For decades, people have been trading in traditional financial markets and buying and selling instruments, such as stocks, commodities, bonds, and forex for making profits. However, in recent times, cryptocurrency trading has become the new playing field for these people, especially where day traders are concerned. The volatility and momentum of the cryptocurrency market is very appealing to short-term traders because it has the potential of delivering massive gains in the short run. The fast and furious rallies that are often seen in the crypto market are extremely enticing. Nonetheless, the market also has sharp trend reversals that can make trading a tad difficult.
Therefore, it is a must for every crypto trader to have a proper trading plan in order to prevent hasty, impulsive decisions that can lead to substantial financial losses. Listed below are some tips that can help you master cryptocurrency trading in the best possible way:
Focus on liquid currencies
Over the years, thousands of cryptocurrencies have been introduced and are available on exchanges, but this doesn’t mean that all of them are worth trading because of a lack of liquidity. Short-term traders are only able to enter and exit a position easily due to liquidity. The agility of these traders will be affected due to the lack of liquidity in some cryptocurrencies. This can make it challenging for them to enter and exit a large position. In addition, the lack of liquidity can also increase the overall cost of trading due to its effect on the impact cost. Hence, traders should opt for cryptocurrencies that have a sufficient volume of trading.
Understand trading is not gambling
The uncertainty of the outcome is the only similarity that exists between gambling and trading. In both playing fields, you have to make a bet and then wait for the outcome. However, risk management is the difference between a trader and a gambler. This means that purchasing digital currencies without assessing the risk is no less than gambling. As cryptocurrencies have become an epitome of volatility, the uncertainty increases ten times as opposed to other instruments. Thus, it is even more important for crypto traders to have a robust risk management strategy in place. Using stop-loss orders is recommended, along with risking the amount you are comfortable with.
Purchase the strength and sell the weakness
As opposed to other financial assets, digital currencies don’t have any intrinsic value. Therefore, there is no such thing as the low, or high price of a cryptocurrency. In such situations, traders should make it a priority to sell a downtrend and purchase an uptrend, as long as they have a strong risk management strategy in place. But, this doesn’t mean that you forget that cryptocurrencies also have an uncanny ability to stay in oversold/overbought zones for a long period of time. Hence, you should be cautious when executing mean reversion trades during crypto trading.
Do your due diligence for lower-priced cryptocurrencies
The popularity of lower-priced cryptocurrencies appears to be rising immensely amongst traders in the crypto market. When such cryptocurrencies go up, the sheer gains in terms of percentage are in the limelight. Due to these attractive gains, many traders are drawn in and this drives them to buy these cryptocurrencies in high quantities without doing proper research. It is vital for traders to remember that the cheapest crypto is not automatically the best choice. You need to do proper due diligence before you invest in such cryptocurrencies.
Keep emotions in control
Primary emotions like greed and fear can often turn the results upside down, even if you have a good trading strategy. These emotions tend to escalate when there are large swings in the profits and loss account of a trader, which is quite common in the crypto market due to its erratic movements. Subsequently, it is imperative for traders to work on trading psychology while keeping their fear and greed in check.