Updated: Jan 26
Trading stocks and cryptocurrencies can be tricky, but here are some tips to get you started. No matter how experienced you are in trading, nothing can be done to protect a person from the power of cryptocurrency price fluctuations. Currently, the volatility of Bitcoin (BTC), the standard measure of daily fluctuations, is 64% annualized. For comparison, the same metric for the S&P 500 is 17%, while the volatility specification for WTI crude is 54%. However, it is possible to avoid the psychological effects of an unexpected 25% fluctuation in the intraday price by following five basic rules.
Luckily, these tactics don't require advanced tools or large sums of money to sustain during periods of high volatility. Plan to stop withdrawing money in less than 2 years Let's say you have $5,000 to invest, but there's a good chance you'll need at least $2,000 of that amount within 12 months for travel, car maintenance, or some other task . The worst thing you can do is allocate 100% to crypto as you may have to sell your position at the worst possible time in history, perhaps at the bottom of the cycle. Even if one plans to use the proceeds in decentralized finance (DeFi) pools, there is always a risk of impairments or hacks jeopardizing access to funds. In short, all funds allocated to cryptocurrencies must have a two-year lock-up period. Always Average Dollar Costs Even professional traders are driven by a fear of missing out (FOMO) and give in to the urge to open a position as quickly as possible. But when everyone is consistently making returns of 50% or more, and even meme coins are making excellent returns, how can you sit idly by? DCA's strategy is to buy the same number of dollars each week or month regardless of market movements; For example, if you buy $200 every Monday afternoon for a year, you remove the anxiety and pressure of constantly deciding whether to add a position. In any case, avoid buying all positions in less than three or four weeks. Keep in mind that the crypto adoption rate is still in its infancy. When analyzing, do not use too many indicators. There are tons of technical indicators including Moving Average, Fibonacci Retracement Levels, Bollinger Bands, Directional Movement Index, Ichimoku Cloud, Parabolic SAR, Relative Strength Index and more. When you consider that everyone has multiple settings, there are endless ways to track these indicators. The best traders are experienced enough to know that reading the market correctly is more important than choosing the best indicator. Some prefer to track correlations with traditional markets, while others focus solely on crypto price charts. There is no right and wrong here other than trying to track five different indicators at once. Markets are dynamic, and crypto is especially true given how quickly things change. Learn when to step aside At some point, you will misread the market when you encounter down or altcoin seasons. All traders are wrong sometimes and there is no need to compensate by immediately increasing the bet size to recover losses. This is exactly the opposite of what one should do. Loss is a heavy burden and it negatively affects your ability to think clearly. Even if a clear opportunity presents itself, let it pass. Take a walk or try to organize your life away from commerce. The truly successful traders are not the most talented, but the ones who survive the longest. Keep investing in winners. This might be the toughest lesson of all, as investors inherently tend to take advantage of our winning positions. As discussed above, the volatility of the crypto market is extremely high, so aiming for a 30% profit will not cover your past (or future) losses. Instead of selling winners, traders should buy more of them. Of course, one should not neglect market data or overall sentiment, but if your expectations remain optimistic then consider increasing the position until the overall market shows some form of weakness. Over time you will make a 300% or 500% profit if you are brave and hold the most profitable positions. These are the returns you expected when entering such a risky market, so don't be scared when they appear. All rules are made to be broken. If there was a roadmap to success in cryptocurrency trading, many people would have found it after many years and profits would quickly dwindle. Because of this, you should always be ready to break your own rules from time to time. Don't blindly follow investment advice from influencers or seasoned wealth managers. Each has their own risk appetite and ability to add positions after unexpected events.