
It should go without saying that when there is your money at risk, you must always think twice before investing. However, the cryptocurrency trading market can be more deceiving than you would ever imagine which might fool you into investing with your instinct based on promises rather than your mind.
There are people in this world who wouldn’t shy away from selling a blind person a pair of glasses if that would bring them profit. And, unfortunately, the same type of people is also playing in the cryptocurrency market. And, spoiler alert: their main target is the less-informed investors whom they can easily fool. They might be recommending you what and when to buy a certain coin but their underlying reason isn’t to help you but to see an increase in the prices so they can exit a trade.
So, even if the information comes from the best investor you know, keep in mind that it is only a promise but never a certainty. Good investors who increase their chances of earning huge profits are those who do their own research before making any trading decision.
Don’t be scared of missing out
If you don’t want to fail in the art of trading, you must stay away from any type of manipulation that will make you experience the fear of missing out. It takes only a few fake announcements and a media hype to raise fear of missing out in traders. Take, for example, the Bitcoin’s value rise and fall which experienced a huge rise from $10.000 to $20.000 in December 2017. However, it has since fallen down to $9.000 and now it is somewhere near $11.000. It may be tricky for traders to think that if they would have waited one more month, they could have bought it for $9.000 instead of a value of $20.000.
However, make no mistake, in the cryptocurrency market, if a coin pumps really quickly, it will also correct sooner than anyone would imagine. It is important that it is only a matter of time until their values correct in a way that will be advantageous for you.
Don’t buy because it’s cheap
This one is actually one of the most common mistakes among beginners which often leads to losses. Buying a coin just because its price seems low and affordable won’t necessarily bring you profit. one crucial thing that novice investors must learn is the fact that investing in a coin has nothing or very little to do with how cheap it is. It is more about its market cap.
Take, for example, the conventional stocks that are estimated by their market caps using a formula that takes into consideration both its current market price and the total number of outstanding shares. Why is this formula important for crypto traders? Because the exact same formula is applied to cryptocurrencies as well.
It simply makes no difference to buy a coin which’s price is $10 per coin that has 1 million shares or to have a 100$ priced coin with 100.000 shares in the market. that is why expert traders explain that it is more justifiable to consider the coin’s market cap in order to decide if it is worth to invest in or not. Simply put, the higher market cap a coin has, the worthiest it is to invest in it.
Crypto trading fosters an environment that is set to bring you profits. All that matters is that you learn how to do it right to increase your chances of earnings and minimize risks.