There is no doubt that cryptocurrency trading can be extremely rewarding and profitable; we have all heard about Bitcoin traders who tripled their fortunes overnight. But, you should also be aware that you can lose a lot of money if you take unjustified risks. Even if you are not taking extra risks, the cryptocurrency market is highly volatile and unpredictable, which means there is always the possibility of making a loss. If you want to keep your risks at a minimum and practice safe cryptocurrency trading, here are some strategies that can come in handy:
- Never invest more than you can afford to lose
This is one rule you will come across no matter what asset you decide to trade. It is never a good idea to invest more money than you can afford to lose. As mentioned above, crypto markets are known for their volatility and there are huge fluctuations in currency prices all the time. Even if the coin’s price doesn’t end up at 0, it is quite possible for their value to drop two to three times in a day or two. It is entirely possible that the price goes up again in a week, but you cannot bet your hard earned money on this. If you don’t want to mess with your peace of mind, you shouldn’t invest more than what you can afford to lose, at least not when you are just starting crypto trading.
- Learn to diversify
If you are only trading just one or two cryptocurrencies, you can lose a significant sum of money when the price of these coins drop. Sure, you can gain a lot if these coins increase. The best way to stay safe is to invest your money in several cryptocurrencies, not just one or two. While there is no ideal number of coins to trade, it is best to invest in at least five or ten. In this way, even if a coin or two falls, you will still have a higher total because the others will be doing decently.
- Don’t just stick to one broker
Just like you invest in multiple cryptocurrencies for spreading the risk, you shouldn’t just sign up with one cryptocurrency broker. Again, there is no ideal number of brokers to use, but it is best to divide your assets over at least three brokers with at least three to five cryptocurrencies on each. This will lead to great diversification. Moreover, this way you also minimize the risk of losing all your investment in case a cryptocurrency broker goes bankrupt or gets hacked.
- Avoid getting into risky trades
Greed can be a very important motivator for many in the cryptocurrency market. It is a given that when you see a particular cryptocurrency doing well in the market over the past day, week or month, you would definitely want to bet on it. However, this behavior is very risky and the least rational. If there are drastic spikes or huge variations in the price of a cryptocurrency, it could be due to a pump or dump attack on this cryptocurrency or purely a coincidence. Therefore, it is highly likely for the price of the crypto to plummet in the coming days or even hours, which will wipe out your investment. It is best to avoid risky trades no matter how lucrative they might appear to be. Instead, look for coins that have a more even trend. Sure, this may not give you very high profits, but your losses won’t be very high either.
- Minimize losses by dumping losers quickly
It is not possible to predict the market, even for the most experienced and best traders and so they also end up with crypto coins they don’t really want. If you have made this mistake, you should just hold onto these coins and wait for the price to go up. In most cases, you don’t have to deal with a long wait as the trend will usually reverse in a couple of days or weeks and the price will be right to sell. Nonetheless, there are situations where the plunge may continue for a long while. This means that not only do you lose money on this trade, but your remaining money is also locked and cannot be used elsewhere. If this happens, it is better for you to sell the crypto coins at a loss so that your money is freed up. You have to rely on your gut feeling and not hold on for too long because it could lead to further losses.
- Don’t lose your sanity
It is never a good idea to let crypto trading take over your entire life. You shouldn’t lose your sanity or sleep over it, which means not to spend fourteen hours of the day in front of your computer. Even if you rake in huge profits as a crypto trader, it is not worth your social life or health. Therefore, you should know when to draw the line and not let it drive you crazy.
- Find trusted people to follow
Cryptocurrency is still a relatively new trend and there is a lot still being discovered about this commodity. In order to make the most profits, you need to understand it properly, but there are not enough reliable and accurate resources that you will find. Furthermore, keeping track of the market can also be quite difficult. In this situation, it is best to find out about crypto market leaders, those who have been in the market from the beginning and keep up with the latest changes and trends. You can follow them on different social media networks and learn from the tips they provide or the discussions they do. This will provide you with a lot of information that can come in handy in the long run.
These are some of the top strategies that every trader can use for trading cryptocurrencies safely and keeping their losses as low as possible while maximizing returns.