If you are starting to notice cryptocurrency, you must be aware of the high rate of returns it has blessed investors with. From 10 to 1,000% returns (or even more), crypto has made it a reality! Looking back at the history of cryptocurrencies, the crypto market has a history of volatility. It always bounces back after every crash. However, the saddest possible thing would be to watch the cryptocurrency value increase once more and regret not investing when you had the chance.
But trading in cryptocurrencies needs to be done cautiously. And if you, as a newbie investor, want to enjoy the amazing returns, there are certain things that you should keep in mind. Here are some tips that you could look into before hopping on the crypto trading train.
Learn about the price history of a cryptocurrency before investing
Cryptocurrencies are never stable, and their prices depend on several factors. Speculation, buzz, pump-and-dump methods, and an absence of any legislative control are all such things that affect their pricing. Thus, the pricing history of a virtual currency can tell you a lot about its market position.
In general, lower-priced currencies with relatively smaller capitalizations are more vulnerable to pump and dump operations. Simply put, pump and dump refer to the fact that a group of traders hype up the currency’s price while they’d have invested in low prices, and as soon as new investors come in at high prices, they’d dump their cryptocurrencies. This means that they’d be making a lot of money, while the new investors will suffer huge losses. Traders who can identify this risk can avoid suffering excessive losses.
Gain accurate knowledge of the underlying volatile market condition
The trade market for cryptocurrency has been unpredictable since its debut. But during the past few years, the market value of altcoins has been exceptionally tumultuous for thousands of traders worldwide. Several people have earned millions during the rise of an altcoin, and others have suffered huge losses during bad times and collapsing bubbles.
You must be flexible in your decision-making and consider what is appropriate for the present amount you are willing to invest. And compared to any other asset, be sure that you’re okay with losing the amount too. Even expert crypto traders and owners have struggled to comprehend the patterns of cryptocurrency. So, do not be surprised if you find yourself in the same situation.
If your grasp on what is going on in the crypto trading market is weak, you should consider hiring a trading consultant or not trade at all.
Do not invest simply because the price is low
Most newcomers fall into the same trap: they acquire a currency because the price appears to be cheap.
The choice to invest in a cryptocurrency should be influenced by its market valuation and utility rather than its pricing. Cryptocurrencies, like traditional equities, are measured by their market valuation, which is calculated using the formula:
Present trade market value x Total number of outstanding tokens
It is more rational to consider a cryptocurrency’s market valuation rather than its current rate before considering making any trading in it. The greater the market valuation of a cryptocurrency, the more appropriate it is for trading.
Profit targets and stop-loss
A stop-loss option is an upfront decision to liquidate an investment when it hits a specific price limit. Traders utilize stop-loss to minimize an investment’s loss or gain. Each transaction you enter demands that you know when to exit, whether you are generating profit or not. Setting a precise stop-loss target may assist you in limiting your financial loss, which is a talent that most investors lack.
Setting a stop loss should not be done haphazardly. And try not to be carried away by your emotions at any point. The most sensible target to set your stop-loss is the amount you initially invested. This ensures that if the market suddenly downturns, you will leave with just the amount you spent. The same is true for profit targets; if you plan to stop trading after making a particular minimal profit, keep to it.
Diversify: Invest in different altcoins
Trading is volatile. You never know what might happen to a particular trade. Cryptocurrency exchanges are significantly more volatile.
You may make millions of dollars in a day or less, but the reverse is also possible. As a result, diversity is the most excellent method to overcome such uncertainty.
Although Bitcoin (BTC) and Ethereum (ETH) are the cryptocurrencies most dominant currencies and it’s advised that you keep a significant amount of your assets in both these virtual currencies. But these two are simply two pieces of the puzzle. Avoid investing all in one place since you may end up losing more than you achieve. Do your homework and find out which currencies are doing well before making your investment.
This strategy also helps you in hedging your bets. While the price of Bitcoin is falling, it does affect many other cryptocurrencies too. But sometimes, a few currencies can stand out and continue to offer profits.
Conclusion
It might take longer to get a grasp of the field of cryptocurrency fully. So do not expect yourself to become a crypto master on the first day. It requires time and dedication to understand cryptocurrencies properly. If you abide by the five tips mentioned in this article, you might end up making a substantial profit. You need to consider several other factors before investing; most importantly, remember: buy into value, not hype.