Cryptocurrency trading is a highly speculative activity—even just holding crypto assets in your crypto DeFi wallet might be utterly gut-wrenching if you don’t understand the risks involved.
Therefore, the purpose of this article is to explain how to research cryptocurrency trading, understand the market, diversify your portfolio and follow market updates to cut your risk of blowing out your account.
Tip #1: Start with a solid understanding of the market
Understanding the market makes you set your trading goal, risk appetite, and spot market manipulations. But before trading, know your bias; do you want to go long (buy) or short (sell)?
You ideally should buy cheap, sell expensive, and avoid trading against the general market trend—don’t sell in a bullish market or buy in a bear market. Technically, you can trade against the market trend if you perfectly time your trade execution; but you’re better off following this established rule.
Naturally, the different cryptocurrencies technologies like Bitcoin, and major altcoins like Ethereum, will heavily influence your trading strategy.
That is, when you understand how the specific crypto technologies work and absorb their demand incentives, you can see past the tightly laced traps some crypto projects might camouflage within enticing tokenomic appeal.
In addition, most newbies and even seasoned crypto traders don’t consider how seriously Bitcoin price drives the crypto market. Bitcoin dominance is the ratio of Bitcoin’s market cap to the total cryptocurrency market cap.
Therefore, you can better optimize your portfolio and trade by understanding Bitcoin dominance’s fundamental patterns which are:
- When Bitcoin’s dominance gradually increases, it carries other altcoins along with it.
- When it rallies hard, it leaves most altcoins in the dust.
Crypto folks’ unyielding trust in Bitcoin birthed this phenomenon. So, when Bitcoin’s price gradually increases, it gives them the security assurance to invest in other altcoins. But when Bitcoin price rallies aggressively, the FOMO (Fear Of Missing Out) is just too tempting, so they pull out their funds from other altcoins to invest in Bitcoin.
Tip #2: Choose a reputable exchange
You could trade a crypto asset for another with either a centralized or decentralized exchange. As a rule, centralized exchanges operate custodial crypto wallets and are the ideal options for beginner traders.
Don’t also forget that crypto exchanges primarily help you:
- Exchange fiats for crypto
- Inter-trade crypto assets between blockchains.
In short, crypto exchanges like Binance, Coinbase, and Kraken, help broker your trade once you provide the necessary funds and enter your order. That is, you instruct the exchange to either buy or sell a crypto asset on your behalf.
In turn, the exchange records the order in their order book and matches it with another buyer or seller to execute it.
Exchanges typically have various orders including:
- Market Orders: For traders consigned about the trade speed over the price; immediate execution.
- Limit Orders: Specified the price; willing to wait for their order to be filled.
Selecting an exchange depends on your personal preference. You could opt for exchanges with cheap fees, high liquidity & trade volume, tight security, and somewhat-average customer support like Binance.
Or you can try beginner-friendly exchanges like Coinbase and Coinbase Pro. Either way, choosing reputable exchanges with great customers feedbacks, technology and reputation is your best bet.
Because exchanges are major market makers, they could manipulate the market in unbelievable ways through orderbook spoofing, among others. Besides, centralized exchange,’ KYC (Know Your Customer) and AML (Anti Money Laundering) regulations require you to trust them with a lot of your data and identity information.
You don’t want to give a shady exchange that much power over you. So, it is essential that you do your research regarding this aspect.
Tip #3: Diversify your portfolio
You’re not exactly diversifying your portfolio if you hold your entire crypto assets in a single crypto wallet. Contrary to some popular opinion, you’re fine with multiple crypto wallets.
Just critically research your selected crypto projects and the respective crypto wallets. Typically, most experts suggest your crypto portfolio should contain Bitcoin and at least one of the matured altcoins projects like Ethereum and Binance.
However, don’t blindly trust any single crypto project because no project is completely foolproof. After stocking up your crypto assets, routinely optimize your portfolio at least once a week.
By optimizing, the bare minimum should have you do the following:
- Compare your altcoins’ performance with Bitcoin’s Dominance.
- Compare your least-performing holdings to the best-performing ones to map out potential changes.
- Liquidate Crypto assets with no hope.
Tip #4: Use stop-loss orders
Stop-loss is an automatic mechanism that you activate along with a trading order that instructs the broker to automatically close your trading position when you’ve incurred a certain percentage of loss.
Generally, most newbies place their stop-loss a few pips below and above their entry prices for longing and shorting trading positions respectively—that’s safe, but not exactly smart because the market trend is usually non-linear.
Meaning a retracement that could hit your poorly chosen stop-loss level before finding support and continuing the current trend.
Ideally, in a bullish market trend, you should place your stop-loss at the market’s previous significant low. Conversely, place it above the previous candle’s significant high in a bearish trend.
Regardless of your trading strategy, this way, you’re assured that if the market price hits your stop-loss, then the market trend is changing and not simply retracing. However, your investing style (active trader or long-term investor) ultimately determines your stop-loss level.
Either way, should you decide to trade without a pre-automated stop-loss, you’re still technically using a stop-loss. Because should the trade take a negative turn, you’d have to eventually manually go short and take your loss.
On the other hand, trading with a stop-loss makes you know exactly what you’re risking in a trade. Besides, cryptocurrency is easily the most volatile financial market and you cannot be fast enough to manually stop your trade before you rake heavy losses should the market differ from your predicted position.
Tip #5: Stay up to date with the latest news and trends
Crypto protocols are constantly evolving. As a crypto trader, you must be on your toes for updates on the crypto assets you hold or trade and the general cryptocurrency space.
Maniacally, cryptocurrency’s fast-paced and volatile economy can also stir people’s FOMO into completely ghosting a project with the slightest news or scandal rumor.
So, without steady access to recent updates, you could literally be left holding the dust overnight. Therefore, religiously follow your invested crypto assets’ social communities. Especially their Twitter, Discord, and Telegram channels.
You might also want to subscribe to crypto news platforms like Coin Telegraph, Bitcoin100, and Coin Bureau’s Newsletters for quality weekly crypto updates.
Trade With Discipline
Unfortunately, the most technical of tips from crypto trading sages won’t make any difference if you don’t culture a trading discipline.
It’s understandable, anyone could be overwhelmed by the different crypto success stories flying around the internet. And think with the right greed you could just land your first crypto big bucks.
So, before trading, diligently culture your skills, understand your risk appetite, develop a trading strategy that suits your personality, extensively research any crypto projects in which you want to invest, and aim for the moon.